[00:02:49] Intro: You’re listening to the Richer, Wiser, Happier podcast, where your host, William Green, interviews the world’s greatest investors and explores how to win in markets and life.

[00:03:09] William Green: Hi, folks. I’m really delighted to be joined today by my old friend, Jason Zweig. Jason writes The Intelligent Investor column in the Wall Street Journal and he’s now created a revised edition of Benjamin Graham’s iconic book, The Intelligent Investor, 75 years after the first edition was published. Jason, it’s really lovely to see you. Thanks so much for joining us.

[00:03:30] Jason Zweig: I’m delighted to be back with you, William.

[00:03:33] William Green: It’s a great pleasure. I was looking for the other day, you were episode number four was the last time you were on, back when we were younger and I have much more hair. So, Jason, back in I think it was May 2023, you sent me an email telling me that you were going to take a book leave from Wall Street Journal to work on this new 75th anniversary edition of The Intelligent Investor.

[00:03:53] William Green: And you described it to me in that email as a huge honor, a huge task, high stakes, and a brutal deadline. And you then basically disappeared for about a year into your man cave and so I wondered if you could talk a little bit about the experience of writing the book why it was so intense and stressful and why you regarded this project both as you put it as an incredible honor and burden.

[00:04:20] Jason Zweig: Yeah, so I think from start to finish, it was seven months, although it often did feel like 12 and well, it’s easy to explain the honor by pretty much everyone’s account. It’s the best book on investing ever written, starting with Warren Buffett, but many other people have said it. And my role is not to rewrite Benjamin Graham, which would be kind of like rewriting Holy Scripture, to rewrite the commentary that helps today’s investors understand what Graham was saying, because, of course, he originally wrote the book in 1949.

[00:04:58] Jason Zweig: He last revised it in In 1972, so it’s a 75 year old look and the principles all remain valid. In my opinion, in fact, may have become more valid over time, but it’s quite a responsibility. And the main technique I used to revise. What I had written in 2003, the chapter commentaries, was, I never looked at them.

[00:05:28] Jason Zweig: What I did was, I’m still somewhat paper based, like everybody I love, electronic files. But, for certain tasks, I really like to work with paper. As I’m reading a great novel, as I think you know, William, I really like to read a physical book. And for a project like this, it was very important to me to have paper.

[00:05:48] Jason Zweig: Paper when I started. So what I did was I took my master copy of the PDF of the last edition and I printed out every one of Graham’s chapters, but none of my commentaries and I never looked at what I had written 20 some years ago. And in fact, I still haven’t and I never looked back and I just said, it.

[00:06:14] Jason Zweig: Starting from a blank slate with no sump costs, how should I approach this project now, as if I had never been involved in it before? And that just enabled me to get, like, arm’s length distance from the original material, and especially from my own, so that I could approach it freshly. And obviously it readers will judge whether it’s successful, but it was the only way I knew to approach it that wouldn’t drive me crazy, because otherwise I just would have been trying to improve what I had done, and instead I said, I’m going to pretend I never did anything at all and start over.

[00:07:00] William Green: I think it’s remarkably successful. I finished reading the book this morning. It’s a huge book. I mean, you sent me a PDF a few weeks ago. And so, the last few days I’ve been working through, what is it, 600 pages. But it’s a remarkable achievement. And, I mean, it is a totally classic book.

[00:07:18] William Green: It’s totally timeless in certain ways. And in some ways, It’s a little tired in certain parts and a little dated in certain parts and you’ve done such a masterful job of kind of putting those bits in context, providing new examples that revitalize it and I, without blowing smoke, as I was reading it yesterday, I was thinking there’s actually nobody else who could have done it like there’s something in it.

[00:07:43] William Green: There’s something about the fact that you’ve been engaged with this material for so long, and you’re drawing on so much personal experience of the markets, but also so much that you’ve written, and so the, the data was kind of in the filing cabinet in your head for you to draw on in seven months, and I know having written some books very quickly, albeit not my own, but the ones I’ve ghostwritten, it, it requires so much, that intensity to go into your, into your head and draw this stuff out quickly, and it’s kind of game day, again and again and again, for month after month, so it’s an extraordinary achievement, and, and so, yeah, really, kudos to you, it’s an amazing thing that you’ve pulled off.

[00:08:22] Jason Zweig: Well, thank you, William, I mean, what would I say, I guess, the only thing I would say in response is, I don’t know if it’s any good, I only know that I can’t make it any better than it is anymore. So, I tried as hard as I could to make it the best book, I’m capable of, and I hope I, I hope I succeed in it.

[00:08:45] William Green: When you decide to take something on, do you have a particular filter that you apply to decide Okay, this is worth the pain and suffering I know I’m going to go through, because you already have a day job that’s very demanding at the Wall Street Journal, and you get asked to do lots of speeches and stuff, and you’re married and you have a couple of kids, and dealing with elderly relatives and stuff over the years, you have a lot of family responsibilities and work responsibilities. How do you decide, okay, even though I’m already overburdened, I’m going to burden myself more?

[00:09:19] Jason Zweig: Well, so in this case, I don’t feel I had a choice. I, I couldn’t very well turn the project down. And it also was obvious that 2024 was the best year to publish it. I mean, it’s the 75th anniversary in the original book.

[00:09:34] Jason Zweig: It’s also the 130th anniversary of Ben Graham’s birth, and it just seemed to me that the publisher is not overemphasizing the commemorative nature. Of it, but I think it’ll be obvious to a lot of readers that there’s historical significance to the date. The rule I’ve always used for book projects, and it’s certainly applied in this case, is, the only book anyone should ever write is the book that’s already inside of you, sort of banging on your ribcage from the inside, trying to get, saying, let me out.

[00:10:09] Jason Zweig: And I once did a book. Which I will not name, and that I did not do because it was inside of me screaming to be let out, but rather because I thought the money would come in handy, and I’ve regretted it ever since, and don’t press me on it because I’m not going to name the title sometimes, but, and that’s not something that I That’s given my personality.

[00:10:34] Jason Zweig: That’s not the kind of project I would want to be involved in. I, the connection to Graham is personally important to me and it’s been very important to my career for well over 20 years So I really felt I had to do it and I would have felt foolish not undertaking it.

[00:10:55] William Green: And when you’re working on something really intense like this, or, or like your column, what do your habits look like, and, how are you actually managing to get so much done and to focus, and, what’s deeply idiosyncratic there, and what’s possibly replicable for people who regard you as a superhero and role model?

[00:11:16] Jason Zweig: First of all, they should find, they should find some other heroes, but I don’t think I have a lot of magic tricks on. People ask me, oh, you must drink a lot of coffee, I don’t even drink coffee. I’m a tea man myself, and not much. If I have a gimmick, it’s that I really like to go for long morning walks.

[00:11:38] Jason Zweig: When I was working on the book, I went for a walk almost every morning, early, sort of before breakfast, two or three miles. It wasn’t that long, but toward the end of the book, I was walking five to seven miles a day, and I often do that during the regular work week as well. In fact, I walked so much at some point that I, like, broke, broke a bone in my flesh.

[00:12:02] Jason Zweig: I’m a big believer in walking to clear your head, and what I find is that when I’m on a long walk, a satisfying walk, My mind empties out completely. I’m not thinking about the project. I’m not thinking about work, but there’s probably some subconscious level at which my brain is doing some problem solving while I’m looking at the trees or the river or whatever it might be.

[00:12:30] Jason Zweig: And it’s kind of, it’s like software that’s running in the background, maybe in the next room. While the computer seems to be idle and I think that helps obviously I’m not the only writer who loves to Walk, and I guess we would call that think. I mean, I’m not in my conscious awareness I’m not thinking about the project but surely, I am on some level.

[00:12:58] William Green: I did a lot of walking while I was working on Richard Wise a happier the book and I think at some point during that process I had listened to a podcast that Josh Watsky and the author of The Art of Learning had done, and one of the things that he was, he was talking about was setting basically setting a goal for your subconscious mind.

[00:13:20] William Green: So you would actually ask what he would call the most important question. So I would do this at the start of walks often, and I would say, all right, while I’m walking, I’d like my subconscious to work on this issue in chapter two. Because what the hell am I supposed to do to synthesize everything that Templeton figured out in the course of 80, I guess 93 years or whatever it was.

[00:13:42] William Green: And so I think, I think it’s interesting that, I don’t know whether that’s bogus or whether it really works, but I think it’s very interesting, the connection between, Walking and figuring out these difficult problems.

[00:13:53] Jason Zweig: Right and there might be no difference between whether it’s bogus and whether it really works maybe again at a conscious subconscious level we think it works.

[00:14:05] Jason Zweig: So if we think it works, it does work. It may be some weird Manifestation of the placebo effect, but that’s kind of my only gimmick the other gimmick I had was that for most of the period from April or May through August, I wrote on my laptop on my Mac, which was at a standing desk and the desk I used was true low.

[00:14:33] Jason Zweig: So I propped the laptop up on my copy of the two volume Oxford English Dictionary, which you probably own. I don’t know how many of our listeners do, but it’s, it’s probably what is it, eight or nine inches thick, right? And I imagine that one reason I chose that was because I was just thinking to myself, words, words, words, words, words, there’s lots of words in there and I want to pull them out.

