Preston Pysh  4:04 

Some very impressive numbers, obviously, that Jack was talking about. The thing, however, that I think really delineates Jack Ma and Alibaba from Amazon is this small business piece. I think that I heard him say there that they don’t have any distribution centers like Amazon, which is quite interesting. I wonder how much… I’ve never used Alibaba. I’m curious, Stig. Have you ever used Alibaba at all?

No, but after I listened to this interview, I needed to check it out. I’m really impressed because he was standing this up with about 34,000 people. Then he has two million people delivering the goods. It makes you think of Uber or something.

Yes. I guess when I hear that, I’m kind of curious whether the service would be better than Amazon because I know Amazon is so consistent and reliable when you buy something from them. I have Amazon Prime. I get it very quickly. It comes in a standardized box with the packaging and everything. 

I’m curious if you kind of have the same experience with Alibaba and if it’s coming at the same speed and maybe the same quality of logistics, because he’s decentralized all of that. Quite fascinating though. I also think it’s just crazy to think that he’s going over a trillion in sales within five years. That’s just astronomical.

Stig Brodersen  5:28  

Honestly, it really makes me think of Google when I was listening to this interview, because he was saying that they’re not an e-commerce company. They’re an e-commerce enabler. 

He said if you want customers to pay for your goods and to handle the payments, we have AliPay. If you want more customers, then Alibaba will help you find the customers. 

I was thinking about AdWords and AdSense, in the sense that they are the ones facilitating so you will have all these creators of content out there, regardless of the industry, and they will write something or create a video about whatever [you want.] 

Then here with AdSense, you have this amazing sharing tool where Google makes money and you make money as the creator from the ads. I kind of like that approach. 

I also like Alibaba’s way of saying this that they can really steer the ship in any direction because they are enabling other people to do what they’re good at. Of course, they make sure to take a cut of that. Anyway, it was something that really impressed me. 

I also kind of liked the idea of the platform. It makes me think again of Google. Google is really the top of the class and they are enabling artificial intelligence to happen. For example, you can use their open source code to create your own products that I assume would be completely feasible with other Google products and whatnot. 

Anyway, they’re creating these standards, free or paid, for others to thrive and then they will ensure the gain payment in the end. It seems that that’s what they’re doing in China too. Though I have visited China, I have no clue how Alibaba works. I’m just very impressed by them, kind of like being the gold standard or at least the way he describes it.

Preston Pysh  7:13  

I agree with you. It does kind of seem like they’re taking a Google approach to the way that they’re outsourcing everything and trying to push it down to the lowest level. Then this process gives other people the opportunity to perform. Also, they’re still benefitting tremendously from that by being basically the broker between all these B2B or B2C models.

Stig Brodersen 7:34  

I like the way he runs through the numbers. He’s talking about Alibaba being bigger than Walmart. Walmart has 2.3 million people. I know this is a different structure, if you compare them to Alibaba who has 34,000 employees. To me that is crazy. It is a different world. 

Preston Pysh 7:52

You’re right. It is huge. 

All right, let’s go ahead and play the next one here. This is what Jack was asked, “What do you think are the types of failures young people make that they should learn the most from”” This was his response.

Jack Ma  8:06  

Let me tell you that one day, I was reading a biography of a general in the Second World War. I was impressed by not how much victory or successful battles he had achieved. If I was a young man at that time, I could do better, but I was impressed by how much he suffers. He had a lot of terrible experiences that he survived. That was what surprised me. 

My great grandfather had always told us, “Jack, I have made a lot of mistakes but I still survived.” I said, “Wow.” However, if he told us, “I’ve achieved that much.” I would have probably said,”If I were your age at that time, I could do better.” 

People will feel proud when they tell their grandchildren about how many tough days they have gone through. I think one day I will share with my grandchildren how much Alibaba has gone through, all our tough days and mistakes.

Doing business is like going to the battlefield. The survivor wins. No matter how brave you are, you’re dead. People will forget you within three days, but if you survive, you will always have a chance. Going also to the battlefield is that experience a soldier knows how to *inaudible* himself and then fight. Young soldiers just go out to fight. 

