[00:02:25] Clay Finck: And well, I should say you went through and read it after I mentioned it to you and you told your partner to go and read it too. I know that talking about business is one of your favorite things to do. And I obviously talk about a lot of different investing books on the show, but this book is a little bit different because it’s a business book.

[00:02:44] Clay Finck: So I really wanted to bring you on the show as you’re someone that’s built a successful small company and you’ve been at it for almost two decades now. So this book was written by Don Keogh. He was previously the president and chief operating officer at Coca Cola, and he was also great friends with Warren Buffett, who actually wrote the forward to this book.

[00:03:05] Clay Finck: Don also previously sat on the board of Berkshire Hathaway and is no longer with us today as he passed away in 2015. So before we dive in to talk about some of the specifics of the book, how about David, do you give the listeners a broad overview of why you liked it so much?

[00:03:22] David Fagan: Oh, thanks a lot, Clay. There are so many how to books and in this one, Don flips the script and inverts a lot of the lessons that he’s learned over the years.

[00:03:31] David Fagan: He questioned why so many businesses failed, and according to the bankruptcy courts, over 20,000 declared bankruptcy in the first 75 years of the 20th century. And one time Don was asked to talk about how to win in business, and his response was that he couldn’t do that, but what he could do is talk about how to lose.

[00:03:51] David Fagan: And he offered a guarantee that if anyone followed his formula, they’d be a highly successful loser. So, this is essentially what frames to become known as Don’s Ten Commandments of Business Failure. And, I mean, I really like the commonsense approach that Don is taking in the book. His commandments are breakthroughs in management thinking, but more of a cautionary tale that if you find yourself breaking one of these rules, it may just be time to kind of pause and reflect a little bit, so.

[00:04:22] David Fagan: Yeah, just a couple of the highlights, Clay, my top three takeaways. Every time I read a book, I try to take a few top threes just to kind of cement some stuff. From this book, change is constant and always requires energy to keep the flywheel moving. That’s a consistent theme in this book. And as a business leader, no matter what size your organization is, you really have to set time aside to think and make sure you build that framework.

[00:04:51] David Fagan: And finally, you can imagine the size of Coca Cola. Well, sometimes as a leader, you have to get your boots on the ground, so to speak, and get away from your desk, or as what Don would say, his command center. The beauty about this book, Clay, is it was published in 2008. And in a few years from now, we can slap the 20th anniversary sticker on it, and these commandments are going to last. They’re very true principles to business.

[00:05:17] Clay Finck: The theme of the book is very Charlie Munger like Don was asked to give a speech on how to succeed in business, and he realized that there’s no formula to guarantee success. So what he did is outline what you should do if you want to guarantee failure, and then he would recommend avoiding those common pitfalls, which we’ll be getting into.

[00:05:39] Clay Finck: So, Buffett invested in Coca Cola back in 1988, and Roberto Goizueta was the CEO at that time, and then Don Keogh was the President and Chief Operating Officer, as I mentioned. Goizueta was the CEO until he passed away in 1997, and under Roberto and Don’s leadership, Coca Cola went from a market value of 4 billion in 1981 to 145 billion in 1997.

[00:06:08] Clay Finck: The stock over that time period had an average annual return of 27 percent without including dividends. So Don believed so strongly in these 10 commandments of business failure. He said that if you showed him a failed business, he would bet that the leaders would have violated more than one of the 10 commandments.

[00:06:27] Clay Finck: He writes, if you find yourself a disciple of one or more of these commandments, watch out. You are well on your way to failure and taking your company with you. So I wanted to jump into the first chapter here. David and I today will be covering a number of our favorite chapters from the book. So the first one’s titled quit taking risks.

[00:06:47] Clay Finck: So we’ve probably said 10,000 times on the show that capitalism is absolutely brutal and we can’t rest on our laurels when we see success come our way. Because if we do, then competitors are inevitably going to come eat our lunch. And I love the quote that success is never owned, it’s rented, and the rent is due every day.

[00:07:09] Clay Finck: And it reminds me of what Morgan Housel told me on the show related to NVIDIA, Jensen Huang had said that the unofficial corporate motto of NVIDIA is that they’re always 30 days from going out of business. And that’s why, even though NVIDIA is worth whatever it is now, two or 3 trillion, they’re just absolutely dominating their field.

[00:07:31] Clay Finck: Morgan had said that he thinks that the management team wakes up every single morning, terrified and that’s why they’re successful. NVIDIA knows that if they rest on their laurels, then it’s going to sow the seeds of their own demise. Keogh also shared this Oscar Wilde quote that I really liked as well and it’s worth pondering. The world belongs to the discontented.

[00:07:55] David Fagan: I mean, it’s hard to fight complacency sometimes, especially when things are actually going well. I like in this chapter where Don makes the connection that the older you get, the harder it is sometimes to fight this complacency. He talks about the case study of Xerox and that they had a five year head start on the personal computer market when they developed their first personal computer back in 1973 but upper management ignored it.

[00:08:21] David Fagan: And Don concludes that they were just too comfortable and when you get comfortable and quit taking risks, that’s when failure is going to creep in and may be inevitable. I like how Don was quoted as saying, when he was in leadership roles, he would start to get very uncomfortable from time to time when things were going well.

[00:08:40] David Fagan: And I mean, that’s to your point on NVIDIA. And like I said in the intro, a key takeaway for me is that change takes energy, and it’s only this energy that moves the ball forward. And I mean, most of the listeners are going to be in business in some fashion. So just think back 10 years ago and ask yourself, what if?

[00:09:00] David Fagan: What if the change that has taken place in your organization didn’t happen? I mean, when I think about it for myself, I get a chuckle sometimes. I mean, I’m in the accounting business here in Canada. And I mean, we’ve done a lot of technological changes and kept up with things. But what if we still had a Xerox copier room and filing cabinet system?

[00:09:19] David Fagan: And what if we didn’t adopt cloud based technology? What if we didn’t integrate our various systems? I mean, we would literally be a firm of the path. And there’s just a lot of risk and not taking risks. And, in the 80s alone, Clay, 230 companies disappeared from the Fortune 500. And Don has a great quote, how many tombstones would have read, here lies a company that died risk free?