[00:15:02] Jason Zweig: I never looked at, what would we call it, my podium, my platform. I never looked at it. I never said to myself, oh, that’s the Oxford English Dictionary holding up my computer, but it was. And that probably didn’t hurt. I mean, I think. A successful writing project, like any big task that can feel insuperable at first, is about coming up with little gimmicks and hacks, enable you to kind of fool yourself about stuff.

[00:15:33] Jason Zweig: And some of them will be conscious, and some of them will be subconscious, and, but, other than those two things of walking and using a dictionary as a podium. I don’t know.

[00:15:45] William Green: Did you feel any kind of conscious connection to Graham himself as you were working? Like, did, did you Like, I sometimes felt, like, when I was writing about Templeton, for example, I felt like I was sort of almost in an argument with him, that I was sort of thinking about this dead guy, who I disagreed with at the time I first interviewed him, and then was thinking, what did I totally fail to understand that he was trying to teach me back then, and I realized during that process, oh God, I totally misunderstood what he was trying to teach, and he got kind of frustrated with me, and I was wondering if you had some kind of sense that, Without wanting to be too mystical about it. Which really means I want to be too mystical about it. Did you feel in some way that you were communing with Graham, or trying to sort of honor his memory at least in some way?

[00:16:33] Jason Zweig: Well, sure. I mean, this I would say above all else, the thing that really stands out for me about Graham It’s how brilliant he was in how many forms of brilliance.

[00:16:48] Jason Zweig: I would never use a term like renaissance man because it’s been so degraded in the popular culture. But, I mean, just think about it, so Graham, Graham entered Columbia University at the age of 17 because the admissions office had bungled the paperwork. They’d admitted him when he was 16. But they lost this, they lost the acceptance paperwork, so he had to wait a year.

[00:17:17] Jason Zweig: So he entered when he was 17 years old. He graduated in two and a half years, while working a night job in a shipping company in downtown Manhattan. He graduated second in his class. And before graduation day, he was offered Faculty positions in three different academic departments, philosophy, English, and mathematics.

[00:17:46] Jason Zweig: And when he was 23, he published an article in the American Mathematical Journal about what was wrong with the way American schools were teaching calculus. He invented two sort of predecessors of the slide rule, which he patented. He wrote a Broadway play on, he could speak or read at least a half dozen languages and live in his life well after the age when most people are prepared to try to learn a language.

[00:18:16] Jason Zweig: He heard about a novel written in Uruguay that was supposed to be great. So he taught himself Spanish and translated it. And you combine all of that with the fact that he also racked up one of the most extraordinary track records in investing history. Which in an email correspondence that I had with Warren Buffett last year, Buffett pointed out Graham’s sort of published track record understates just how good his investors results were because he closed his fund down in 1956 and the fund then distributed out to its shareholders its huge position in GEICO.

[00:19:02] Jason Zweig: As part of the dissolution of the fund, these people all received shares of GEICO, and if you had held on to those, as Buffett pointed out, you not only would have beaten the market by something like 5 percentage points a year for 20 years, as you would have in Graham’s fund alone, but you would have outperformed even longer by an even wider margin. Because of the position in Geico.

[00:19:27] William Green: And then as you point out in the book, well, I guess you, you, you reprint the super investors of Graham and Doddsville, the great article that Buffett wrote and Buffett describes him as the intellectual patriarch of many great investors. And so Buffett himself worked at Graham Newman from 1954 to 56. Walter Schloss was there. Tom Knapp, who was a co-founder of Tweedy Brown. Bill Ruane, who’s an amazing investor who took Graham’s course in 1951 with Buffett, Munger, Rick Guerin, they were all kind of disciples in different ways. And as Buffett points out, really, the central idea, I guess, that they all learned is to exploit the difference between the market price of a business and its intrinsic value.

[00:20:15] William Green: You spend a lot of time talking about the core principles that are kind of timeless, and you talk about four of them. Can we whip through them quickly and then we’ll dig deeper into really what the two most important chapters probably are, which is chapters 8 and 10.

[00:20:31] Jason Zweig: 8 and 20.

[00:20:32] William Green: Sorry, 8 and 20. You can see that I’m tired. It’s cause I’ve been reading this 600 page book until all hours.

[00:20:39] Jason Zweig: Yeah. I don’t, I don’t blame you.

[00:20:41] William Green: Yeah. So eight and 20.

[00:20:43] Jason Zweig: Yeah. So let me see if I can, let me see if I can run through them and, stop me or, or add on if I’m, if I’m forgetting anything. So the first important principle is that stocks are not pieces of paper.

[00:21:00] Jason Zweig: They’re not electronic blips. They’re not a thing that buzzes and goes diagonally upward or downward on your phone. Stocks represent an ownership interest in a business. And it’s much easier for people to forget that today. You Then it was in Graham’s day, but it’s much more important to remember it because if you are going to differentiate yourself from other investors out there, the most important thing to do is to be different and to stop thinking like everybody else.

[00:21:35] Jason Zweig: And if everyone else. Is going to trade stocks with the same kind of mentality they might bring to betting on a football game or now a presidential election, then what you should be doing is you should be analyzing stocks like businesses and judging them not based on their momentary price movements today, or this week, or this month, how the value of the business is likely to change over the course of years to come.

[00:22:07] Jason Zweig: The first principle. The second really important principle is the difference between investing and speculating, an investor puts original, careful, thorough, thoughtful research into establishing the value of a business based on the cash that it’s going to generate in the future. And a speculator is essentially betting on what other people are going to do typically in the short term.

[00:22:37] Jason Zweig: And it’s immaterial to a speculator how healthy a business is. All that matters is how much is the stock going to move up or down. And as Graham wrote many times, there’s nothing inherently wrong with speculating. Millions of people insure their houses and their cars and are very conservative but like to go to Las Vegas for the weekend.

[00:23:04] Jason Zweig: Or fed on a basketball game. And if you enjoy that and you don’t put any more money at risk than you can afford to lose, there’s nothing wrong with it. But the key is you need to recognize that you’re speculating. And not tell yourself that you’re investing and you need to speculate with no more money than you can afford to lose.

[00:23:30] Jason Zweig: Thirdly, you can’t add to your speculative wallet, no matter what happens, you set a fixed finite amount of money aside, you make your bets. If they win, that’s great. Keep going, I guess. And if they lose, you have to stop and you can’t put more money in it. And that’s a really powerful principle from Graham.

[00:23:56] Jason Zweig: So then the third really important idea is the metaphor of Mr. Market. I think a lot of our, I think a lot of our readers, listeners are aware of this concept. I mean, Graham came up with this wonderful metaphor that you on a piece of a private business, it might be a dry cleaner or, video game.

[00:24:22] Jason Zweig: Producer, whatever it might be, and you have a next door neighbor and every day he leans across the fence between your place and his, and he offers to buy you out. He’s like, you, you own that business. I’ll buy half. And some days he offers you a ridiculously high price. And some days he offers you a laughably low price and you wouldn’t take that man seriously.

[00:24:50] Jason Zweig: You wouldn’t say, Oh, I’m, I’m the owner of a wonderful business. Let me sell it to this guy who thinks it’s garbage and is offering me a stupidly low price. You, you would refuse to transact with him. On the other hand, if he offered you way more than it was worth, maybe you’d sell it to him and you’d start a new business all over again.

[00:25:14] Jason Zweig: And if people thought about the stock markets as a manifestation of that metaphor. It would be, they’d all be better off. I mean, the example I’ve been thinking about a lot this year is what happened on August 5th. I think certainly all our professional viewers and listeners remember, I mean, the Japanese stock market crashed and went down, whatever it was, 12, over 12 percent in a single day.

[00:25:45] Jason Zweig: And the next day it went back up 10%. And they’re in, explanation in financial theory to explain how that is possible. And the assets of Japanese corporations were not worth 12 percent less on one day and 10 percent more the next day. It just does not happen. And it made no sense whatsoever.

[00:26:08] Jason Zweig: And there was a panic in the U S mini panic, U S stocks, my way down to, they went down all around the world. And then the next day they bounced right back up again. Yeah. That, I mean, you could argue that that was investors trying to reprice risk, but Graham would say not. It was just Mr. Market. He was crazy pessimistic the first day and crazy optimistic the next. And when all was said and done, it was as if absolutely nothing had happened and that’s, that’s just the way it is.

[00:26:40] William Green: Yeah, there’s a lovely line in, in that, that section about the parable of Mr. Market where he says he should, he referring to the investor, cause all investors are male obviously in that era. He should always remember that market quotations are there for his convenience, either to be taken advantage of or to be ignored. And so in a way, it’s like this whole idea that the market is there to serve you.

[00:27:05] Jason Zweig: That’s right and Graham has this other wonderful line where he says, he should transact only to the extent that it suits your book and no more.

[00:27:15] Jason Zweig: And of course, by your book, what he means it’s your portfolio. So you, you would buy when Mr. Market is depressed. And if you need capital, you would sell when he’s euphoric, but otherwise you would ignore him because he’s crazy.