There are various reasons for one person to be successful, but they are almost the same reasons for people who fail: greed, wrong team, running too fast, with too much money. By the way, you will never make big mistakes when you don’t have money.

People say, “If I have money, I’m going to do a big business.” 

No, no, no. Remember that all the mistakes other people make, you will make it too. If you want to be successful, learn from the mistakes that other people make, not because you will avoid these mistakes, but because you will know how to face these mistakes and troubles when they come. 

When you first have a lot of mistakes, you will say, “When these mistakes come, how did Bill Gates do it? How about Obama?” 

When the tough day comes, it is not because you can’t avoid it, but because when the problem comes, it is how you face it. It should be with a great attitude, then you will succeed.

Preston Pysh  10:45  

This response kind of reminds me of the Daymond John book, especially his comment about not having any money to make a big mistake. I really like that. I think that gets at what Daymond was hitting with his book. A lot of people say they need to have $100,000 to do whatever marketing campaign they need to do. 

Based on Jack’s response, it seems like he would disagree with that opinion. He thinks that you need to go out there and make mistakes and learn them while you’re still poor. Then when you start making money, you really have to be ahead of this and learn from other people who are smart and kind of captured what they did to navigate those rough seas. It’s a neat response. 

Stig, did you have anything else you wanted to add on this one?

Stig Brodersen  11:27

I really love how he talked about how there are many reasons why people succeed but it seems like they are always the same reasons why people fail. He mentioned three different things: greed, the wrong team and too much money. 

About greed, I really love this. When you’re in business, you are often faced with options. Well, it kind of seems like you only have one option, right? You need to get more and then the other party will gain less. That’s kind of how it looks from the outside.

However, I think this is really what Jack was getting at. Do not be greedy, be generous here. Spend some time considering how you can grow the pie because really what happens then? 

Well, you are getting more and your partners are getting more. Hopefully, this will open up to more wealth and long-term prosperity for the both of you. It just seems like if you focus on getting more now and not working to find alternative solutions, there is a high risk of you losing your reputation. 

[Reputation] is really the most valuable asset you have when you start entering the business world. It reminds me of these stories you hear about the good, strict, and tough CEO, like he would be this tough negotiator and he would not botch at any point in time. 

Honestly, I think what Jack was getting at here is this is a wrong strategy. The story should go something along the lines of “The CEO was fantastic. He found a way for both parties to prosper more.” 

I might be putting too much into his thesis about greed, but that was definitely what I was reading into it.

Preston Pysh 13:20  

Alright, so we’re going to move on to the next question. This one is for entrepreneurs. 

“Let’s say you’re working on something and it’s kind of a crazy dream or you’re trying to build this business but you’re not having a lot of success. You’re taking criticism. How do you keep driving on without giving up?” This was Jack’s response.

Jack Ma 13:38 

If you have a crazy dream, it is very important that you have to find the people around you. When we invest a company, I look not only at the founder, I also [look at] the people who work with the founder and whether they believe in him. 

If he is the only person who believes in his dream, that’s very dangerous. It is not a crazy dream. It is a crazy person. However, you have to find a group of people who all believe they’re all crazy about something interesting, right? Because it’s easy to make one person crazy but if you make the whole team crazy about something interesting… 

This is what I did in the early days of Alibaba. I made a speech in America and talked about the value mission and management of running an internet company. That was very early 2001 or 2002. 

There was an American guy sitting there who said, “Hey, this is a crazy guy. The Internet needs to survive and make profit and revenue. Forget about customer value and teamwork. These are all lies. You are crazy.”

I said, “Sir, welcome to Alibaba.” 

He came to Alibaba and spent a few days there. The day when he left, he said, “Jack, I thought you’re crazy. Now I found 100 crazy guys in your company.”

This is because we believe in what we are doing. It’s easy to make you believe, but if you can make a team believe and continue to do it, that’s it. I think if it’s crazy or not, the only test is the idea of if you want to make a company, it sounds crazy, your customers will love it. If the customer likes it, your team likes it, you will know that it’s not crazy. 

If the customer does not like it, your team doesn’t like it, forget about it. You have to change yourself. Even if you have crazy ideas, you shouldn’t believe you’re always right. You have to learn.

