[00:02:58] Intro: You’re listening to the Richer, Wiser, Happier podcast, where your host, William Green, interviews the world’s greatest investors and explores how to win in markets and life.

[00:03:18] William Green: I wanted to start by talking a little bit about my first encounter with Charlie, which was back in early 2017. Charlie was chairman for a long time of a small publishing company called The Daily Journal, and every year he would preside over the annual meeting in California, and I was working on my book on the reporting for Richer Wiser Happier, and I was absolutely desperate to get an interview with Charlie, so I wrote off to him via his long term assistant, and I said, I’m coming to California, I’m coming to the Daily Journal meeting, and here’s my background, here’s who I am, here’s what I’m working on with this book, and I would really love it if I could come interview while I’m there.

[00:04:02] William Green: And this was sort of half true, I mean, I’m not sure I would have gone if it hadn’t been for the fact that he granted me an interview. But sometimes just saying you’re gonna show up is a pretty helpful thing. And so, I remember getting back this note from his assistant saying something along the lines of, Mr. Munger will give you a 10 minute interview before the daily journal meeting begins. And so I was in this crazy position where I was gonna fly 3,000 miles from my home in New York to interview this sage for 10 minutes. And. It sounds absurd, but I was just so excited. I remember being outside my kitchen in my home in New York and doing kind of the equivalent of your happy tribal dance, you know, where you’re so excited that you don’t even know what to do with yourself and you’re kind of pumping your arms up in the air because he was such an iconic figure and such a towering intellect that I kind of thought, well, okay I’m going to have this one extraordinary figure in my book.

[00:05:04] William Green: And when you’re going through the incredible stress of working on a book like that, you don’t really know who you’re going to get. You don’t know who’s going to talk to you. And this is in, I guess, the early days where I was still wrangling interviews with people like Ed Thorpe and Joel Greenblatt and Howard Marks and the like.

[00:05:19] William Green: And so, there was a tremendous stress about it all and so I was just hugely excited that I was gonna go interview Charlie Munger but then at the same time there was this tremendous trepidation about going to interview Charlie because Charlie had this fearsome reputation for not suffering fools gladly And so on the one hand, I had this pressure that I knew, okay, I’ve only got about 10 minutes.

[00:05:45] William Green: I mean, I thought I’m going to be able to expand the amount of time, which I did in the end, but I thought I’ve got to get straight to the core of this. I need to figure out how to get right to the eye of the bullseye of the topic. And I also need not to make a fool of myself, So, this guy with this searing intellect who was famously gruff and brusque and sometimes rude wouldn’t see through me and kind of, kind of see what a fool I was.

[00:06:11] William Green: And so, it was a little bit intimidating and I had heard these stories from other people who knew Charlie from the investing world that kind of added to my sense of anxiety. So, I remembered, for example, Francis Chu, a great Canadian investor, talking to me once about Some guy he knew who was a total Charlie groupie who would just go again and again I think to the Daily Journal meeting and the Berkshire Hathaway meeting in Omaha and he ran into Charlie I think in an elevator if I remember the story correctly and he said Charlie I just I review so much and I’d go anywhere to meet you and Charlie just looked at him and said so and walked on.

[00:06:48] William Green: And as I described it in the book, there were these flamboyant failures of diplomacy that Charlie was famous for. There was another brilliant one that I loved, which was when Mohnish Pabrai and Guy Spier won a charity lunch to have this charity lunch with Warren Buffett back in, I think 2008, they paid something like 650, 100 to have lunch with Warren, Warren told them this great story that then, I think I or Mohnish had told me subsequently, where he said that Charlie, who had one glass eye and terrible vision, had gone to the DMV, the Department of Motor Vehicles, and some hapless bureaucrat there said to him So do you still just have the one eye?

[00:07:32] William Green: And Charlie looks at him and says, no, I’ve grown another one. So as you can imagine, I was a little bit intimidated. So I spent weeks really preparing for this interview and I read just everything I could about him. There, there were things like Poor Charlie’s Almanac, which is a great resource, which had various old speeches and the like of his.

[00:07:51] William Green: And he’d done occasional interviews, but not that many, and so I was pretty deeply versed in it, and I showed up at the Daily Journal meeting, and I knew that at the very start, he was having a private meeting, I guess with the board, before the general meeting would start, where people would get to ask him questions, and so I, I literally just camped out in front of the room where he was having that meeting for an hour, just in the hope that it would finish early.