[00:27:32] William Green: You mention actually in your explanation of chapter 8, exactly, exactly the line you were just talking about. You say, when you wrote chapter 8, in the 2003 edition, that these words may well be the single most important paragraph in Graham’s entire book. You said, I was wrong, actually, those words may well be the single most important paragraph about investing ever written. And so I wanted to, I wanted to draw more attention to this paragraph that you’re talking about, which includes the line you just mentioned.

[00:28:02] William Green: I’m sorry, I’m going to read it quickly and then if you can explain to us why this is so significant, and I think this also gets at your fourth principle, which is the one that we haven’t mentioned, which is basically most of the time markets are right, but they can be terribly, terribly wrong at times.

[00:28:18] William Green: So the paragraph that Jason says is the most important paragraph ever written about investing is this. The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book and no more.

[00:28:38] William Green: Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all. For he would then be spared the mental anguish caused him by other person’s mistakes of judgment. To explain to us why that’s so important, can you just break that down for us?

[00:29:05] Jason Zweig: Yeah, well I think the reason it’s so relevant for today’s investors, William, is very simple. It’s because, if you’re, particularly if you’re an individual investor, but also, very much so if you’re an institutional investor, you’re bombarded all day long with questions.

[00:29:23] Jason Zweig: So, yeah by propaganda from the financial industry telling you, act now, trade zero date options. Use leverage to buy this and, grab this ETF before it goes up more, or this stock is cheap or this market expert thinks. Thoughts are about to crash or go straight up.

[00:29:45] Jason Zweig: And it all has the effect of making investors feel that the way to, the way to win is to play the same game as institutional investors as an individual. I should try to beat the S and P 500 with individual stock picks and trade as often as necessary. And ignore taxes and trading costs and stay constantly updated on my phone.

[00:30:22] Jason Zweig: And what Graham is really saying is the only way to win the game is to stop playing. You have to play your own game. Don’t try to play the game that professional investors play. Think about it. I mean, over time, 80 percent of all professional fund managers underperform. Certainly the S and P 500 and often other benchmarks as well.

[00:30:50] Jason Zweig: And that’s mainly because of the frictional costs of trying to beat the market. And if that’s the game you’re playing, you have to trade to play it. And Graham instead is saying, tune out, Mr. Market, stop listening to people who tell you that because some sort of action is going on today, you have to participate.

[00:31:15] Jason Zweig: Instead, you should wait for opportunity to come along. And that’s a function of basically being contrarian, during the COVID crash in 2020, instead of hunkering down in cash, step up and buy during the decline in the market in 2022, step up and buy. Do the opposite of what the prevailing propaganda tells you, instead of trying to go along with it.

[00:31:47] Jason Zweig: When he says to spare you the mistakes of other people’s judgment, what he’s really talking about is thinking for yourself and becoming independent. And the really unfortunate thing is that for at least 20 years, ever since the internet came along, the dominant propaganda in the financial industry, both in advertising and in product developments, like apps on your phone or brokerage websites has been, if you have the same tools as the professionals, you can compete with them.

[00:32:27] Jason Zweig: You can outperform the professions, but. Why would I want to try to outperform people who are underperforming? I would much rather compete against Mr. Market rather than try to do what he’s doing. And that’s really a lesson that Graham is driving at here, which is that you should take the emotions of other people as contrary indicators, and you should be taking the other side of regression to the mean.

[00:33:00] Jason Zweig: When other people are enthusiastic, you need to be skeptical. When other people are despondent, you need to be optimistic. And, I once asked Warren Buffett about this, and Bill Miller as well, and they both said the same thing. I said, people often describe you as unemotional when you invest, but is that really it?

[00:33:23] Jason Zweig: Or is it that you’re inversely emotional, that you get a kind of excitement from picking up on other people’s negative feeling? And you get a sense of danger or caution from other people’s enthusiasm and in Buffett and Miller as well said, yeah, inversely emotional is a much better way to describe it than unemotional or even rational. It’s just taking the opposite of other people’s dominant emotional state.

[00:33:57] William Green: I was surprised that at one point in your commentaries on one of the chapters, you, you talked in some. Depths about the advantage that individual investors can have over professionals. And we usually regard individual investors kind of as the mug.

[00:34:13] William Green: And it was very interesting to me that you said, actually, there’s a, you said the handicaps on institutions have become as heavy as chains while those formerly faced by individuals have fallen away. Can you talk a little bit about why actually the individual now, almost for the first time. Has at least an individual who’s disciplined and has good processes and procedures for investing can actually do really pretty well.

[00:34:43] Jason Zweig: So, historically, if you go back decades, most of the trading volumes in certainly in the U S stock market, and I’m sure in other markets around the world was done by individuals, institutions bought and held, often for tax reason, and sometimes for other reasons as well. And the individuals traded because their, their stockbrokers were making them trade.

[00:35:07] Jason Zweig: And it was naturally, it was extremely expensive to trade individual stocks because it was a retail rather than a wholesale price, because the wholesale purchasers of stock were not doing much trading and the retail purchasers were. So it was a retail market and it was priced like a retail market. I still remember the first trade I ever made when I was in high school, and I think my cost for a round trip trade was, I don’t know, it was five or 6 percent has leased.

[00:35:42] Jason Zweig: And I actually did make money even after. Even after my brokerage costs, but I would have laid a lot more if the broker hadn’t, robbed me. And that was just the way I think he was just charging what then was regarded as a standard commission. I don’t think he was even, doing anything unfair or improper.

[00:36:04] Jason Zweig: It’s just, it used to cost a ton. To trade an individual stock. And of course, now you can trade a stock for close to free. It’s not completely free because there still is a spread between the bid and ask price that your broker will skim off. Even if your broker is Robin hood, which insists that trading is free and that cost isn’t negligible.

[00:36:28] Jason Zweig: But it’s well under, well under 1 percent in most cases, institutions have to trade huge blocks of stock. I mean, they often own millions, tens of millions of shares of a single security and to get into that position and out of that position is incredibly expensive, not just in terms of commission or spread, but also, the total implementation cost.

[00:36:58] Jason Zweig: Which include the delay, if I’m a professional portfolio manager and I don’t own, you name it, NVIDIA, and I decide I really want to own NVIDIA, it could take me weeks to build up a position at a price that isn’t incredibly disadvantageous to me because I’m not, I don’t want to make my brokers rich and I don’t want to eat a big spread and I’m, I might have to buy a few hundred shares a day.

[00:37:28] Jason Zweig: Until I am asked my entire position. And if the stock runs up over that period, I’ve incurred an enormous opportunity cost, and that comes out of my hypothetical returned and helps explain why my fund has not performed as well as it should have, because it took me too long to build up the position because I managed so much money.

[00:37:52] Jason Zweig: But if I’m an individual investor and I decide I like NVIDIA, I just grab my phone and buy it and I can use a limit order so I don’t get gypped on an adverse price move and it’ll essentially cost me nothing and I can hold it through good times and bad. I don’t have to worry that my clients will fire me because I don’t have any, I might have to worry about what my friends and family think because I, tell them everything I’m doing.

[00:38:22] Jason Zweig: But I’m in a better position than most institutions. I can, I have no expense ratio, doesn’t cost me anything to own the stock. And furthermore, I could put most of my money in a total stock market fund, like a, an ETF that owns all the stocks in the U S or all the stocks in the world so that I have no fear of missing out on the general upside in the markets.

[00:38:50] Jason Zweig: And then with a small portion of my money, I can make concentrated bats. And pay close attention to those companies and see as opportunities develop and capitalize. And those are all really powerful advantages that are a total luxury for most professional fund managers nowadays, they would kill to have those at PayNet.

[00:39:15] William Green: I think one of the things that came through very strongly for me on this reading of the book, which I guess I read a few times over the years, Is the distinction that Graham makes between defensive and enterprising investors, so not only this question of whether you’re an intelligent investor or a reckless speculator, but also this question of whether you’re equipped to be enterprising and aggressive, can you talk about that?

[00:39:40] William Green: Because I think while it’s true that we have advantages as individuals, Obviously, one of the points you’ve made many times over the course of your writing career is that you have to have some self-awareness about whether you’re actually equipped to win this game.

[00:39:55] Jason Zweig: Yeah, exactly. So, yeah, I love this distinction that Graham drew, and it is very sophisticated, even though it sounds very simple.

[00:40:05] Jason Zweig: And as usual, he was decades ahead of his time. I mean, you’ll remember William when you and I first started, covering the investment business, it was, Extremely common for fund companies, stockbrokers, financial advisors, to bucket individual investors into three piles, Right? You were conservative, moderate or aggressive and human beings love things in threes, right?

[00:40:35] Jason Zweig: Like ABC, 1, 2, 3, father, son, holy ghost, you name it. Everything comes in threes. And the financial industry loved it. Because it was simple, it was catchy, it saved people a lot of work, and they would just take every client and they would just say, Hmm, you sound conservative, okay, you go 80 percent in bonds, 20 percent in stocks, and you sound moderate, we’re going to give you 60 percent stocks and 40 percent bonds, and you sound aggressive, so we’re going to give you all stocks, or 90 percent stocks, or maybe 20%.