Alibaba in the past 18 years, we have changed at least with 18 big major changes. We are not the Alibaba of last year. Every year we are a different company. You have to change all the time to be sure. We don’t care about what other people say like “You’re crazy.” 

What we care about is if this is something that’s really different and can make a difference. That’s what we care about.

Preston Pysh  16:06  

Pretty awesome response here. I really liked how he started this out with saying, “If you’re the only person in the company that believes in it, then you’re the crazy person.”

He hit the nail on the head. I don’t have anything else to add. I just like this exchange and I like the way that he answered this because that’s not really how I was expecting him to answer it. 

Stig, I’m curious what you think.

Stig Brodersen  16:30  

When I heard this story, it really made me think of Jack Ma himself when he was starting out and before he became this billionaire. Preston and I read this book about Jack Ma. We’re going to link this in the show notes. I want to say it was just before Episode 100. It was probably Episode 99 or something. 

The book talked about how Jack Ma kept on applying for jobs in his home city. There was this iconic story of KFC coming to town and they were hiring. They had 24 people applying for the job and 23 people were hired. Jack Ma was the only one who slipped out. 

That must be so hard for Jack Ma. 

There was even this story about Jack Ma and his cousin and they were going out to this job interview at a local hotel. It was like a four-star hotel. He was so happy because his cousin actually got a lower score than him, but that was not why he was happy. He was happy because his cousin got a lower score than him yet he got the job. 

Even though his cousin got a lower score than him, they still rejected him because they didn’t like him. It’s so true. Whenever he talks about that, you have to get used to failure. It’s like being a boxer. You need to be able to roll with the punches because if you are in the business world, you will just be a punching bag one way or the other.

Preston Pysh  18:01  

I think he had an important point there at the end though, Stig, with saying you have to be resilient, but you also have to listen to other people. 

You just can’t have this crazy idea or this crazy dream and just move out because you have three people around you that are boosting you up and telling you it’s going to work. You need to listen to what people are saying. At the end of the day, if it’s adding value to the customer, then you’re probably making the right decision. 

Alright, the next question we’re going to play is a question that Jack was asked about his opinion on globalization. This is what he had to say.

Jack Ma  18:33  

I think globalization cannot be stopped. Nobody can stop globalization. Nobody can stop trade. I believe if trade stops, war starts. 

Trade is the way to dissolve war, not cause the wars. I think globalization did a fantastic job in the past 30 years. It made a lot of countries rich, but of course, it also caused problems. 

Young people do not have opportunities. Small businesses have *inaudible* opportunities. Developing countries were neglected, but it’s only 30 years. It’s a baby. You have to improve it. If you do not want to improve it, then kill it. It’s easy. Most of the time, killing something is easier. 

Now, artificial intelligence is coming. Robots are coming. My grandfather worked 16 hours a day and he said he was very busy. We work eight hours a day. We say we are very busy. Our children may only work three hours or four hours a day and for three days a week. I bet they will say, “Oh, we’re very busy.”

Then when you work only three hours a day and four days a week, what are you going to do? You’re going to travel around, right? You cannot stay at home for a week. You will travel.

Thirty years ago, you had a normal life where you visited 20 to 30 cities in your whole life. Thirty years later, you can visit 300 cities in your life because of mobility. How can you stop it? It’s impossible. 

So thinking about that, the only thing is to improve it and to make it simple. Global trade should be simple. It should be modernized and inclusive so everybody has the opportunity. 

Well, I feel sorry for WTO. They did a great job, but in the past 20 years, when you put 200 government ministers in one room, how can they agree on something? Because I don’t like the country… No matter how good a suggestion you have, I will say no.

However, business people, even if we put 200 business people in one room, we will surely agree on something. This is what I believe. The next generation of globalization should be inclusive and should create opportunities for young people to get involved. 

The first globalization in human history was controlled by a few kings and emperors. The last 30 years, globalization has been controlled by 60,000 big companies. If you’re not among the big companies, if you’re not in the big powerful countries, you don’t have a chance. 