[00:09:45] David Fagan: It’s just a sobering reminder that what can happen when complacency creeps in. Clay, knowing that change takes effort and businesses evolve, what changes have you seen at TIP and like, how do you guys stay organized with change?

[00:10:00] Clay Finck: TIP is, of course, in an industry with so much change. Preston and Stig, they started this flagship show, We Study Billionaires, back in 2014.

[00:10:11] Clay Finck: So, one could say the entire foundation of the company is in an industry that’s 10 or 15 years old, even in six to 12 months, so much can change within this industry. And within this company, I recently read Jeff Bezos, his shareholder letters and found a lot of parallels in the way he approached business and the way tip sort of operates.

[00:10:33] Clay Finck: This isn’t me trying to compare tip to Amazon in any way, but if you keep doing things the way you’ve always done them, then you aren’t taking risks. And as a result, you’re taking on the risks of going extinct. So if you don’t change, then there’s a good chance that capitalism is going to force you to change.

[00:10:53] Clay Finck: Don explained in the book that Xerox took their early success for granted and failed to take on the risks of new opportunities. So I love how he’s talked about how in order to create profits in the long term companies need to innovate in the short term, and that’s where Xerox made a really big mistake.

[00:11:13] Clay Finck: So Amazon takes the approach of always focusing on the customer and continually launching new business units, knowing that the vast majority of them are going to fail. So after launching countless initiatives, they ultimately landed on just three that produced the majority of their revenue. That’s their online marketplace, Amazon prime and AWS.

[00:11:34] Clay Finck: And Amazon started out selling books and today AWS, is their cash cow of their company. And it’s totally unrelated to what they originally sought out to do. And even reading Jeff Bezos’s letters 20 years into starting Amazon, it’s clear that They certainly weren’t resting on their laurels. So tip has a somewhat similar approach in that, we’ve had success with the, we study billionaires feed and it’s been the company’s machine that sort of fuels our new initiatives.

[00:12:03] Clay Finck: So like Amazon, we know that most new initiatives are doomed for failure. But we cut our losses early on those and, just don’t pursue the ones that clearly aren’t working and then double down on the initiatives that do. And this is why we started our TIP mastermind community. It helps us produce more recurring revenue for the company.

[00:12:23] Clay Finck: And then it isn’t tied to the very volatile advertising market. So our advertising revenues from month to month are pretty unpredictable. They’re pretty choppy. And the community also compliments the podcast pretty well, because we bring our podcast guests and for Q and A’s, and then we’re able to attract really high quality people from the audience because of the trust we’ve built with them over the past 10 years.

[00:12:46] Clay Finck: And then also like Bezos, we really want to create when relationships, if possible, where all parties involved just benefit massively from what we’re doing, which I really believe helps create a strong and enduring enterprise over the long run. Those are the types of relationships within business.

[00:13:05] Clay Finck: I believe that are most sustainable. So ever since COVID there’s just been a flood of new podcasts coming onto the market. There’s very little, if any barriers to entry into podcasting and it makes our business. Very susceptible to disruption, and this is also why we needed to, start to diversify our revenue streams of how our business is able to grow into the future.

[00:13:27] Clay Finck: So, as far as staying organized with all these changes, I can’t say I’m as organized as you, David. I personally just take the approach of, just trying to do things a little bit better every day. I try to always think about how I can do things in a slightly better way, provide slightly more value to people or how I can, produce better episodes for the audience or produce more value for the community.

[00:13:51] Clay Finck: And Stig does a really great job in helping me do this by putting incentives in place that, encourage me to do so. So align the incentives of the organization with my incentives as a podcast host for TIP. And then, to the point on the world belonging to the discontented, as I mentioned earlier.

[00:14:08] Clay Finck: Sometimes, if I feel that need to sort of find that motivation or find those new ideas to try and take that step forward. Usually, I’ll pick up some books that I’ve just gained a lot of inspiration from. There’s a few books that I usually visit at least once a year. And one I picked up recently was Deep Work by Cal Newport, who breaks down how we can be more focused with our work and better allocate our time.

[00:14:33] Clay Finck: It’s a great book. So whenever I pick up this one, any chapter I go to in it, I always get a ton of new value and new ideas on things I can try and implement to be more organized with the work that I’m doing. Thank you.

[00:14:46] David Fagan: Yeah, that’s, yeah, it’s like Warren and Charlie talk about being individually learning machines.

[00:14:51] David Fagan: Clay, that’s kind of what you’re talking about and studying and making sure you stay up to date on your standards. Businesses have to be learning machines too, and it’s vital to their continued success. Probably not a bad point in the conversation to actually switch over to Chapter 2 about being inflexible.

[00:15:08] David Fagan: And I guess the main theme of Chapter 2, which kind of parallels a little bit to Chapter 1, is that if you stay stuck in your ways, Failure is going to pursue and I think it’s important to actually paraphrase the opening paragraph here because Don makes the note that not taking risk and being flexible are closely related, but there’s an important difference between the two.

[00:15:31] David Fagan: He’s saying basically, truly inflexible people are not avoiding risks. They’re so set in their ways, so confident that they have the formula for success. That they simply can’t see any other way of doing business. And I really think this is a scary trait to see in a leader, the more of the, my way or highway mentality.

[00:15:52] David Fagan: And the key point Don’s trying to make is that inflexibility is a crippling disease and 1 that needs to be avoided at all costs. However, being flexible isn’t a virtue all unto itself. There’s a little bit of a pull and push here. It’s like investing and trying to beat the index. It’s hard. And so is the right amount of change in an organization.

[00:16:15] David Fagan: Like, you don’t want to become the roadblock for your organization’s success, but also not go too extreme with change just for change’s sake. And I mean, that can certainly happen sometimes. Constantly creating new initiatives that maybe they don’t all hit and so the right amount of change can be hard sometimes and you need to kind of balance your effort and your systems and sometimes it takes a little bit of luck to. Yeah, there’s so many great examples in this chapter about leaders being inflexible, but I want to focus on 1 statement that I can guarantee that every North American has heard at least once in their lifetime. It’s Henry Ford’s statement about people choosing a color for their car when the company started back in the early 1900s.

[00:17:02] David Fagan: Ford said that they can have it in any color they want so long as it’s black. And of course, most of us have heard this before and as successful as Henry Ford was and a true pioneer. Leader and innovator, his inflexibility on color allowed Chevrolet and Dodge to take market share. And as the book reports after closing their flagship plant for six months, it almost brought the company to the brink of disaster.