[00:41:13] Jason Zweig: If I’m aggressive, I’ll recommend to you that you even leverage and, buy more than a hundred percent in stocks. And, I mean, you don’t have to think about this for more than a few seconds to realize that it’s ridiculous, because there’s more than three kinds of people. And furthermore, people are complicated.

[00:41:32] Jason Zweig: They’re conservative in one aspect of their life, and they’re aggressive in another. They bungee jump. They ski off the trail. They, they drive race cars on the weekend. And then they keep all their money in a money market fund. I mean, you, you can’t Pigeonhole people that simply.

[00:41:51] Jason Zweig: And so Graham had a much more useful practical distinction and he described only two kinds of investors. And in this case, I think that’s a really useful way to divide the investing population because it actually applies. And he said, you’re either defensive or you’re enterprising. If you’re defensive, it doesn’t mean that you don’t like risk.

[00:42:19] Jason Zweig: It doesn’t mean you want it. You don’t want to take risk. It doesn’t mean you have all your money in cash or should keep it there. What it means is you don’t want to be bothered doing the work, putting in the time and effort to be an active investor and what you’re defending yourself against. Is the stress, the time commitment, the monitoring, the expense of being an active investor and of course, active doesn’t have to mean you trade a lot, but it does mean you trade.

[00:42:55] Jason Zweig: And then the other category of investor is enterprising and an enterprising investor is somebody who is willing to put in the time, the effort, the energy, the commitment. And, I would say most people are defensive. And if you are, then you don’t have to put in the work. You don’t have to spend the time and commit the energy that wall street and, the financial industry would like you to do.

[00:43:27] Jason Zweig: And the alternate reality is that if you think you’re enterprising when you’re actually defensive. Sooner or later you will discover that you’re not defect less, because you will be there in 2021. Trading GameStop and AMC and Bed Bath and Beyond and thinking, whoopee, every day I’m making, 150 percent on my money.

[00:43:54] Jason Zweig: And the next thing you know, these stocks go down 80 or 90 percent 2022 was a bloodbath for everybody. And all of a sudden, you’re saying, wow, I thought I knew what I was doing, but I really was just in the right place at the right time. And I don’t like this feeling because now I know I’m out of my depth.

[00:44:16] Jason Zweig: I don’t understand why I lost money. I don’t understand how to reverse my losses. And that’s the difficulty. And that’s why it’s so important to the financial industry to try to talk people into being enterprising. Even if they really aren’t. Because those are the people that brokerage firms make the most money off of.

[00:44:40] William Green: Your description of all of those investors who eviscerated in recent years by kind of thinking they were more aggressive and more knowledgeable than they were brings us to another really, really central principle that I think as I was working on my book, it struck me sort of almost revelatory that it wasn’t just Buffett and Munger and Graham, it was Howard Marks, Joel Greenblatt, everyone I was writing about practically, this was the single most important principle, which is the margin of safety.

[00:45:10] William Green: And so chapter 20 is titled margin of safety as the central concept of investment. And it begins with this just Critically important sentence where he writes in the old legend, the wise men finally boiled down the history of mortal affairs into the single phrase, this too will pass confronted with a light challenge to distill the secret of sound investment into three words.

[00:45:36] William Green: We venture the motto margin of safety. It’s so beautiful on so many fronts. I mean, it’s, it’s, it’s brilliantly written. It’s steeped in his knowledge of classical literature. It captures something so essential. Can you talk a bit about the concept of margin of safety? And why it’s something that’s become so central for all of these great investors.

[00:46:01] Jason Zweig: Yeah, and I think there’s a, there’s a, let me take it. I’ll start that way, William, and then I’ll take it in a slightly different direction, I think. So, it hurt. All the margin of safety means is that when you buy an asset, you want to make sure you don’t pay more for it than it’s worth. And, if you think back to 2020 or 2021, when millions of people thought they were investing when they were speculating, because they had not done their homework, they had not valued these stocks as businesses.

[00:46:39] Jason Zweig: All they knew was that other people were buying them and they were going up. And so none of those people gave a spot to a margin of safety, and if you bought Till Ray at, marijuana company, or Nikola the electric truck company, just because a whole bunch of other people were buying it, you lost pretty much everything you put in unless you got out at it.

[00:47:05] Jason Zweig: Just the right moment and. If you had tried to calculate a margin of safety for companies like that, I think you would have either concluded that there is none or it’s impossible to say what it is. And in the most basic terms that are applicable for individual investors, if you haven’t read, say, three years of a company’s annual reports, it’s 10k.

[00:47:35] Jason Zweig: And you haven’t read the past four quarterly reports. You don’t know anything about the company. You only know about the stock. And if the only thing you know is that the stock has been going up, you have no clue what the margin of safety is or whether there is one. And professional investors, of course, will calculate a margin of safety.

[00:47:58] Jason Zweig: In very formal ways, they might use a discounted cash flow model, dividend, various versions of dividend discount models, and it’s not a trivial or universally agreed solution. I mean, when you calculate a margin of safety, you’re probably going to come up with a range of values, not. Clint, not a specific point, but what individual investors need to realize is that if you haven’t studied a company and all you know about is the stock, then you’re literally clueless about what the margin of safety is because you don’t even know if there is one.

[00:48:40] Jason Zweig: But there is one very important development that has occurred. Since Graham’s day, and that is that diversification has effectively become a free good and, in the marketplace, you can buy as I mentioned earlier, you can buy a total stock market fund. You could buy a total international stock market fund.

[00:49:04] Jason Zweig: You prefer bonds. You can do the same thing in the bond market. You can do that for real estate. You can do that for most major asset classes. And that can provide a different kind of margin of safety. It doesn’t provide a margin of safety for a specific idiosyncratic asset that you may be buying. But what it does do, is it provides you insurance in the background.

[00:49:31] Jason Zweig: Against the risk that you could lose all your money if this thing goes to zero, because if you, if you own the entire market, you then can afford to make a specific bet on a piece of the market. And that is not something that Graham really contemplated, although he hinted at it in some of the things he wrote late in his life, when it looked as if index funds might be a development on the horizon.

[00:50:01] Jason Zweig: Yeah. And as I’ve been an advocate of index funds for, decades. And it’s not purely because I think, in fact, I would say it’s not because I think attempting to beat the market is futile. It’s because it’s the most efficient way to invest earn. You have exposure to the performance of the entire asset class.

[00:50:26] Jason Zweig: And it’s fine if you stop there, but if you want to try to outperform, then it’s really good to have that index fund as the base of your portfolio. And then you can overlay a few specific bets in companies or other assets that you feel you really know something about.

[00:50:48] William Green: I was looking for last night after reading the book and was, as I wrote about in my book, I’m always torn between indexing and the desire to try to outperform.

[00:50:58] William Green: And I was interested to see, I, I think I have a third of our family’s investments in deck and I’m, I’m always sort of torn emotionally, but I feel like at least I don’t want my wife and kids to suffer for my own delusions. So I tend always to index their investments. But it’s yeah, I like the idea that index funds should at least be a sort of foundation on which the portfolio is built. It feels like the default.

[00:51:26] Jason Zweig: Yes, and this is especially true, of course, for individual investors. I mean, if you’re running a portfolio, Professionally managed portfolio, I think you’re going to have a hard time convincing people to pay you for putting 95 percent of their assets in the next month.

[00:51:42] Jason Zweig: Although there are a lot of financial advisors out there who do that now that I think about it, but I think you’d have a hard time running a fund doing that, but your results might well be better because then you would only invest in the things where you felt you had a real advantage. And the rest of the portfolio would track the market.

[00:52:04] Jason Zweig: So if you turned out to be wrong, you wouldn’t look, you wouldn’t underperform by much. And if you turned out to be right, there’s the potential to outperform by a lot. And we know that the distribution of stock returns is very heavily skewed. Most companies don’t. Most stocks don’t go, don’t make money over time, but those that do make a ton.

[00:52:27] Jason Zweig: And there’s a very limited number of stocks that can go up 10, 000 percent or more over the long run. And if you happen to catch one of those and you don’t dilute it with, 150 other investments, but you simply add it on top of an index fund, you could have some, you could have a really significant outperformance.

[00:52:51] William Green: There’s a very interesting and important study that you mentioned in your commentary on one of the chapters, which is this seminal study by Hendrik Bessembinder on shareholder wealth enhancement. And he basically looks at, As you explain in your commentary at 28,000 or so us stocks from 1926 to 2022.

[00:53:15] William Green: So very long period and a very large number of stocks. And he basically concludes that nearly 59 percent of all of those 28, 000 or so stocks actually lost money for investors over their full histories. And then you point out that the study also shows that only 966 of those stocks, which is basically 3%, a little more than 3 percent of the total, accounted for the cumulative net gain of the entire U.S. stock market. And so there’s something really interesting here about the outsized importance of great businesses, of the real winners. And various people I’ve talked to on the podcast and privately have commented a lot on this, like some, some like Peter O’Keefe, who’s a remarkable investor who I interviewed on the podcast, said his job is to find that small number of stocks that outperform and they’re identifiable to some extent.

[00:54:12] William Green: And that’s, that’s his entire business, basically. Then there are other people who say, well, yeah, No, I should index because the chances are then that I’ll at least have some of those companies in my portfolio and will benefit from them. And I’m wondering how you think about this kind of central conundrum that a lot of us are facing as investors.