[00:08:19] William Green: And I was sort of loitering around outside nervously looking at my questions, and I had about two or three tape recorders with me because you need backups, you need a margin of safety, and all of these well known investors like Li Lu and Mohnish and Francis Chu were kind of milling around, coming into this building that was the Daily Journal’s headquarters, I think, in Los Angeles, and then the meeting didn’t end early, and then finally, The door opens and a bunch of people, probably a dozen or so people, maybe more, started to mill out and they’re talking and I’m invited in.

[00:08:56] William Green: So this is the moment and I kind of sit down next to the sage with our knees practically touching. And he had these very thick bottled glasses, like Coca Cola glasses and was wearing this kind of baggy suit that was too big for him because obviously his body had kind of, I guess somewhat withered over the years.

[00:09:16] William Green: He was 93 years old at the time and so I’m sitting there opposite him and there are all these people milling around, so it was kind of noisy and distracting. You’re waiting for your big moment and instead it’s kind of really distracting. And one thing that struck me immediately, Was that he was totally undistracted.

[00:09:30] William Green: He was totally focused on me and didn’t seem to notice anything that was going on around him, which I think gave some clue as to the intensity of the man, the focus of the man, the ability just to shut other things out. It reminded me of the image that I had from somewhere of him with about eight kids milling around his feet while he would just read books endlessly.

[00:09:52] William Green: Like he just was able to focus. And so anyway I immediately started by saying to him, I regard you as the grandmaster of stupidity reduction, and how come? Why is that your approach? And I started to talk to him about this idea that I had decided was really the most central lesson I wanted to share about Charlie, which is That you want to focus not so much on being smarter, but on reducing standard stupidities, reducing common error, unoriginal mistakes, as he would put it, or assininities and inanities, because he always had this wonderful way with language.

[00:10:30] William Green: And so I talked to him about why that was a sensible approach, and he said, look, it’s just easier to identify what not to do than to identify what to do, and he said, it’s a different way of solving the problem. You’re solving the problem backwards, and that’s easier sometimes than solving the problem forwards, and he said, obviously, you want to solve the problem forwards as well, but you want to invert by asking yourself, what not to do.

[00:10:56] William Green: And so Charlie would take these examples of standard stupidities, these things that had gone terribly wrong, and he would ask himself, well, what stupid behavior caused that? And then he would say, well, let me not do that. And I remember then at one point during the annual general meeting, I was sitting next to one of his children, Molly, it was, his daughter, Molly Munger, who is a lawyer and philanthropist, and I was asking her about him because, as a journalist, you don’t take any opportunity to get an interview that comes your way like that, and she started talking to me about how, when she was a kid, he always had these morality tales that he would tell his children about terrible things that had happened in families, and she said usually they would involve Some incredibly ungrateful child of some vastly rich person who had failed to appreciate the wisdom and generosity of their parent and ended up in a lawsuit with them or a dispute with them.

[00:11:51] William Green: But it was a really nice example of this habit of studying standard stupidity, studying the way things go wrong, and then learning not to do that. So, I write about this idea at some length in the book, if you want to look into this at greater length, I call the chapter Don’t Be a Fool, because really the whole approach Is about the avoidance of folly, which strikes me as a great irony and paradox, given that Munger himself was this searingly brilliant intellect.

[00:12:20] William Green: I mean, you know, Bill Gates said that Munger had the broadest mind of anyone he ever encountered. Warren Buffett said that he had the greatest 32nd mind in the world, that before you even finished a sentence, he saw the essence of everything you were talking about. And Mohnish once said to me that Charlie was a quantum leap above Warren in terms of intelligence.

[00:12:41] William Green: So there’s something very revealing about the fact that someone as clever as Charlie would focus so much on reducing standard stupidities. So I think in some ways that’s the first lesson I’d like to share just because I think It’s such a powerful one for us to internalize ourselves and it’s something that I think about a great deal myself.

[00:13:00] William Green: I’m always thinking in particular about how do I avoid disastrous outcomes where there’s a sort of limitless downside. And so I think one of the most helpful tricks in applying this way of thinking from Charlie is to ask yourself, okay, well, so, so what’s the dumb decision in this circumstance? What would the dumb move be?

[00:13:24] William Green: Rather than immediately asking, well, what’s the smart thing to do? And you can do this with an investment, but you can do this with family or with any decision, whether to move country, whether to take on a new job, what’s the stupid thing to do? And then in particular, I think, look out for things where there’s enormous downside, where if you screw up, The results are catastrophic.