[00:17:30] David Fagan: I mean, this is crazy to think. I mean, obviously we all know Ford today over a century later is fine and well, but just how close inflexibility cost that company in the early 1900s. This reminds me like, as a leader, you don’t want to surround yourself with yes, men and yes, women as well, because the problem is that you’re in flexibility that won’t even show up as you’re not going to get any development or pushback on ideas in the 1st place.

[00:17:58] David Fagan: And as, of course, a lot of us that are in the community, we’re pretty avid readers and. There’s a nice connection here to Ray Dalio’s book on work and life principles. And he talks about being radically open minded. And he talks about understanding your own ego barrier and appreciate the art of thoughtful disagreement. And I think if you can use this concept, it has the potential to solve this commandment that Don really wants us to avoid.

[00:18:28] Clay Finck: Really amazing that something as simple as the color of a car can be something that brings a company down to its knees, something that simple can do it. Just imagine the things that are much more complex that might not be near as obvious.

[00:18:42] Clay Finck: So TIP, change is something, we’re just, it’s something we really have to deal with. I think about your company, David, you manage and operate an accounting practice in Canada. So for an industry like accounting, it’s really a fundamental part of our economy. It’s going to be with us for a very long time. Have you seen that need to adapt, take risks and be flexible in the way that Don describes it in the book?

[00:19:09] David Fagan: That’s a good question, Clay. I mean, I think as businesses evolve to be a truly great company, you have to build in routines in place to kind of systematize your change. And like a lot of things, good change and being flexible starts with your culture.

[00:19:25] David Fagan: And it’s from the culture that you can build in the framework to kind of execute on change and its implementation. And so the one thing about our industry is we have to change and sometimes change quickly when new tax initiatives take place. I mean, we can get thrown into new situations created by the government with new rules.

[00:19:44] David Fagan: And so our organization has to be good at changing and changing really quick. Sometimes I mean, if we didn’t take risks and adapt and we’re inflexible, I mean, we simply wouldn’t be in business or. At least we’d be running like a very lethargic or clunky one. We just wouldn’t be keeping up with keep keeping up with the pace of change.

[00:20:05] David Fagan: And these are real macro level risks. And, when we talk about change as well, I think there’s micro level risk about being inflexible and not taking risks as well, because relationships could be lost. And I mean, imagine if you hired someone eager to learn and try new things and they were consistently told no.

[00:20:25] David Fagan: No, you’re not going to do that. We’re not going to try this. This isn’t important. I mean, if you were constantly told those things, I suspect your enjoyment for work would decrease and it could be the difference between staying in the organization and leaving.

[00:20:41] Clay Finck: So I wanted to jump here to transition to chapter four. This is titled Assume Infallibility. So I believe a good test of a good leader. is to look at where a leader places blame when things go wrong. So obviously think of Warren Buffett’s shareholder letters. He’s very quick to point out the mistakes that he’s making instead of just blaming poor results or circumstances that are, really outside of his control.

[00:21:11] Clay Finck: A lot of people are quick to point blame on other factors other than themselves. So in the case of Don Keogh, Coca Cola had a case in Belgium in 1999. Where children were starting to get sick, and people just believed that Coca Cola was causing the sickness. And the management team just shrugged it off as, they didn’t believe there’s anything wrong with the product and sales started plummeting, their reputation really got hurt and the country really just sort of turned on Coca Cola.

[00:21:43] Clay Finck: So, Don essentially decided that what they should have done from the very beginning when the issue arose was just pull their product from their shelves and then prevent that further tarnishment of the brand. So really, instead of doing that initially, they just waited until the damage was already done and then they were just forced to pull it off the shelves, realizing their big mistake.

[00:22:06] David Fagan: Just to follow up on that, Clay, it was interesting to read in that chapter that Don concluded that a certain point in the incident, the truth didn’t even matter. Perception was everything. And they just stuck their heads in the sand and assumed infallibility.

[00:22:20] David Fagan: And of course, it got out of control for the company a little bit. Another example in this chapter and one that’s much more personal to Don is when he may have gone too fast and in 1989, when the Berlin Wall came down, Klaus Halle, who was in charge of the German operations, submitted a business plan to invest half a billion dollars in the new democratic state of East Germany to grow the brand.

[00:22:47] David Fagan: And Don rejected the idea quickly and didn’t even listen to what was being presented. And what followed was class’s proposed resignation, and Don was quoted as saying, I was shocked, and class told Don, and I’m going to quote here, you didn’t listen clearly to what we had to say. Much of the investment would come from the German bottlers.

[00:23:09] David Fagan: You didn’t know the potential of East Germany. You’ve never been there. You rejected it out of hand without considering that this could be a great opportunity. And I mean, I can only assume this was a management moment for Don that he deeply reflected on because, of course, it ended up in the book. And it turns out that Don got out of his control center, got boosted on the ground and visited East Germany and organized the investment and it had tremendous success.

[00:23:39] David Fagan: And after this experience, Don reiterates a quote that he wrote numerous times in this book, a desk is a dangerous place from which to view the world. And, of course, it was one of my big takeaways as I finish this book. So, yeah, sometimes you just need to get away from your control center.

[00:23:56] David Fagan: And some of us are in smaller businesses, and we can’t really fathom not being close to the related action. But the larger your organization gets, the truer this becomes.

[00:24:07] Clay Finck: I’m reminded Mohnish was just on our show talking about the issues Boeing was facing and all of the financial people sort of took control of the company and just, took away all that control in the decisions that the engineers were ultimately making.

[00:24:21] Clay Finck: And it led to the sort of downfall of Boeing. And I love the point that Don made that essentially you should be listening to the people that are closest to the problem, because the odds are pretty good that they know the problem pretty well. So with all the investors I’ve spoken with on the show, I think you can get a lot of value in understanding a business or understanding an industry’s dynamics by actually talking to people who are on the ground and in the industry, a CEO or someone who makes a living from working at a desk can only offer so much perspective.

[00:24:54] Clay Finck: And it could also be quite valuable, but at the end of the day, a lot of these people are like professional salespeople to a large extent. And I recall reading Chris Mayer’s blog sometime back, and he was talking about how he was talking with an industry veteran, someone who knew Coparts industry as well as anybody.