The next 30 years, I bet we will have 16 million companies to get involved in globalization. I’m sure we will make it happen together with a lot of people. Maybe with you with a mobile phone, if people will still use mobile phones 30 years later. 

With a mobile phone, you can buy globally. You want to buy something from Kenya, you just click. You want to buy something from Norway, you click. You can buy globally with a cellphone. 

Without the internet, you can only sell in your village. Today, you can sell across the world and globally pay, globally deliver, and globally travel. The only thing you have to bring is a mobile phone, not even a passport. This is going to happen in 10 years and this is the message. Let’s catch this opportunity. 

If you complain, other people will catch the opportunity. Embrace the now. You will be the next Alibaba. I was born in a very poor family and never got a great education, but I failed all the examinations for what reason? I don’t know. I realized later that I don’t have money. I don’t have tech knowledge. I don’t have a lot of good backgrounds or a rich uncle.

The only thing I *inaudible* are my people. Let’s *inaudible* for 10 years later. This is what I believe will happen in 10 years. Everything I do for that goal, I know 10 years later, this thing is going to happen. Prepare for that because I know if I compete with *inaudible* for next month, I have no chance. This is my message. It’s a challenge but it’s also an opportunity.

Preston Pysh  23:14  

Some really interesting comments there about globalization. What I think is so fascinating about his response is it is totally opposite of what we’re seeing in the last few months, with the way things politically have been happening around the world. For example, tariffs and this trade war that we’re seeing erupt here in the summer of 2018. 

However, as we think through like Jack was saying, 10 years from now, do we still see the trade war and all these enormous tariffs that are being waged around the world, continuing to exist are getting worse? 

I don’t necessarily know that I would see that getting worse in a 10-year time frame. I think that it’s going to probably get worse through 2018 and 2019. Though I think that you’re going to see a reprieve from that. There’s going to be some type of agreement that comes out of this and then maybe it even gets better from there. 

Stig, I’m kind of curious how you’re hearing his comments. Then also looking at things in the modern context of what’s actually happening.

Stig Brodersen  24:14

  I’m really happy you said modern context, because I would like to talk about 1951. I thought I would answer this in a very different way, but then I will go back to the present.

Back in 1951, the Coal and Steel Union was founded. Today it’s known as the European Union. It was founded by Belgium, France, West Germany, Italy, Netherlands and Luxembourg. It was so important in Europe that you have the Coal and Steel Union because if you [don’t] cooperate with Coal and Steel, it will be really difficult to go to war with each other. 

As prosperous as Europe has historically been, Europeans tend to go to war with each other all the time. I know since 1951 has only been a very brief period of time, but you haven’t seen any traditional war in a European sense. In Western Europe, if I might add. 

I think that was also what he was getting at when he talked about how you cannot stop globalization and that trade is the way to achieve peace. When goods are traveling cross borders, it’s really hard to send soldiers. I think it’s interesting to hear his thoughts about simplified global trade. 

In World War Two you had all these different organization, *inaudible* probably being the most successful, then that transitioned into the World Trade Organization. The plan really was not to have tariffs and even back then they kind of knew that wouldn’t be possible. 

However, the fewer tariffs and quotas you would have, the better it would be for the economy, which in itself is a very difficult statement to present really to the public because the political system does not work like that. 

Typically, when you ask and you talk about quota, you talk about tariffs. The rhetoric is more about protecting domestic labor. There’s definitely some truth to that and it’s very difficult to do it any other way. However, if you look at it in aggregate, more tariffs and more quotas would be bad for the overall employment. It would be bad for prices. If you would like to have low prices as consumers, we should welcome trade as much as possible. 

If we talk about more present issues, it is very difficult to reach this agreement. You have 200 government officials together. It’s close to being impossible. We see that over and over again.

Jack brings up this example of why we do not let business people speak to each other because it’s easier for them to agree in something. I would agree with him. This is a very politically loaded question so it really depends on which side you’re on because if you put together 200 business people, what would they agree on? 

Well, they will probably agree on free trade, more or less. In general, most business people like free trade and non tariffs and quotas. 

However, we also know that free trade is something that can create more social tensions. We also see that you can create high inequality. A lot of these people who might agree on this might not be averse to high inequality, if that is where this is getting at. 