[00:13:45] William Green: So as Jeffrey Gundlach once said to me, you want to make sure that your mistakes are non fatal. So that was a really important lesson I drew from my own first encounter with Charlie. But then I would say there was another. kind of subtext to that day in Charlie’s company, because it started out with this interview that was supposed to be only 10 minutes, and then at the end, I, of course, was trying to detain him and take a little longer, as you do, and he was like no I’ve got, I can’t keep this audience waiting and so I could see his politeness, his courtesy, his desire not to inconvenience or be rude to this crowd of disciples who’d come from all over the world to see him, And so I kind of helped him out.

[00:14:26] William Green: He was hobbling along on this very thick walking stick with like this big bulbous head to it and. And he’s sort of hobbling along, slightly bent over, looking very beaten up, I mean, clearly he’d declined physically a great deal, though his mind was still absolutely extraordinary, I mean, really extraordinarily sharp.

[00:14:45] William Green: And he goes and he answers questions, maybe for two hours, in this annual general meeting in this crowded room with standing room only, and as I think he joked at the time people had come because They thought he wouldn’t be around much longer and so they wanted to take advantage of the opportunity to see him one last time.

[00:15:02] William Green: This is back when he was a spring chicken of about 93. And then, at the end of that meeting, when he’d already spent maybe an hour in a private meeting with the board of the Daily Journal, Then he’d gone through me interviewing him, which was a breeze for him, and then he’d gone through two hours of this Q&A session.

[00:15:24] William Green: He then stayed and kept answering questions from disciples who kind of crowded around him for the next two hours. And I used the opportunity to ask him several more questions during that period. And he would sit there eating Xyz candy, which I It seemed to me almost like sacrament, you know, the way he was eating the Sees candy, because Sees obviously was a really important investment for Berkshire.

[00:15:49] William Green: And it’s kind of flying everywhere, the crumbs of this Sees candy just sort of spilling out on his jacket and his shirt, and then he’s sharing the Sees candy with these disciples around him. And it was this amazing thing because he didn’t want to leave. He was perfectly happy just keep dispensing wisdom to these people.

[00:16:08] William Green: And there was something kind of lovely about it that they had come from everywhere and he was going to give them as much time as they wanted. And I think this was one of the shocks to me in some ways is that I had come expecting this kind of curmudgeonly old guy who, you know, would terrorize DMV people or had, you know, he had once said to Bill Miller, Bill had told me that he had run into him in New York City and he said, Hi, Charlie. Now, I think this was next to Radio City in, in Midtown Manhattan. And Charlie said, who the hell are you? And Bill said, oh, you and I met at a behavioral finance conference at Harvard not long ago and Charlie was like, oh yeah, okay. And he said to his wife, you know, you go back to the hotel. I’m going to wander around with Bill for a bit. And they’d wandered around for an hour or so together. So he had this, definitely a brusque side to him, a tough side to him. That was a little forbidding but then when it came to this day, when I met him back in 2017, he just couldn’t have been more courteous or kinder to the audience.

[00:17:09] William Green: And I wrote about this a little bit and I think I was a little wary of trying to be too sentimental in saying this, but what I really meant when I was talking about the kindness and patience and generosity that he showed to his disciples was that it felt like love to me. I mean, it felt. There was a warmth of spirit towards these people, and it made me think, this guy has changed, he’s mellowed with age, and I remember Molly, his daughter, saying to me, yeah, look, he’s become less acerbic over the years, and Mohnish said to me, look he’s a very soft hearted guy, you know, he has this tough exterior, but he’s soft hearted, but it made me think, Maybe he’s really improved.

[00:17:50] William Green: Maybe he’s really worked on himself. And I found that oddly inspiring because it made me think even these giant figures like Charlie or Warren, they continue to work on themselves and continue to improve. So those are a couple of lessons from my first encounter with Charlie back in 2017. The next time I spoke with Charlie Munger was about four or so years later in, I think, July of 2021.

[00:18:18] William Green: And so this is shortly after my book had been published. And I got an invitation, I think, on LinkedIn from a very nice venture capitalist in California, a guy called Jamie Montgomery. Saying something along the lines of would you like to attend a Zoom breakfast with Charlie who really enjoyed your book?

[00:18:37] William Green: And I initially thought, you know, this was probably a prank. And then I was like, well, wait a second maybe it’s real. And so it turned out that Charlie would have these very regular, I think weekly breakfasts in those days. It had switched to Zoom because of COVID. And so he would have these weekly breakfasts over Zoom with a bunch of really renowned investors.