[00:25:13] Clay Finck: And Chris asked the guy how hard it is to compete with Copart. And he had told them that. You’d essentially be crazy to try and compete with these guys because of all the competitive advantages they have. You need the land to do what they do. And some of the land values are up five or 10 times since they bought it back in the nineties.

[00:25:31] Clay Finck: And getting that firsthand experience from someone who actually works, in the middle of that industry, rather than just talking with executives, I think is super valuable. In a world with so much intense competition, it’s nice to find someone who can give that firsthand experience to how difficult it is to compete with another company.

[00:25:49] Clay Finck: And even with investing, as you mentioned, infallibility is super critical to recognize even the best investors are wrong at least one third of the time. So it’d be foolish to believe that we’re going to be able to do better than that. Peter Lynch had said that. If you bat 600 and investing, then you’re going to go into the investing hall of fame.

[00:26:10] Clay Finck: And given how rapidly things can change in today’s world, flexible thinking is a really critical skill set. I think most of us have a tendency to sort of bury our heads in the sand when we’re making a critical mistake and, just ignoring the problem instead of addressing it. Charlie Munger had once said, I think that one should recognize reality, even when one doesn’t like it indeed.

[00:26:33] Clay Finck: Especially when one doesn’t like it. Get investing can be extremely difficult because it requires a balance of having conviction in your ideas, but also having the flexibility and the willingness to recognize when you’ve made a mistake. So we really need to be confident enough to build that conviction.

[00:26:53] Clay Finck: But at the same time, be humble enough to be willing to step away from our best love ideas. And I just really ponder this idea that great investors are really just great thinkers and just actively seeking the truth all the time.

[00:27:09] David Fagan: Yeah. And I mean, running a business is like investing and we could probably throw parenting in there as well.

[00:27:15] David Fagan: I mean, you’re only going to get things right a little more than half the time, so you better be fallible. I think the longer you invest, the more you appreciate humility as investing can be hard. Like you said, I mean, the best investors may only get it right. 60 percent of the time. And it reminds me of God invades book, the joys of compounding.

[00:27:34] David Fagan: He talks about updating your beliefs in light of new evidence. And that good investing is a balance between the conviction to follow your ideas. And the flexibility to recognize when you may have made a mistake and that there’s a real push pull there. When it comes to your investment style, it’s perfectly okay to be wrong, but it’s not okay to remain wrong and so you have to be open minded and adaptive to change, including your opinion sometimes.

[00:28:03] Clay Finck: Jumping to chapter five here, it’s titled playing the game close to the foul line, and it covers the importance of trust and ethics in business. Don writes, I quote, trust was then and is now the essential foundation of any business.

[00:28:20] Clay Finck: Despite improvements in technology and new fads and management and marketing. All business boils down to matters of trust. Consumers trust that the product will do what it promises to do. Investors trust that management is competent and employees trust management will live up to its obligations and quote.

[00:28:38] Clay Finck: So related to behaving ethically, I’m reminded of Buffett’s newspaper test. He would say that if you feel uncertain about a decision, consider what you would do if your decision was published. In your local newspaper for all your family, friends, and neighbors to read, and I personally find this to be a very valuable mental model and thinking about, what is the right decision?

[00:29:03] Clay Finck: What is the quality decision here? What’s the ethical decision? But he also makes another key point that John talks about how we want to be. Admired by our peers. We should also not compromise our own standards in the process. And this ties into the concept of living by an inner scorecard that Buffett’s talked about so much.

[00:29:24] David Fagan: Yeah, I think living by internal scorecard can solve a lot of problems that you might not even know you had in business as well. And it’s really your ability to say no, that can save you, running a successful business is the same as what we’d refer to in the investing world as staying in the game and not getting wiped out.

[00:29:42] David Fagan: And I mean, if you’re going to play too close to the foul line, those small yeses or deviations when they should have been nose will end up catching up to you. And I mean, personally, I find there’s a frequency to authenticity that just makes life and if you want to compound simplicity, it’s just much, much easier to be honest, really.

[00:30:03] David Fagan: I mean, at some point you’re likely going to have a business experience that wasn’t your best moment. It’s just bound to happen. And when you reflect on it, it’s likely added more complication to your life than simplicity. And the complication could have been from thinking about it too much, or losing sleep over it, or costing you a relationship that you would have rather kept.

[00:30:24] David Fagan: So, the energy spent on the poor moment was likely a greater cost than just being honest and accepting that cost of the honesty in that moment. And, for Clay, you asked for a business example. I mean, it’s unfortunate, but every few years we have to let a client go because their values just don’t align with ours.

[00:30:44] David Fagan: And without getting too specific, just know that it happens sometimes. And, a client may want to get, be too aggressive with their filings or simply just too difficult to deal with, and we have to make a decision to let them go. And I can tell you that every time we’ve let a client go, it has actually lifted the office. Versus bringing it down no matter how large the client was. And we’ve coined a term in our office that says rejection is protection. And it’s amazing how true that can be sometimes.

[00:31:17] Clay Finck: I love that. It’s definitely a short term painful decision, but a long term pretty big gain. And Don also talks about how in our modern life related to, these short term pains and long term gains in our modern life, we always have the opportunity to sort of broadcast ourselves, put ourselves and so people in our circles can publish whatever they want on social media or, Someone with a brand can put themselves out there in ridiculous ways that tarnish their reputation, but potentially offer some sort of short term benefit.

[00:31:52] Clay Finck: And this is something, I see all the time. The reason TIP really exists is to empower the value investing community. And about every week I see some other show getting hundreds of thousands of views for doing something I would argue crosses some sort of ethical boundary. And it can be tempting to, sort of just toe a little bit closer to that line.

[00:32:15] Clay Finck: And one of the things that we’ve been doing here at TIP is working to bring on investors. Who actually have a proven track record of being a great investor, beating the market over a long period of time. There are countless investors who might sound good or might sound like, they know how Buffett invests or whatnot, but very few can effectively put those teachings to work and actually beat the market over a sustained period of time.