I’m really trying to… Before throwing this over to Preston here, I’m really trying to see from both angles, like from an financial or economic perspective. Free trade is 99.999% good, but it might not be good in a political sense and in terms of employment in the short term for some countries.

Preston Pysh 27:46  

The first thing that I would say to him is well, the decision makers aren’t all business people in the room. I don’t see that happening in the next 10 or 20 years either. I’m more of like, how are things actually going to happen? 

Whenever I think about that, yes, free trade is a great thing from a global and macro perspective of everybody involved. However, if you’re the country that has an enormous trade deficit, it’s not. That’s very bad for a country that has an enormous trade deficit. 

I don’t know that I see it as cookie-cutter as he’s making it. I think that I agree with him on the front that technology is going to maybe have the impact here and where I think that that might end up being… He said in his comment, “global money.” 

He said things are going to have global money. If there is truly global money, that is a fixed monetary baseline that can’t be manipulated. You’re going to see things have to mature and have to evolve to what he’s describing, but if that doesn’t happen, and you continue to have fiat-based currencies that are completely centralized around the world, I think you’re going to continue to see the same dynamic as what we’re seeing today play out. It’s just going to be who’s fighting for more tariffs and who’s not.

For me, that’s the big discriminator between the world that Jack Ma just described, and whether we continue down the status quo of what we’ve seen in the past.

Stig Brodersen  29:09

In short, we also have to think about where the message is coming from. I mean, if you are the CEO and founder of Alibaba, and you would like to sell your goods in all countries around the globe, would you like tariffs? Would you like quotas? Probably not. 

If you’re a congressman from Nebraska and you know that your voters would like tariffs of whatever kind of crop that they’re growing, it’s different. That’s also a good reason why it’s not easy. 

You see this new agreement between the European Union and Japan. They have this huge deal. They would like to remove tariffs or lower tariffs and quotas of as many as 99% of the goods, but then there was one Japanese good that is always protected, and that is rice. 

Think about this Japanese government who would say, “Well, sure, we’ve just liberalized everything.” 

No, that will never happen because they have strong historical reasons and there are lobbies in terms of having your own rice production. It is just as simple as that and you see that all over the world. 

So I like your point, Preston, about this hypothetically would be the best thing, but that’s not how the world is. It is like saying that a world without politicians is in one shape or form. I don’t know. I’m having a real hard time seeing that too. I’ll grant you that.

Preston Pysh 30:28  

I think that he has some interesting points there, but there are some things that I think have to happen in order for that vision to actually mature and happen. 

This thing with the currency stuff is interesting. You got a lot of people talking about Bitcoin and cryptocurrencies and how they can become global money. Then you get into the energy discussion with some people and many are arguing why they don’t think that something like that can happen. 

I kind of think that something like that is going to happen, but who knows? I mean, there’s just no way of knowing that. However, I think that that’s going to be a really critical point to all of this is whether you get people that are not manipulating currency in what’s happening.

Let’s talk about what’s happening right now. This is a perfect example. In the US, they’re exercising enormous tariffs on China. What did we see? How did China react to that? 

Well, their currency is devaluing at the fastest rate that we’ve seen since we can remember. It doesn’t look like it’s stopping any time soon. The yuan is devaluing at a rapid pace, which is completely offsetting the tariffs that are being placed. 

I don’t know that it’s a one-for-one but it’s definitely a fighting strategy to offset what’s being done. Without any type of control over how fiat is managed and the monetary baseline of fiat, you’re going to continue to have this back and forth in this wrestling of what’s fair and what’s not fair, because at the end of the day, this is a big power struggle of who’s controlling what. The dollars talk and the currency talks. We’re seeing it play out firsthand. It’s quite fascinating. 

We had a guest on the show, Richard Duncan, and he did a fabulous job laying out how the dollar has evolved over the last century and how when the dollar became depegged, you had other countries around the world print a bunch of fiat, which then caused the US to basically flood the world with dollars. 

It’s just a quite fascinating discussion. We’ll have a link to that discussion in the show notes, if you want to really dive into some of the stuff at a much deeper level. Duncan gives an unbelievable description on how all these have played out and kind of led to what we’re seeing today with some of this stuff. 