[00:54:36] Jason Zweig: Yeah, so again it this gets back to why Graham’s idea of defensive versus enterprising investors is so powerful. If you’re a defensive investor. You don’t have to have an opinion on this. You can simply say, maybe some people are capable of identifying that tiny minority of stocks that will outperform, but I’m not capable of identifying those people.

[00:55:03] Jason Zweig: So therefore I will just own the entire market and I will benefit from the fact that in that market index is represented the big winners of the market. The future on, if you’re an enterprising investor, it makes a lot of sense to try to identify those companies on, but I think you have to recognize that the odds are against you on most people couldn’t do it because if most people could do it, they, the stocks wouldn’t outperform on.

[00:55:41] Jason Zweig: So, most people who can do it might be highly skilled at business valuation and maybe you are, and maybe you aren’t. There’s another element here, which is that maybe you could identify them just because you’re lucky. Maybe, in the pick six lottery drawing this week. Maybe 6 will win.

[00:56:08] Jason Zweig: Maybe I just pick the lucky number and I win the lottery. I mean, you could put a lot of effort into trying to pick these, I call them super stocks. And you could, you might be able to identify one just by luck alone. And, if it feels like skill to you, fine, I mean, pat yourself on the back. But I think it’s important to recognize that the odds really are long, and, if we wanted to try to distinguish the people who can reliably do it, we would need vast amounts of data.

[00:56:48] Jason Zweig: I mean, by a lot of statistical tests, it takes decades to figure out. Whether a portfolio manager is skilled or lucky, and of course, the more volatile that managers results are, and the more they differ from the results of the market as a whole. The longer the measure, measurement period you would need to establish whether it’s skill or luck.

[00:57:10] Jason Zweig: But I think this brings us to another point, which is in the book, I talk about two reasons to invest and I call them investing as endeavor and investing as entertainment. And it’s really, in some ways, just another way of distinguishing between defensive and defensive. Enterprising investors and if investing is an endeavor for you, you’re simply focused on the objective of earning the greatest possible return at the least possible risk over the longest possible time periods.

[00:57:47] Jason Zweig: And in that case again, you don’t have to worry about Hank Besson Bender’s results. You just buy the whole market and hang on to it. And over very long periods, you should do well, but maybe investing is also entertainment, maybe fun, maybe you really enjoy studying annual reports and going into stores and company facilities and learning how companies operate and figuring out what is their competitive advantage.

[00:58:18] Jason Zweig: And I remember many years ago having an appointment with a fund manager who, I don’t think he’s, I don’t want to say he’s no longer alive. I actually don’t know but I went to our, this was when you and I were both working at Forbes, and I went to our pantry to meet him because the receptionist said that’s where he went, and he was up on the counter, looking at the back of the soda machine and his butt was sticking out into the room, and his shoes were hanging off the edge of the counter, and I wasn’t, obviously I wasn’t sure it was him, Because I’d never seen that view of him before.

[00:58:56] Jason Zweig: And eventually he got down off the counter and I said, what are you doing? And he said, this is a really good machine. I wanted to make sure I knew who made it. And, if you have that kind of mentality, then investing will be endlessly fascinating for you. And. Even if you don’t outperform the market, you will get psychic satisfaction that could be very valuable to you, and it could have ancillary benefits in other aspects of your life.

[00:59:24] Jason Zweig: If you run your own business, you could learn a lot about how to run a business well by studying businesses that are run well. For the purpose of investing in their stocks and that could make you a better businessperson. And Graham wrote shamelessly, I think it was in chapter 20, he said, investing is at its best when it is most businesslike.

[00:59:48] Jason Zweig: And of course, Warren Buffett has famously said that he’s a better investor for being a businessman and a better businessman for being an investor. And so that’s a long answer, but I think. Where I would come out is that Even if the attempt to outperform the market fails by conventional measures, it may succeed in other dimensions, and it may well be worth your time. And it depends on your temperament, what kind of person you are.

[01:00:20] William Green: I think though it’s hugely important, as you’ve often done over the course of your career, to make clear just how difficult the game of long term outperformance is. And it really brought it. Home to me when I, I was looking at chapter 9 of the book, which is titled Investing in Investment Funds, and Graham talked about how, I think back when he was revising the book, this around the end of 1970, he said there were 356 neutral funds with 50 billion in assets, and so he was talking about the challenge of Picking the right funds when it’s so bewildering because there are so many and you pointed out in your, in your note that I think there were now 6, 973 mutual funds in the U. S. with 18. 8 trillion in assets. And not to mention the ETFs. Right, and yeah, which is another 7 or 8 trillion dollars. And not to mention all of the worldwide mutual funds which you said have 63 trillion dollars in assets. So the talk of picking a good fund has become even more bewildering. And so then I was looking back at an article that you had written back when we were young journalists 26 years ago working together.

[01:01:30] William Green: And you’d written a really good and interesting story about long leave funds, which were managed by Southeastern Asset Management and co-managed by Mason Hawkins, who I’ve interviewed before for The Great Minds of Investing, and by Staley Cates, who’s really good, these are really good, really smart, really honorable people, and I was looking at their results the other day, this is for the Longleaf Partners Fund, this is as of August 31st, 2024, and basically since inception, 37 years ago, for that fund, they’ve really added no value at all, I mean, and then more recently, it’s even, it’s even worse, right, the Longleaf Partners Fund has earned 4.03% and annual return over 10 years versus 12. 98 percent for the S& P 500. And I just wondered what that makes you think about, how it clarifies the difficulty of this game. Because they in some ways did everything right. They had the right mentality, they had the right framework. They say on their website, they give credit to Ben Graham for providing them with this framework. What’s the moral here?

[01:02:39] Jason Zweig: Well, so there’s a couple of morals. I think one, one is that active investing is expensive and it’s not just the explicit costs, like in a mutual funds expense ratio or in the old days that commission you might pay, or if you’re buying individual stocks, obviously you have brokerage costs.

[01:03:00] Jason Zweig: It’s not just the explicit costs, but it’s the implicit costs. If you’re a large investment firm like Southeastern Asset Management, you have to pay a lot to buy and sell a stock. It’s expensive. And that can be a real drag on portfolio returns, but more importantly, I think is that in the past 10 to 15 years, the historical value premium, the, how performance that cheap value stocks exhibited in the stock market has kind of faded, if not disappeared, and it may even have gone negative.

[01:03:41] Jason Zweig: And the theories on that are very controversial and everybody, everybody has an, you know what they say about opinions. Everybody has one like a certain anatomical park and everybody has an opinion on, on why value investing has underperformed. The explanation I kind of favor is that by the early 2000s, everybody Had mid-2000s, everybody had concluded that value investing was superior and would never underperform again, at which point it stopped outperforming.

[01:04:15] Jason Zweig: And I don’t personally expect that situation to persist indefinitely, but many, and there’s some indication that it may have started to reverse already, but the power of indexing and also, the kind of winner take all structure of today’s technology industry may mean that value investing is no longer the sure thing that it once was.

[01:04:43] Jason Zweig: And if I could ask Ben Graham one question, if he were around today, I know I would ask him, do you think value investing will again prevail? Because for quite a few years now, it has struggled.

[01:04:58] William Green: It’s such an interesting and challenging thing, right, because he, he writes a lot about pendulum swings, and the pendulum swings are clearly eternal, and so there’s this assumption, say, that, sooner or later, the pendulum will swing back to value investing, the pendulum will swing back to emerging markets and international stocks, but there’s so much uncertainty, and I, I had an extraordinary conversation in England a couple of weeks ago, I was moderating a panel, Chris Begg who I’ve interviewed on the podcast for Frederick Blackford is very smart venture capitalist and James Anderson, who’s this legendary, as he would put it, hyper growth investor, who was previously at Bailey Gifford, and James Anderson had written an extraordinary piece back, I think, in 2018, I’m sure you’ve read before, where he was, he was saying, look, this is a wonderful book, The Intelligent Investor, and Jason’s done a brilliant job, it’s fantastic, and he fathered all of these magnificent investors, but he posits the possibility that something profound may have changed, and what he was saying is that in recent decades, there are these companies that have, as he put it, have scaled super linearly, and he said, is this a temporary change that is noise in the data, or something more serious, And so one of the things that he was, he was talking about was that, if you study, if you study Graham, you’d assume there’s this reversion to the mean, right?

[01:06:19] William Green: That all of these growth stocks end up kind of disappointing in the end. And I think this kind of appeals to people like you and me who are sort of contrarian. And, and there’s something almost moralistic about it that these, these idiots who, who bet that growth will go on forever will get their heads handed to them.

[01:06:34] William Green: And, and he says. Actually, you look at all these companies like Alphabet and Netflix and Amazon since it went public in 1997, I guess it was, or Facebook since it went public in 2012. And he says you have to wonder if something has actually changed. And that, when Graham was warning that you shouldn’t participate in what he called glamorous and dangerous fields of anticipated growth. He was actually kind of, he’s, he’s been proven wrong by this period. Can you unpack that a little for us? Because I think it’s such a, it’s such a provocative and interesting argument.