[00:32:45] Clay Finck: So for some investors we bring on the show, we actually aren’t able to mention their track record. That’s so good. And just simply for compliance reasons, it’s not like they don’t want us to do it. We just simply can’t share their performance. So in the short run, there might not be a lot of benefit for us to have them on the show and not be able to share their performance, but it helps build that trust with listeners.

[00:33:10] Clay Finck: Over the long run. So, our listeners sort of build that trust with us and recognize that we set a really high bar for who we bring on the show. And then, a byproduct of that is we attract to the right type of listener and they tend to stick around for quite a long time. And given that our reason for existing is to empower the value investing community that can really limit us in terms of the number of views or the number of downloads we get because oftentimes the guests that would get the highest number of views or the highest number of downloads don’t necessarily empower the community or at least to the degree we would want them to. So a mentor of mine once told me that the most important promises to keep are the ones that you can keep to yourself because it’s only when you keep promises to yourself that you can keep promises for other people.

[00:34:01] Clay Finck: And if you have integrity. You do what you say and you say what you do. I think when you follow these types of principles, I think it’s a really good way to build trust with others and business at the end of the day is really all about trust. And I’m certainly not perfect when it comes to this, certainly work in progress.

[00:34:19] David Fagan: Yeah, no, that’s wonderful clay. I mean, you basically just described a little bit about your own internal scorecard and that of as well. I mean, being a member in the community, you can quickly see how authentic the leadership is. And I think it’s this authenticity that creates the quality and. I mean, I know I sound probably a little bit biased and saying that, but I think now knowing that you’re looking for the highest quality investors to air on your show, just proves your commitment to empowering the investing community.

[00:34:51] Clay Finck: Yeah, and I love the point you made earlier that authenticity has its own frequency. We can share that authenticity on the show. That frequency is going to attract to the right person. It’s going to attract the listeners we want, and it’s going to end up working out for us over the long run, I think.

[00:35:07] Clay Finck: So jumping to chapter seven here this one’s titled put all your faith in experts and outside consultants. So I’m going to throw this one over to David for him to share his takeaways.

[00:35:20] David Fagan: Yeah, so the main theme in this one is. Over reliance on external advice can lead to a detachment from one’s own business, intuition, and knowledge.

[00:35:30] David Fagan: And, while outside advice is valuable, it shouldn’t replace your own judgment. And so, in this chapter, Don writes about management is not a craft. Management is a craft, sorry, not a science, and beware of those who try to mathematize and quantify human behavior. And sometimes you just can’t put a number on everything.

[00:35:51] David Fagan: I mean, this reminds me so much of Albert Einstein’s quote, not everything can be counted counts and not everything that counts can be counted. And I think that we’ve all been probably guilty a few times of relying too much on quantitative factors and maybe missing the qualitative reality of the situation.

[00:36:11] David Fagan: I mean, that can certainly happen. As you read this book numerous times, Don talks about the launch and failure of New Coke. But this is the chapter that sheds the light on the sin that was the root cause of the issue. And I’ll just dive into it here a little bit. I find it a really fascinating story.

[00:36:30] David Fagan: The company decided to test a new flavor of Coke and then hired consultants to do the market testing and advise on the results. And the testing was clear. People preferred the new flavor. And so the project to launch new Coke picked up steam. And finally, upper management gave the go ahead to launch the new brand.

[00:36:50] David Fagan: And Don mentions two times in this chapter that he didn’t follow his own gut. His gut was telling him, don’t mess with the iconic brand. But I, I don’t know if you’re, if you’ve experienced this clay, but I mean, the movement in one direction is strong and sometimes it’s just really hard to slow down momentum.

[00:37:09] David Fagan: And like when the inertia gets happening, it’s, it happens, right. And with the Coca Cola company after they launched it. Well, within a few weeks, they had over 400, 000 negative phone calls. The delivery people were getting harassed on their trucks and the company was absolutely getting torched in the media.

[00:37:30] David Fagan: And Don acknowledged that they just didn’t understand the connection that people had with the brand. And it was this connection that finally convinced the company just to pull the plug on it. And, I can’t imagine, they didn’t get into the numbers on what this would have cost the company, but it’s amazing. And like the way I’ve always looked at using outside consultants and I am one, that’s part of my world is that no one knows your business as well as you. It’s your baby. You think about it more than anyone. And, I really think you have to you’ve got to take it’s like consulting with a little bit of grain of salt once in a while.

[00:38:10] David Fagan: Yeah. I mean, the lessons in this book are amazing, but like all things we learn, everything needs to kind of be taken in stride with these commandments. I find there’s a little bit of a dichotomy between this chapter and that of chapter 2 on assuming infallibility. I mean, in one commandment, we’re talking about not listening to other people.

[00:38:30] David Fagan: And the other one is saying, don’t think you know all the answers. Right, so, of course, it’s the extreme ends of these 2 commandments that are where the problems are going to happen. And, like everything, there’s always a balance to most things we do. And I think Don would say, concluding on this is, seek outside views and counsel.

[00:38:51] David Fagan: And trust your judgment and your gut. Yeah. I mean, like, clay, have you ever not trusted your gut in a situation and just relied on outside opinions to where maybe it was to your detriment.

[00:39:03] Clay Finck: Yes, so picking backing 1st on a couple of your points there. Not putting all your faith in numbers. I’m again reminded since I just covered the Bezos letters, what he did, in the really early days is he just would ruthlessly cut prices and offer, the lowest prices for so many products that anyone could get.

[00:39:24] Clay Finck: And if Bezos followed all of his internal models on what price leads to what sort of profits and sort of volumes. Like every single model would have said, do not cut prices. His filter isn’t, optimize what these models are saying or seek outside consultants. It’s focused on the customer and that’s what he did.

[00:39:43] Clay Finck: And it built that trust with the customer and he sort of made that leap of faith that over the long run, it’s going to create the most shareholder value and create the most value. For customers, because of that trust that’s inherently bill. So I think that’s a pretty profound point of not putting all your faith, not only in outside consultants, but also in numbers.

[00:40:05] Clay Finck: And you made a brilliant point there on finding a balance between seeking the opinions of others while also trusting your judgment and trusting your gut. I should, I think we shouldn’t discount, tapping into that intuition that’s within us. So thankfully, during my time here at TIP, I feel that trusting my gut and trusting my judgment has generally worked out pretty well.