Stig Brodersen  32:56  

Alright, guys. This ends our discussion about Jack Ma. At this point of time, the show would like to play a question from the audience. This question comes from Madison.

Madison  33:07  

Hi, Preston and Stig. This is Madison. First and foremost, I just want to thank you for all the time and effort that goes into your show. I know not only for myself, but on behalf of all listeners, it really does bring a lot of value and education. It’s priceless. I have been listening to about a year and a half now and I really just want to thank you for all your hard work. 

My question today is regarding an area that Buffett and Munger put a lot of emphasis towards and have also added on their investment checklist. That’s management who operates by honesty, integrity, and are competent. 

So I was wondering if there are some financial metrics, whether you look at or you would suggest to us as listeners look at and for us to gauge whether management is operating under integrity and honesty, and are really competent. Thank you. 

Stig Brodersen  33:53  

I like this question. It’s definitely a question that I thought a lot about. I’m doing that today but I also really did that when I was starting off with stock investing because you hear so many smart people, including Buffett and Munger, talk about how you should only invest in companies that have really good management and have high integrity. They’re also honest people. 

However, where’s the integrity number in the financial statements? I guess that is what you’re getting in here. Of course, it’s hard. You almost need to derive those numbers. To me, I guess the key metric to use would really be the track record. 

Now, I can be a bit more specific here but I think the track record is one. At least as long as it is the same management, I think that will be a really good indicator. Talk is cheap. 

If you also jump on these earnings calls, you hear these management people who are just like they know everything, right? They say all the right things and every time they get a question, they have just the right answer. They have no shred of doubt that they’re correct. 

Then you look back at the track record and they haven’t made a dime over the past 10 years. You will likely say, “No. I don’t trust that person.” 

It is, of course, difficult just like listening to what they say. That’s why I place so much emphasis on the track record. I’ll look at that. I think that’s an important factor. 

I think it’s very tempting to a lot of management to use that as a shortcut because whenever you’re using that, especially since it’s limited liabilities, even though that you are the CEO and you have a resume to think of, there is a lot of downside risk that is not really…

It might be your responsibility but that’s not how you might act because you get so much of the upside, if that is really put to use in a good way. I would definitely say I would look into two months’ debt. I don’t like the high, debt-to-equity ratio. I also use the coverage ratio. I prefer it if it’s above 5 or 10. 

Then in general, when I am listening to the managers or the CEO talk, think of who takes the credit and who is blamed if something goes wrong. 

The thing is you can read a lot into that, especially like looking into oil companies here over the past few years when you saw the price plummet. There seems to be some CEOs and they’re talking about their own failures. Then you have other CEOs who only talk about how they’re just so unlucky that the oil price slipped, right? 

Then you might say, “You are the CEO of an oil company but you had no clue that the price of oil could go down?” It is just the way that they talk about it that I think is a huge red flag. 

Just one more metric that I really find interesting and look at is how it’s composed. It’s something like the turnover rate or the turnover rate of your employees. When I was thinking about this, I would say, “Well, if it’s a bad company, then the turnover rate would be high. If it’s a good company, it’s the other way around.”

Apparently a lot of studies have been done on this and really what you come up with is that comparable companies, they’re more or less the same as the best companies that you can find out there. 

However, great companies do something different again. The average is the same, but they do something different. Either whenever they bring people into the management, they are there for a very long time. 

It’s really good with the consistency, or they realize that they’re not a good fit. They’re not top performers and they just fire them right away, because then there’s no reason why they should dilute the quality of management of the company. 

I know that this was a lot of talk. I guess I didn’t give you that key metric. That metric is called the integrity metric or good management measuring in the financial statements. I guess at least to me, it’s hard to come up with just one key metric to look at. 

Preston Pysh  37:54  

Madison, your question is not an easy one to answer and I think anyone that you talk to is going to tell you that this is very difficult to be able to assess. I think that’s the starting point. I don’t think that there is a right answer here. If I was going to tell you how I personally do it, I think in the conference calls, you will learn a lot. I think you learn a lot about the people who are leading the company. 