[01:07:11] Jason Zweig: Yeah, it is and I know James quite well and I have a lot of respect for him. He’s a, he’s a terrific portfolio manager and a very smart, very smart guy.

[01:07:22] Jason Zweig: And we’ve debated this, not in public, but over breakfast and lunch. Several times. I think where I come out on this is maybe not a very satisfying place. I kind of think it’s where Graham would come out. And where I come out on it is, it’s several points in the book, Graham looks back at past data to draw inferences from the evidence of historical recites.

[01:07:49] Jason Zweig: And, he’ll look, he looks at 10 year, he looks at 25 years, but then he insists on extending it out to 50 years. And even then, he sort of throws in the caveat that this might not be a long enough period to draw a sensible conclusion for us. But what we do know is that there’s an incredible amount of noise in financial markets.

[01:08:13] Jason Zweig: And James Anderson may well be right. He certainly has been right so far that what he’s, he likes to call them West Coast companies, these companies that have this business model of these, dynamic, eccentric founder and the Elon Musk, the Jeff Bezos, the Mark Zuckerberg, the, the close coterie of original employees.

[01:08:40] Jason Zweig: Maybe the dual class shares where outsiders don’t get the same voting rights and very long term business plans where, you know, Jeff Bezos famously didn’t want to do anything that would pay off in less than 10 years. And, and these, this West Coast business model has works really well for the obvious winners.

[01:09:04] Jason Zweig: But I mean, there’s a couple of things I’d point out. First of all, it’s worked really badly for a lot of companies, we tend to forget that the winners and the winners capture all our attention and we forget entirely about the losers and most of the losers in the technology industry had very similar business models to the winners and a lot of what separates the winners from the losers.

[01:09:31] Jason Zweig: Is what a finance professor would probably call luck and what the founders, or I would say maybe a fair objective observer would call something unobservable. There’s some magic, some je ne sais quoi to these companies that their competitors don’t have. It’s lightning in a bottle and maybe you can recognize that.

[01:09:58] Jason Zweig: Maybe you see something that looks like it, but turns out not to be, but I think the question becomes, at what point do these companies grow so big, so fast that they no longer can sustain that hyper growth that James Anderson is talking about? I mean, I wouldn’t think it’s sort of a law of financial physics that if you have a curve it. Looks like this, eventually it has to plateau. I mean, if it’s just a parabola.

[01:10:33] William Green: For our audio listeners, you’re going to have to use better terminology than movements. Jason.

[01:10:40] Jason Zweig: Yeah. So sorry about that. I mean, if the company’s growth just, is scaling at this incredibly rapid race. And in fact, If it grows faster as it gets bigger, which is close to the case for a lot of the biggest technology companies, it’s hard for me to imagine that that’s indefinitely sustainable.

[01:11:01] Jason Zweig: You may remember, William, there was a point in the 1990s where Walmart was growing so fast. I think it might have been when it was just beginning its expansion into Mexico, but it was growing so fast that some analysts on Wall Street were projecting that it would, it would become a trillion dollar company in a few years.

[01:11:23] Jason Zweig: And, of course, Walmart has grown really fast, but its growth rate has slowed down a lot as it’s gotten bigger. Now, it’s not a technology company in the same sense that, say, Alphabet is or, or Meta. But, growth, to some extent, historically, has sowed the seeds of its own destruction. Beef companies seem to be the exception to that pattern. And that’s what James Anderson is emphasizing. He thinks it is an entirely different pattern. New model of doing business and it may be.

[01:11:59] William Green: I think it’s interesting that James and Bill Miller and Nick sleep were all steeped in Santa Fe Institute kind of studies of network effects and the like, but I think they did see something that the rest of us hadn’t seen, and I, I love this line from James Anderson’s book, He’s where he said if you live in a technology and knowledge driven universe of great complexity and initial path dependence Why wouldn’t you expect the luckier merchant feud to buck the notions of the fallibility of growth stocks? And so it may just be that something has shifted. I think this just gets us at the perennial difficulty of investing, it goes back to Munger saying, anyone who thinks this is easy is stupid.

[01:12:44] Jason Zweig: Yes, exactly. And look, Munger got it right with Costco and he got it right at least for a good while with BYD in China.

[01:12:54] Jason Zweig: But it’s extraordinarily difficult. And if it were easy, then you would see the founders of these companies, you would see their family offices that invest on their own personal behalf. You would see them earning the highest returns in the world because they, I mean, if, if, if Jeff Bezos if somebody’s running his money and, and Jeff Bezos says, Oh, that’s the next Amazon.

[01:13:23] Jason Zweig: And you would expect he would know what he was talking about and they would buy it. And I don’t believe the family offices of these company founders have done any better than anybody else. And they might not even have done as well. And it’s, I just think we can’t emphasize enough how difficult it is to not just to identify a superior business model, but a sustainably unbreakable business model.

[01:13:51] Jason Zweig: Everyone in the professional money management business talks about moats all the time. And there is a whole bunch of funds, actively managed funds, ETFs that purport to identify companies with great moats. Even Warren Buffett has made mistakes about moats. Not every company he bought that he thought had a great moat had a moat at all and it’s very tricky. It’s very tricky.

[01:14:21] William Green: The whole case of Geico is really interesting, right? Where Munger obviously has pointed out the irony which Ben Graham admits to in the postscript of this book. That after spending a lifetime being so disciplined as a value investor buying stuff cheap, that basically he ended up, Graham ended up making much of his fortune off one high quality company, Geico, that wasn’t particularly cheap, and that he made a very big bet, I think you point out that he put about a fifth of his portfolio in it, and then wrote it for something like 25 years, So in a way, Munger pointed out that there’s this inherent contradiction that supports the idea that you don’t just want to buy really cheap stuff that’s undervalued because Geico kind of violated all of Graham’s own rules about concentration and valuation and the like. What do you think of the, like, what’s your view on the whole kind of Geico controversy?

[01:15:22] Jason Zweig: Well, so it’s hard to, it’s hard to disagree with the point Charlie Munger made, I mean, Graham himself, although he’s a little coy about it, he does he does fess up, and, when you learn the details, it turns out that Jerry Newman, who is Graham’s partner, named partner in the Graham Newman fund, Twist in his arm and said, it’s a good deal.

[01:15:46] Jason Zweig: Let’s do it. And Graham didn’t want to do it. And I believe that Graham wanted to pay. I think I remember this correctly. He wanted to pay 50,000 less. For the block of stock and the, it was the family, the insider family wouldn’t budge on the price and Newman said, come on, Ben, let’s just do it.

[01:16:11] Jason Zweig: And they did. And so Graham, is, you can tell that he’s wistful about this. He realizes that the single most important decision he ever made wasn’t in accord with his principles. And he probably wouldn’t have made it at all if his partner hadn’t talked him into it, but that points to another very important factor, and you don’t need to look beyond Warren Buffett or Charlie Munger to recognize the importance of it, which is, there’s kind of a, a loose tightness or a tight and looseness to a bunch of these ideas.

[01:16:50] Jason Zweig: Buffett has broken his own rules over and over and over again. And he buys stocks in the public market when the market crashes, and then he buys companies in the private market when they’re cheap. And when neither publicly traded stocks nor private companies are cheap, he does nothing and he just lets cash build.

[01:17:15] Jason Zweig: He doesn’t feel he has to do something squares with his principles if the opportunities aren’t really attractive. And here was Graham who had all these policies and procedures and, in theory, at least ran everything through filters to determine that devaluation was attractive. And here he is, he’s presented with a company that doesn’t meet his standards.

[01:17:40] Jason Zweig: And in the end he says, yeah, all right. Let’s do it. And it worked out great. And Graham himself says when he’s describing it, that, sometimes you can’t tell luck from skill. And in effect, it doesn’t really matter if it works out. Well, more power to you, right? And this gets to part of the idea that investing should be fun and it should be engaging.

[01:18:08] Jason Zweig: And if you don’t find it fun. You don’t have to play that game. You can just be a defensive investor and not attempt to pick stocks, not attempt to pick funds, just buy the whole market and, go to sleep for 30 years.

[01:18:26] William Green: I think it also gets at one of the fundamental insights from Graham’s writing, which is that the world is just a hugely uncertain place, and everything is changing all of the time, and we have no idea what’s going to happen, and I, there’s a, there’s a lovely bit in one of the chapters where he focuses on four companies, right, Emerson Electric, and ELTRA, and Emhart, and Emory Air Freight, and you point out that only one of them still exists in that form. And I was wondering, working on this old book, It teaches you just about the nature of change and impermanence and creative destruction in the world of capitalism.

[01:19:07] Jason Zweig: Yes, I mean, it’s kind of remarkable, Graham was writing in 1972, which was right after the disastrous, Collapse of Penn central, which the rail, the, which Dan, I believe was the largest railroad in, in the U S and was also the largest bankruptcy in American history up until that point and was the big, by far the biggest news event in, in financial markets in the early seventies.

[01:19:36] Jason Zweig: And of course, in 2003, When I edited the last edition of the book, railroads were moribund, nobody cared about railroads. They were, they seemed to be a dying technology. It was all about air freight and, maybe trucking. And of course now, railroads have done extraordinarily well.