[00:40:30] Clay Finck: Stig has a pretty hands off approach to management, where generally I’m making decisions on my own projects I’m working on, plus we’re pretty well aligned. In terms of the way we approach things, so a lot of times, luckily, my intuition aligns with what he’d like to see, but I can think of times when I was earlier in my career, younger and experience where I relied on the judgment of others and learn some of the things the hard way and went against my gut and it reminds me of a wonderful quote that good judgment comes from experience and experience comes from bad judgment.

[00:41:08] Clay Finck: I think that’s just so profound. And I’ve recently been reading, Andrew Wilkinson just wrote a new book called never enough. He owns a number of different businesses and also takes a hands off approach to managing his companies. He gave the example of how one CEO sort of wanted to veer off and start an unrelated business.

[00:41:30] Clay Finck: And Andrew just thought it was a terrible idea, but he knew that if he told the CEO no, then he would resent him. And if the CEO ended up not hitting his bonus targets, then he may resent Andrew for not letting him follow his judgment. And you talked to a little bit about this earlier, if you don’t give your employees any freeway at all, then what employee wants to work for you? Not a lot of people just like being told what to do a hundred percent of the time. So the CEO under Andrew, he went and ended up failing with the new initiative and he sort of just self-corrected, learned from his mistake and then just went back to his original plan without even being told.

[00:42:10] Clay Finck: What he should do. So he didn’t have to be told he was making a mistake. He just sort of realized it and self-corrected himself. And then the other beauty of this management style is that allowing others to make mistakes that won’t destroy the company makes those people better because they learn from those mistakes.

[00:42:29] Clay Finck: So in the long run, it also ends up working out well for all parties. I believe that generally many people just don’t like being told what to do all the time. At least I don’t. That, that’s why I’m here with TIP is because I have some leeway with what I get to do. So when you allow people to have autonomy and take full ownership over their work, they generally take more pride in it. And they, take care of your business, frankly, because they feel like their work is their own ideas and it’s not somebody else’s.

[00:42:56] David Fagan: To your point that you were talking about Andrew Wilkinson and allowing people to fail. It’s hard to watch sometimes, but it is important. I mean, that we could get into the parenting segment of the episode right now, because it happens with your kids all the time.

[00:43:11] David Fagan: They’re going to do something that they regret, but they need to have the experience. So you let them do it. But, I mean, the same things happens with our staff and our leaders that may work under you. That you could shift their course of action a little bit and.

[00:43:24] David Fagan: It’s likely better, but in the long run, if you shifted it and they didn’t have the learning lesson, it may be to their detriment. So it’s this type of deferred results and learning that I actually think create real leaders in your organization and allow people to take, quote unquote ownership in their work going forward.

[00:43:45] Clay Finck: All right, so jumping to the last chapter we’ll be talking about today, it’s titled Be Afraid of the Future. So I’m going to throw this over to you again, David.

[00:43:56] David Fagan: Let’s start at the end of this chapter and work backwards a little bit, Clay. I mean, Don writes that the pessimists tell us that the world was born in chaos and has been going downhill ever since, but we have to live with hope and we have to live with some faith in our fellow people.

[00:44:14] David Fagan: We have to act as if there will be a tomorrow. There is some point in starting an enterprise and starting a family and admiring the sunset. And it’s this going on that you have to that you have to pursue with. And if you want to fail, just simply be afraid of the future. And if you want to succeed, approach the future with optimism and passion.

[00:44:35] David Fagan: And I just love that. I mean, I’m an optimist by nature. And, like, just to boil this chapter down to really the three key points that Don says, if you want to be afraid of the future, enjoy the paralysis of fear, enjoy the tyranny of the past. And enjoy focusing on failure, and it’s proven that loss aversion is real, and that we focus too much on failure, sometimes, and, it pays to have a short memory, once in a while.

[00:45:06] David Fagan: I know it’s easy to say that, thinking. About some of my business experiences, but in 200 years of fear mongering, the worst case rarely happens, right? I mean, I’m old enough to remember. I was in university in the year 1999, and we all had. Laptops at Katie University, and they thought that when the clock rolled over on December 31st, 1999, that the world was going to go in chaos and it didn’t happen.

[00:45:34] David Fagan: I mean, it was literally. A no show and, I can remember back in 2008 in the great financial crisis. We won’t get into like how bad the markets were, but I can remember that people were talking about food security at that time and going way beyond the housing crisis. And it just reminds me of two of Morgan Housel’s writings, the seduction of pessimism and how smart it sounds.

[00:45:59] David Fagan: It’s great soundbite material to grab the attention of. Listeners and readers and they followed up with a writing this year on the dumber side of smart people, and he said, there’s a fine line between intellectual rigor and believing your own. Worries and really, it’s not a crime to be cautious.

[00:46:21] David Fagan: I think it’s actually important to have someone around you that may not be as optimistic as you and have a little bit of pessimism and that creates a nice balance and interaction with your ideas. But when caution becomes the overriding operating system of your business, you’re going to get into trouble.

[00:46:39] David Fagan: And when you quit taking risks, that’s a risk all onto itself. And the beautiful thing about business, and you mentioned this about Nvidia, thinking that they could be out of business in 30 days. I mean, running a business requires a paradox. It’s having full belief in your mission and your North star and your exceptional talents, while at the same time, knowing that you get swallowed up by the competition.

[00:47:04] David Fagan: If you don’t innovate, continually change and relax too much. So, included in your flywheel should be ensuring constant change. And forecasting to ensure you move into the future properly.

[00:47:17] Clay Finck: So this is one of my favorite chapters, just because the fear mongering is everywhere. I’m going to repeat one of the quotes.

[00:47:27] Clay Finck: If you want to fail, be afraid of the future. If you want to succeed, approach the future with optimism. I mean, what a statement there’s a quote in the book from FDR. He had said, the only thing we have to fear is fear itself. And in that Morgan Housel piece you mentioned, he explained how if you tell someone that everything’s going to be great, they’re likely either going to shrug you off or give you the skeptical eye.

[00:47:57] Clay Finck: But if you tell someone they’re in danger, you have their total undivided attention. So since the media knows that fear attracts those eyeballs, they’re just going to serve that fear to you on a silver platter. So knowing their incentive can help you guard against that pessimism and against that fear mongering.