Stig was talking about humility. I completely agree with him. You’re looking for somebody who has a lot of humility. Someone who is calm and balanced, and talks about the pros and the cons in an equal way when they’re discussing their company. I think that’s really important. 

You’re obviously looking for somebody that has a track record that’s been there for a while. Let me give you an example of what I think is a bad example of ethical behavior. 

I’m going to get a lot of flack for saying this, but for me, I see this as a red flag. I’m not saying this person is unethical, but what I am going to tell you is this is a flag for me and this is not normal behavior. This is something that I’d be looking out for.

The person is Elon Musk. With his recent conference calls and the way that he’s acting, it’s not normal. It’s not balanced. Does that mean that Elon Musk could be doing everything ethical and his company could go on to quadruple in size? Absolutely. 

However, for me, personally, you know how many companies I can invest in on the public markets? Thousands upon thousands. There are tons of choices out there. I don’t have to own Tesla. I don’t have to put myself and expose myself to somebody that I don’t think is in a stable position right now. That could be a major mistake. 

However, something else that Buffett and Munger and this guy say is I’d rather make a mistake of omission, as opposed to a mistake that I clearly could identify as an issue. For me, when I look at Tesla, I think that there’s concern there. I think that maybe he might not be doing things completely ethical. Maybe the best way to describe it is I gave you an example of an area where I think there is a concern and that for me is a concern.

Stig Brodersen  39:59 

I really liked that you brought up Elon Musk also because not too long from now, we will actually do an episode like this about Elon Musk. We definitely think there are a ton of things we can learn from him. 

In our research, we stumbled upon this question when he was asked by a reporter. We’re not going to play so I’m just going to briefly talk about it here. They talked about how much you think about headlines whenever you’re making a presentation? 

He replied, “Sure, I do that. It’s very important because you try to convince investors to do this and that.”  

Then I thought, “Can you just imagine Preston having Buffett say that? Yeah, I think in terms of headlines. I need to convince investors to give me more money because I’m losing. I have never made a profit so I need to convince investors to give me more money and the banks to give me a loan.”

Preston Pysh 40:43  

Well, I think that their approaches are completely different. Warren Buffett and Elon Musk have completely different approaches to building value for society, right? I think that we’ve got to first delineate those two and say that we’re not comparing apples to apples. 

At the same time, I think that the propensity for somebody to do something unethical is way higher when you’re trying to move really fast and use a lot of leverage. 

I just think that you’re more prone to that, because you’re influenced by continuing what you’re trying to do and trying to continue to grow. That opens the doors to be doing those types of activities, a whole lot more compared to somebody who has a ton of retained earnings and very little debt, who is operating a very consistent business with a competitive moat, and who is impenetrable. 

You’re in a different situation. You’re not reaching for those potential situations where you have to be unethical in order to keep the boat afloat. I don’t know. I think that those are considerations. Those are things that you have to think through whenever you go out and you buy or you invest in Tesla, that there’s that potential that maybe they’re cutting corners or whatever.

Typically there’s a lot of upside on those kinds of businesses. If it continues to grow and mature and everything else, but this is stuff people have to be thinking about. It’s stuff that you have to be aware of and risks you have to assume as an individual investor. 

Alright, Madison, fantastic question. This is really important stuff that you’re asking about. As a result, we’re going to give you a free course on our TIP Academy page. It is for our intrinsic value course. This is a paid course but for asking your question, you’re going to get it completely for free.

Stig Brodersen  42:31 

For everyone else, you can check out the course we’re giving to Madison for his great question. You can do that at tipintrinsicvalue.com. 

Guys, that was all that Preston and I had for this week’s episode of The Investor’s Podcast. We will see each other again next week.

Outro  42:48  

Thanks for listening to TIP. To access the show notes, courses or forums, go to theinvestorspodcast.com. To get your questions played on the show, go to asktheinvestors.com and win a free subscription to any of our courses on TIP Academy. 

This show is for entertainment purposes only. Before making investment decisions, consult a professional. This show is copyrighted by the TIP Network. Written permission must be granted before syndication or rebroadcasting.