[01:19:58] Jason Zweig: And Buffett has made a fortune on, Burlington Northern. And you see that over and over and over again. And I believe that, Graham kept coming back over and over again to the same basic ideas. You alluded to it earlier, William, this, this too shall pass. But also, he talks about how the first shall be last and the last shall be first.

[01:20:23] Jason Zweig: Which of course is from the Bible and then he also quotes the Latin poet Horace in the epigraph of the book saying something like you will be safest in the middle way.

[01:20:38] William Green: Well in security analysis he quotes Horace as well right where he says many shall be restored that are now fallen and many shall fall that are now in honor.

[01:20:46] Jason Zweig: That’s right. And so he’s always conscious of the incredibly long timescale over which market cycles can play out. Of course, they can be very quick too, as we saw in 2020 and, and as we’ve seen since, but often they can take decades to, to manifest themselves and to reverse and Graham gave a speech late at, very late in his life, I think it was at his 80th birthday party.

[01:21:17] Jason Zweig: And he talked about how he preferred to view things on his favorite philosopher, he said, was Spinoza. And he said, I prefer to view things through the lens that Spinoza provided, which is the, yeah, eternity, right? So something like that, the perspective of eternity. And of course, Spinoza worked. Do I remember this right?

[01:21:45] Jason Zweig: He worked as a lens grinder, right? And that was his day job, so he made microscopes and telescopes. And so Graham was, as somebody who was steeped in Greek and Latin philosophy and literature and who had traveled all over the world and spoke at least a half dozen languages, he was always aware that, what’s happening now is only happening now and you can’t count on it to continue. And sooner or later it’s likely to reverse, but you can’t predict when that’ll be.

[01:22:19] William Green: I think this gets us something so important and fundamental here, which, which is, is part of the greatness of the book, I think, is, Buffett said, I think in the introduction or the preface, he talked about how Graham had an intellect whose breadth almost exceeded definition, and so because he was so steeped in literature, he had this kind of expansive sense of what can happen to mankind and how we go through these periods of disaster and he had gone through terrible periods of disaster himself right we talked about last time last time you’re on the podcast about what he had lived through in terms of wars and bankruptcies and great depressions and losing the family home and stuff and I was very struck at the start of the intelligent investor he quotes this beautiful line from Virgil.

[01:23:07] William Green: Where he says, through chances various, through all vicissitudes, we make our way. What does that make you think? Like, the fact that he chose that line for the start of this book, and then in Security Analysis, the quote we mentioned from Horace, the Roman poet about, many should be restored that are now fallen.

[01:23:24] Jason Zweig: Well, first of all, he was kind enough to translate from the Latins. Because late in Graham’s life, he used to play, he used to translate, Homer into Latin and Virgil into Greek as a pastime. So we can be grateful that he actually translated those for us, but he did it because he, cause he, he wanted us to learn the lessons.

[01:23:45] Jason Zweig: And I think it all boils down to something really basic and fundamental, William, which is intellectual humility. The markets are just full of people who, are, have passionate conviction. On the basis of fragmentary evidence. And sometimes they’re just making it all up, or they think they know the answer when they don’t know anything, or they know something that isn’t true.

[01:24:11] Jason Zweig: And the message of the blogger is that the reason Graham emphasizes the margin of safety so much is because he wants you to look inside yourselves and realize I shouldn’t just be calculating the margin of safety. Of this investment, I have to calculate the margin of safety of myself as an investor. Do I know what I think I know?

[01:24:40] Jason Zweig: How do I know what I think I know? What evidence is there that I might be wrong? And what has been the performance of the thousands, probably millions of people who’ve tried this thing that I’ve just discovered before. Why do I know something about this asset that most other investors haven’t figured out?

[01:25:05] Jason Zweig: Why exactly would I be right when all of them are wrong? And I, by constantly invoking. Classical literature and the ideas of regression to the mean hand, or the futility of prediction and the difficulty of being right. And even the limitations of what human knowledge can do, Graham is trying to remind us, it’s really important to sustain that sense of humility in yourself and you and I think have talked about this before, although maybe not on the podcast, many years ago when I interviewed Buffett, I think for the first time, so 2003 or four, I asked him, there’s so many people out there who. I think you’re a genius, but most finance professors think you’re lucky.

[01:26:03] Jason Zweig: Well, what is it? What do you, how do you think about yourself? And his answer was really interesting. He basically said, I don’t have any interest in thinking about that other than acknowledging that he was lucky to be born when and where he was so that he could make the most of the skills he had. To him, the question of his, like, superiority was not interesting, and he spent no time on it, and this wasn’t, it clearly wasn’t an act. Really, sort of, he was very matter of fact about it. And very direct, just like, I’m not interested in figuring out how’s, whether I’m smarter than everybody else doesn’t matter.

[01:26:45] William Green: One thing I thought was very interesting in Buffett’s preface to The Intelligent Investor, where you, you reprinted I think an article that he’d written in 1976.

[01:26:57] William Green: So right after Graham died, he talked about how more than any other man except my father, he influenced my life, and when he was trying to explain what made Graham great, not only as a, as a thinker, but as a human, he said, in each relationship, just as with all his students, employees, and friends, There was an absolutely open ended, no scores kept generosity of time, ideas, and spirit.

[01:27:21] William Green: And then he talked about how he embodied what Walter Whitman described as men who plant trees that other men will sit under, and he said Ben Graham was such a man. And I was wondering, when you think about lessons from Ben Graham’s life, like if there’s anything that you’ve kind of internalized yourself that sort of Change the way you think about your own life or how you want to live your life.

[01:27:42] Jason Zweig: An interesting question Well, of course Graham had a very secular your home life, which we won’t get into here This is a family podcast after all.

[01:27:52] William Green: Suffice it to say he enjoyed physical pleasures.

[01:27:57] Jason Zweig: Yes, indeed. Sometimes, well, yes, he did. But I think the, the lesson I take away from Graham is one that’s probably close to your heart, William, and, and very much in tune with your book. Graham wasn’t very interested in making money for money’s sake. Both Warren Munger told, have told me that repeatedly, that Graham thought money was kind of boring.

[01:28:24] Jason Zweig: And he was, he was a wealthy man for his time when he died, he could have made so much more money than he chose to, his, when he ran his mutual funds, it had a very low expense ratio. He charged a substantial. Well, it wasn’t a man. He paid himself a very decent salary, but when you calculated it as an annual expense, it was quite low and he had no interest in marketing the fund.

[01:28:55] Jason Zweig: We’re making it big, and the fund was quite small when he shot his death. And when he got out of the money management business, he just got out. He retired. He continued to teach. He taught into the 70s, but he put most of his portfolio into municipal bonds. You can see, didn’t she like being bothered following the stock market every day at the very end of his life, he got re involved in what today we would probably call smart beta, factor investing with a stockbroker named James Ray.

[01:29:26] Jason Zweig: He felt he had identified value factors that would outperform statistically. Like if you bought hundreds of stocks that all had these same characteristics, you were likely to outperform and the fund actually did not. Do very well, and that’s a story for another day, but he was much more interested in spending his time with family and friends, and he was the founder of what later became known as the Buffett Group.

[01:29:56] Jason Zweig: Every year, Graham would have a little reunion for a bunch of his friends at the Hotel Coromado in San Diego. And they would all go out and spend a couple days with Graham. Buffett went, Charlie Munger went, Rick Guerin went, all these leading investors. And they would debate things and Graham would present mental puzzles.

[01:30:22] Jason Zweig: That people would have to solve. And usually Buffett was the only one who could figure them out. Buffett and Munger often got them right and nobody else ever could. And he really, he enjoyed, enjoyed his life and he didn’t regard investing as a rat race. And it’s very interesting the way he was able to turn his back on it after being one of the most successful people in the field ever. He just walked away.

[01:30:50] William Green: He had extraordinary breadth, right? I mean, he had tremendous intellectual breadth.

[01:30:55] Jason Zweig: Yes and, there he was in the south of France, translating a Uruguayan novel from Spanish to English and playing multilingual scrabble with everyone at the table on his patio in Southern France.

[01:31:10] Jason Zweig: So his wife was fluent in French. Some other visitors might know Italian or Germans, and each of them would play in. His or her own native language, and Graham would still beat for us.

[01:31:22] William Green: When I asked Charlie Munger about Ben Graham, he talked about that idea that I think is in the preface that Buffett refers to where Graham had said something about how every day, he tried to do something foolish, something creative, and something generous.

[01:31:38] William Green: And Charlie, of course, didn’t pick up on the foolish bit, he picked up on the generous thing. And he said that’s a nice thought for an academic and he said to me he taught without pay for 30 years and then he said he helped a lot of people it was a very worthwhile life and yeah and I was thinking the same really could apply to Charlie who died last November and you spent a lot of time interviewing Charlie over the years and you wrote a lovely reminiscence of him in the Wall Street Journal.

[01:32:06] William Green: And I was wondering if, if you had thoughts about important life lessons that you’d learned from Charlie as well, who, when you, when you write in the book that, that Ben Graham was probably the wisest of investors, Charlie would be about the closest that you come. To Ben Graham in terms of wisdom.