[00:48:17] Clay Finck: And this doesn’t mean that bad things can’t happen. The great financial crisis was a very difficult time period for a lot of people, but over the long run, it’s much better to be an optimist. Then a pessimist, and I liked the way you framed it, how it’s good to be cautious, but we shouldn’t let caution and fear of failure and fear of the future be our overriding belief system when it comes to business.

[00:48:41] Clay Finck: And even when it comes to investing as well, I also think it’s easy to see something that’s bad that we see is happening today. And there’s just extrapolate current trends into the future. But humans and I guess the human mind, we shouldn’t underestimate what sort of things that can unlock. There are plenty of things where people just forecasted in the past, and there are many times where, for example, I think it was like.

[00:49:09] Clay Finck: In the eighties, people were saying, hey, we’re going to extrapolate this population growth and we’re going to have like major food shortages. And it just never happened because they didn’t consider that humans always have and always will change and they will always adapt to the problems that are thrown at them.

[00:49:25] Clay Finck: So investors like Sir John Templeton, François Rochon, who I interviewed have just done exceptionally well by being unwavering optimists. When you look out over the long run, it’s really hard to be anything but an optimist, but the human mind, it’s always driven these improvements across society as a whole and François in the interview with William Green, he had talked about how humans are hardwired to just never be satisfied and to always want to improve our current situation.

[00:49:55] Clay Finck: That’s sort of the underlying force that’s at play in this long term growth of society. François Rochon had written in one of his letters how the percentage of people globally that lived in poverty in the 1850s, it’s just such a crazy stat. Like, I almost don’t even believe it when I read it, but he said the level of extreme poverty globally was 87 percent in the 1850s.

[00:50:19] Clay Finck: And today it’s less than 10% and over that same time period, the standard of living has increased by 25 times. So I think it’s so interesting to think about how progress is just something that’s an innate within the human spirit. So we shouldn’t discount that powerful force. I also liked how Don talked about how pessimism can be paralyzing.

[00:50:41] Clay Finck: So when you fear what the future might bring, then you oftentimes end up doing nothing. He writes that fear of the future guarantees that the future will be a failure. And Don also poses a question in the book that you might resonate with, David. So he writes, when is the best time? To start a business.

[00:51:00] Clay Finck: What preconditions does he look for? People often ask him, when’s the best time to start a business. So if you believe all the fear mongers, then there’s never a good time to start a business. Something’s always wrong. There’s always some hole in the business model. There’s always a lot of competition that you have to compete with.

[00:51:17] Clay Finck: But if you believe in the creativity of entrepreneurs, then almost any time is a good time to start a business. I can take that mental model and just apply it to investing as well. I think the same thing could be said about the best time to invest. I often get asked, what’s the stock market going to do over the next year?

[00:51:34] Clay Finck: When should I get in the market? And the fear mongers will always have reasons to sit on the sidelines. Wait for the next great financial crisis. But history suggests that getting invested in the market as soon as possible is almost always the right answer.

[00:51:51] David Fagan: Yeah, that’s wonderful. Clay. Sometimes the biggest decisions in my life I’ve made, I just jumped in.

[00:51:59] David Fagan: And you just don’t know what’s going to happen. And, I think back, if I just didn’t jump in, if I let fear mongering or overthinking be my overriding operating system there, I wouldn’t have accomplished some of the wonderful things that I am very proud of. And in my life. Yeah, there’s so many great lessons from this book.

[00:52:19] David Fagan: Clay, we’re probably not going to get a chance to cover them all. I’d highly encourage the listeners. I mean, there’s a couple chapters in here. Like, don’t take time to think that’s a lovely one. And a really a really laugh out loud one, and I don’t know if you picked up on this, Clay, is love your bureaucracy.

[00:52:38] David Fagan: We could have had a whole a whole episode on that one. There were some really funny lessons that Don shares in that one. But, just what an amazing common sense approach to business Don takes.

[00:52:51] Clay Finck: When you think back to when you made the jump into entrepreneurship, like what were some of the big sort of hurdles you had to get over? And you look back, it’s just like, man, I’m so glad I made that jump.

[00:53:03] David Fagan: I mean, for me, it was, I was pretty young. Like I was actually 26 years old. So, I didn’t have income security as a big hurdle, which I was really fortunate of. I mean, I knew, I knew that I grew up in a family that ran a clothing store.

[00:53:21] David Fagan: I knew what it was like to work for yourself. So I knew I was always going to do that. And, I had a couple moments defining moments at my previous place of employment that I was like, you know what? I’m not sure I’m ever going to be able to. Focus on the work that I wanted to focus on and work with exclusively owner managed clients and.

[00:53:43] David Fagan: And this is back in the early 2000s, and so I just jumped at an opportunity locally to partner up with a couple people and, I tell everyone the reason why it was so successful. I mean, I was 26, 27 years old coming in, and these, the gentlemen that I partnered with were significantly older than me.

[00:54:05] David Fagan: And they basically allowed me to do anything I wanted. And so I got the, like, they didn’t say no, and they allowed me to flourish and do the things I wanted to. And I look back at that now, I’m in my mid-forties now. I mean, what a wonderful gift that they gave me to just allow me to take different things and just run with them.

[00:54:26] David Fagan: And I think it’s a really powerful we talked about some of the lessons in this book. I mean, if you have someone with some ambition and drive it’s really important to kind of let them spread their wings a little bit.

[00:54:39] Clay Finck: I like how you mentioned how your parents were entrepreneurs as well, and you mentioned the income and the uncertainty around that income, because I found that to be sort of the biggest hurdle people need to jump.

[00:54:53] Clay Finck: I grew up in a family where, I was told to go and get the nice secure job and you’re going to be taken care of for the rest of your life. You always have that job and income to fall back on. And I think back to Mohnish where he grew up in that entrepreneurial environment, and he went and got the safe job and his dad’s like, so when are you going to go and start your own business?

[00:55:11] Clay Finck: He’s like, did you forget all of the pain we went through? But I think being exposed to that uncertainty and just sort of embracing that entrepreneurial drive is something I find really interesting and inspiring. I think it’s so important to highlight for those that, maybe grew up in a situation like mine, but wanted to take that leap. It’s sort of a leap of faith jumping into entrepreneurship.