[01:32:24] Jason Zweig: Probably, probably. Yeah. I think from both him and from Warren Buffett, I think I’ve learned a lot about the importance of, of teaching, late in Munger’s life, he spent enormous amounts of time meeting with people over lunch, over dinner. Sometimes traveling to them, more often they traveled to him, politicians, academics, entrepreneurs, venture capitalists, fund managers, just business people, even students.

[01:32:57] Jason Zweig: And he would just talk and share what he’d learned in this unbelievably long life. He died a few weeks short of his 100th birthday, and he was still going. I mean, I interviewed him in, I think it was the end of October or the beginning of November, and he died, I think, at the end of November of last year.

[01:33:18] Jason Zweig: And he hadn’t lost a step. And Buffett does the same thing. He still meets with groups of students, and in the old days, he used to travel a lot, and he would go to MBA classes, he would go to undergraduate classes. And just talk about. Life and these guys are very, very wise and it’s kind of interesting.

[01:33:43] Jason Zweig: I think in Western culture, we’ve lost a lot of the reverence that’s so common in other cultures around the world for our elders, a lot of. Americans, certainly, and I think some Western Europeans kind of regard their elders as a burden and, in places like Africa and Asia and Latin America, elders are revered and we’ve kind of lost that.

[01:34:10] Jason Zweig: And I know in, like in Renaissance Venice, I, if I remember the way this, the way I’ve read about this, I think you couldn’t become the doge, the duke of the city. Until you were at least 85 years old on the theory that you wouldn’t be wise enough to govern well, it might also have been because you wouldn’t be around for too long, but we see the same thing with the papacy, for example, I mean, popes tend to be kind of old and Americans kind of like to mock that sort of thing.

[01:34:44] Jason Zweig: But maybe we should learn to be more reverent on the wisdom of older people. And certainly, when Graham held these groups. In San Diego, these investors would come from everywhere to spend time with him and learn from him and Buffett has continued that tradition that what he calls the Buffett Group.

[01:35:08] William Green: I wanted to ask you one final thing before I finally let you go, Jason. In the acknowledgements, you end the book by saying, above all, I thank my wife. She did everything but this so I could do nothing but this. so much. And you also once wrote to me, without our wives we are nothing, which is pretty true I think, because certainly my wife Laura keeps me on track to an extraordinary degree, I would kind of disintegrate otherwise.

[01:35:34] William Green: And I, I wonder if I could just ask you to say something about your wife and how she’s made your career possible and I, there’s something kind of funny about the fact that you’ve written hundreds and hundreds of columns filled with investing advice and I, I sort of figured I should actually hit you up some relationship advice that you can share with us since you, you’ve been married to a remarkable woman, Liz, for decades and she’s put up with you to an astonishing degree. So what’s, what’s worked and what marital advice can. Can, can you dispense to us?

[01:36:05] Jason Zweig: Well, first of all, William, thank you for getting me in incredibly hot water, because my wife is an intensely private person, she’s going to kill me when, when she finds out I answered this question. She’ll never make it to the end of the podcast, you see.

[01:36:19] Jason Zweig: Well, that, that could be, but she might hear about it from somebody, and that’ll, that might be worse. So, when I was working on the book, And I alluded to this before, but because she’s so private, I, I left her out of the answer. So you asked me what sort of rituals or routines did I have. So, when I was working on the book, she was on sabbatical, just by coincidence, she was on sabbatical, while I was working on the book.

[01:36:44] Jason Zweig: So, when, when I took that morning walk, she went with me, so we, We’ll walk two or three miles every day before breakfast. And it just got my workday off to an incredible start. And he’s amazingly supportive and patient and puts up with all kinds of nonsense. And it was quite literally true that for seven months, I didn’t have to do any of the normal things.

[01:37:11] Jason Zweig: I mean, usually contribute a little bit around the house. I do some of the cooking, I do some of the cleaning, and I run quite a few of the errands, and she just took all that off me and just did it all, and if she hadn’t done that, I don’t think I could possibly have finished, and relationship advice, I don’t know what else to say except Take it one day at a time, which I think is the best advice anybody can give you can give one.

[01:37:42] Jason Zweig: I don’t mean to imply. I’m giving you advice. Why? Why is that such important advice? Because I think people have a tendency to really either in the past or in the future and when things are going poorly, they will compare to some period in the past when things were better and say, oh, if only we still had that spark.

[01:38:05] Jason Zweig: Or, when things are going well, they worry that down the road, oh, we’re not going to have that spark. And instead, live for today, and enjoy, enjoy the moment. And be grateful you have somebody who’s good with you and good for you. And just by the way, Ben Graham, you wouldn’t want to ask him that, it’s tush.

[01:38:27] William Green: I mean, it’s interesting, right? A lot of the great investors that we write about have, have had these lousy personal lives where their kids don’t talk to them or their wives hate them or their ex-wives hate them. And I, so I don’t know, it’s one, it’s one of the, it’s one of the quandaries, I think, how, how, how do you become a super high performer at what you do without. Wrecking the lives of the people around you.

[01:38:55] Jason Zweig: Yeah. I mean, I think it’s just, you have to, you have to find ways to keep your workaholism and obsession in check. And I think Warren Buffett would tell you that when he was young, he neglected his kids to an extent that, he probably regrets today, although obviously it was a big part of his financial success, but I think he wishes he could do some of that.

[01:39:22] Jason Zweig: It could have a do over because when you’re that driven, you kind of put everything else aside. And look, my kids are, my kids are out of school and they’re older, and if, if I had tried to do this when my kids were young, I don’t want to predict. How it would have worked out.

[01:39:40] William Green: It’s funny, I was almost going to ask you this at the start of the conversation because it’s something I’ve been wrestling with a lot myself where I had written to you back when we were first discussing you doing the book and I’d said I’m, I’m trying to practice letting go more in my life, not trying to control things quite so tightly.

[01:39:58] William Green: I feel like I’ve always been baffling everything with gritted teeth and it’s too difficult and draining. I want to try to do the same things, but with more ease and lightness of spirit. Less of a sense that it’s all a gladiatorial battle to the death, which is still something I battle with constantly.

[01:40:12] William Green: And you sent me this lovely quote from Philip Roth, the great novelist who both of us love, who said, Sheer playfulness and deadly seriousness are my closest friends. That’s the formula to describe the concoction that energizes virtually any writer worth his or her salt. I thought that was just so interesting that it’s like you somehow want to go about these pursuits, whether it’s writing or investing, with deadly seriousness and at the same time sheer playfulness.

[01:40:40] Jason Zweig: Yeah, I mean, I guess one way I have described this Now that you mention it is, is that I take my work incredibly seriously, so I don’t take myself seriously at all. And another way to put that is I have ego in my work, and I have no ego for my work. So I, I throw everything I’ve got into it, I leave nothing on the field but when I’m done, if you ask me, it’s great, right? I’ll say probably not. It’s probably, it’s probably somewhere between terrible and okay. And I’m not really faking it either.

[01:41:19] William Green: I think I’ll leave you on this note, but I think the stars kind of aligned. On this project and it played to your strengths in a beautiful way and you kind of took this timeless but slightly worn book and breathed new life into it in a beautiful way and you, you, you made the lessons very timely and the principles are very robust but it, you, you did a lovely job so you may not give credit to yourself but I’ll give you credit.

[01:41:45] Jason Zweig: Well, that’s very nice, William. I hope you’re right.

[01:41:48] William Green: I’m always right, Jason. No, there are many things I’m wrong about, but I think I’m right about this one, because I have judgment about your work, and I’ve seen your work for many years, and you nailed this one. It’s a beautiful piece of work, so congratulations.

[01:42:02] Jason Zweig: Thank you. Well, the marketplace will decide.

[01:42:05] William Green: Yeah. Alright, well, thank you so much. It’s been a treat, as ever, talking to you.

[01:42:10] Jason Zweig: Well, thanks, William. Great, absolutely.

[01:42:12] William Green: Alright, take care.

[01:42:14] William Green: Alright folks, thanks so much for joining me for this conversation with Jason Zweig. If you’d like to learn more from Jason, it’s well worth listening to the previous podcast episode I recorded with him a couple of years ago.

[01:42:25] William Green: Among other things, we spoke in depth back then about his experiences of working with the Nobel Prize winning economist, Daniel Kahneman. It was an incredibly rich conversation, so I hope you’ll check it out. I’ll include the link to that episode in the show notes for today’s episode. I’d also strongly encourage you to read and study Jason’s new revised edition of The Intelligent Investor, paying particularly close attention to two chapters, chapters 8 and 20, that is.

[01:42:53] William Green: Personally, I think this special 75th anniversary edition belongs on the bookshelf of any serious long term investor. I’ll be back very soon with some more great guests, including a fascinating conversation with an author named Brad Stolberg, who’s an expert on high performance, resilience and sustainable excellence.

[01:43:12] William Green: Down the road, I have interviews lined up with some remarkable investors, including a legend named Terry Smith. So I hope you’ll keep tuning in. In the meantime, please feel free to follow me on X @WilliamGreen72 and connect with me on LinkedIn. And as always, do let me know how you’re enjoying the podcast. Always really pleased to hear from you. Until next time, take good care and stay well.

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