[00:55:32] David Fagan: It is, and it’s wonderful. And the effort you put in definitely results in the effort you get out.

[00:55:38] Clay Finck: So David, I thoroughly enjoyed putting this episode together with you. So we got connected around a year ago because you joined our TIP Mastermind Community, and you’ve actually ended up being one of our most active members, hopping on calls, interacting on the forum.

[00:55:53] Clay Finck: We started the group in April of 2023, and we’ve been quite pleased with the audience’s response to, how much value members are getting out of it. David, I’d love it if you could share just some of the things you like about the community because I know a lot of people join for a lot of different reasons and some people like stock ideas. Some people just like networking and whatnot. So I’d love to hear your thoughts around that.

[00:56:15] David Fagan: Yeah, I mean, like everyone in the community is going to internalize why it works for them individually. I mean, for me, it’s super simple. It just starts with a commitment to lifelong learning and. Pushing yourself to be better, I have been in the community for over a year now, pretty much right from the start and it’s amazing to see how my habits have changed in the last year and how similar my story is with some of the other members that I’ve connected with, if you’re active in the community, you have the opportunity to learn a ton.

[00:56:48] David Fagan: And I like to, I think it’s the difference between, like, going to the gym to work out by yourself or going to the gym to work out with a friend. I mean, when you go and you work out with someone else, sometimes you work out harder, right? And you have someone there to push you a little bit and, more specific to some of the events that we have.

[00:57:06] David Fagan: I mean, it’s wonderful to hop on some zoom calls and. Hear a stock pitch that someone has done a deep dive on and, really put the work into, it’s great to get one on one access to some of the guests that you host on the show. They’ll come on and do a little Q and A with us maybe after the fact.

[00:57:23] David Fagan: 2023, a couple of highlights. I enjoyed the call that we had with Gautam Baid and Chris Mayer. Cause we were able to talk about their books, but then kind of go into a bit more on their investment styles and stuff. And just thinking of a couple of the question and answers that we had this year, we had a wonderful one with Joseph Shaposhnik and John Huber just last week, and it’s just so great to learn their approaches to investments.

[00:57:50] David Fagan: And another book review that we did was what I learned about investing from Darwin, and we were able to get Pulak Prasad on a call earlier in the year. So, yeah, it’s great. I mean, and I guess I should speak to the live events. I wasn’t able to go to Omaha. It just comes at a poor time of year for me where I’m finishing up tax season.

[00:58:10] David Fagan: Maybe one of these years, I’ll get there, but the New York visit we had last year was amazing. And it’s really nice. As much as we connect via zoom, there’s, I don’t think you can beat in person connections. So, yeah, I guess just I’ll leave it at that. And from everyone in the community, clay, I just want to and Kyle for your amazing leadership in the group and I want to thank for his guidance and teaching and mentorship as well.

[00:58:38] Clay Finck: Great. Well, thank you, David, to piggyback on some of the comments you made there. We’re working on planning our meetups in New York city. Those will be October 4th through the 6th. So any members can get access to those. We’ll be hosting a number of different events.

[00:58:54] Clay Finck: So we’ll have some structure around it where you can get together with members and then some open time during the weekend to kind of go off with whoever you’d like to explore the city. And I agree, New York City is a lot of fun. Being from Nebraska, I know Omaha well, and it’s great getting together with all these people, but there’s only so much you can do in Omaha.

[00:59:12] Clay Finck: And then Stig’s also hosting a lunch and a dinner in London in August. So, to mention kind of a core part of the community is the Zoom events we host. We originally planned on doing at least one Zoom event a week, and now we generally are doing many more with Stig and Kyle getting more involved with the community.

[00:59:32] Clay Finck: I just wanted to mention some of the ones we have coming up here. So, Stig and Kyle are going to be doing what they call a bull and bear analysis where they’re going to be talking the bull and the bear case on a stock. They both own Kyle’s doing a presentation on assessing a management team.

[00:59:47] Clay Finck: My friend Leandro from Best Anchor Stocks is going to be doing a presentation on John Deere. Kyle’s doing his quarterly portfolio update at the end of Q2. Stig is putting together a presentation on how he ends up building a position in his portfolio. So he recently started a new position that, kind of as a starter position, and he’s potentially going to scale that up to a full position.

[01:00:08] Clay Finck: So he set up a call on how he thinks through that sort of the lessons he’s learned and how he came to develop that sort of approach to building a position. Couple more here. Alimentation Couche-Tard presentation. It’s a company we’re going to be covering with the group and then Kyle’s also doing a stock presentation on the most recent addition to his portfolio.

[01:00:28] Clay Finck: So that gives you a taste of what we have going on with the community. I always tell new members are people that are interested in joining that really there’s 3 things that a lot of people generally get a lot of value from. So it’s either 1st is the learning opportunities. As you mentioned, just there’s always new things to learn.

[01:00:45] Clay Finck: A lot of people in the group are readers. So people are always sharing books. Occasionally we chat about books on our calls. So yeah, 1st is the learning opportunities. It’s sort of if you love the podcast, then you’re absolutely going to love the community because we’re hosting all these calls and doing all these collaborations on the forum and whatnot.

[01:01:02] Clay Finck: And then the second is the networking opportunities and we’ve had every single member, every member has to apply to join. When you get on the platform, the content’s going to be high quality. And then, obviously you have the ability to connect with members online, but you can also we have our live events.

[01:01:16] Clay Finck: So that really takes those online relationships and really just brings them to a whole new level after you’ve met someone in person. It’s just amazing that I’ve gotten to meet probably close to half the members in person already, just one year in. And then the third thing is just like a lot of people love getting new stock ideas or sharing their stock ideas with others.

[01:01:34] Clay Finck: So you have this high quality group where oftentimes other people in the group know a stock that you’re interested in. And I’m someone in the group where I’ve chatted with every single member so I can kind of point you in the right direction to connecting with other members. So yeah. All right, David, well, this is super fun to put together.

[01:01:50] Clay Finck: I really appreciate it. Thank you for joining me on the show and thank you everyone for tuning in. By the way, everyone, if you’re interested in learning more about the TIP Mastermind Community or applying today, you can simply click the link in the show notes or go to theinvestorspodcast.com/mastermind. That’s the investorspodcast.com/mastermind.

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