[00:18:59] William Green: So these were people like Lou Simpson, who was an absolutely legendary investor who ran GEICO, the Berkshire unit. with tremendous success for a long time. Mark Nelson, a very renowned Australian investor who, who set up, I think, the biggest Australian hedge fund, Caledonia who I had breakfast with in, in Sydney a couple of weeks ago, very nice guy, and and a few other really smart investors who would show up for these weekly conversations with Charlie, and occasionally they would have a guest speaker, they would invite a Howard Marks or someone like that, So I was invited to this breakfast and Jamie very kindly said to me, yeah your book has been assigned as homework for the half dozen investors who will be there.

[00:19:42] William Green: And so you can imagine how sheepish I felt. I mean, I remember writing to my mother at the time and saying, I, I felt like, I’d watched a few games of tennis and was being invited to come talk to Nadal and Djokovic to tell them how to improve their tennis swing. I mean, I felt both simultaneously incredibly flattered and totally intimidated at the idea that I was going to come talk to Charlie and Lou Simpson and co about my book and my experiences writing it and what I’d learned and the like.

[00:20:10] William Green: So I was very excited and so I get on this call and I’ve not really talked about the call because It was a private thing, and so I don’t I’ve never written about it or anything, but I don’t think I’m sharing anything that is a great breach of confidence, and Charlie isn’t here to object, and I think would be happy for me to share some of the lessons without talking about this in too much detail.

[00:20:30] William Green: And so one of the amazing things really about just sitting on this call, which lasted just under two hours, about an hour and 50 minutes or so, was that you saw the extraordinary range of intellect that Charlie had. I mean, he was so steeped in history. that he would be talking about the 1930s, the political situation or the economic situation in the 1930s, or he would suddenly veer off and start talking about John Maynard Keynes and what a remarkable man he was, or he would talk about the current economic situation with lots of plenty of money.

[00:21:05] William Green: And he would be able to put it in the context of history in an extraordinary way and would be able to talk about how you’d seen various currencies destroyed over the centuries, but you’d never seen the reserve currency destroyed, and so he wasn’t saying that was going to happen with the US, but he was talking about the risks and the degree to which we were in uncharted territory.

[00:21:27] William Green: So that sense of this polymathic reader drawing on history, on economics, talking about Hitler, talking about Keynes, talking, really, an incredible range of knowledge. So that was a very striking. A very striking thing, and the fact that he was with these towering figures like a Lou Simpson, and yet it was clear in many ways that, that Charlie was kind of the top dog, that even at the age of I think then 98, he would just let rip, and you sometimes had this sense that he couldn’t quite hear what other people were saying, so he would talk over someone and then they would just kind of go quiet while he expounded on it, so, It was formidable to see the power of this intellect that in a group that eminent, there was still a sense that he was deferred to, that he was top dog intellectually, and he’s very opinionated, and he was funny, and occasionally kind of crude, he would sort of use swear words, I mean, he’s colorful, amazing sense of language.

[00:22:27] William Green: And for me personally, it’s hard to say this without sounding self congratulatory but, so please forgive me for this, because I’m going to sound self congratulatory. But the thing that was kind of unforgettable about the call was that he early on in the call, and then at the end again, started to tell me what he thought of my book, and I had heard through Mohnish what he thought of the book, because Mohnish once took a video of him in his house talking about the book, and giving me very nice compliments about it, but he said on the call, It’s one of the best investment books ever written and then he started to say, look, it’s an enormous contribution.

[00:23:08] William Green: And he said, I haven’t read a book that good for a long time. It’s very useful. So you can imagine I kind of felt like I died and gone to heaven. And it’s, this isn’t a small thing for me. Like I had spent five years. On the book without taking a vacation ever. And when you’re extremely exposed when you work on a book like this, I mean, I put heart and soul into it and there was something about having Munger, this guy who had, who I have tremendous respect for and who I know is this voracious reader, just an incorrigible, relentless reader saying that my book was one of the best and best books ever written that in one fell swoop, all of the effort I put into the book, Made sense and felt worthwhile and it was, you get a lot of really nice comments on a book when it’s gone well and people tell you they like it and it’s really lovely you hear that it’s had an effect on people and it’s moving and very life affirming, but in a way more than any book review or any comment or anything, that single seal of approval from Charlie meant the world to me and it’s some, It was interesting to me for various reasons, one of which I’ve mentioned before in talking to Stig Bordersen is that I realized I write a lot about how you should have an inner scorecard, and that this is one of the great lessons from people like Buffett and Munger, is that you should operate by an inner scorecard and not need external validation, but one of the things I learned from that discussion with Charlie is I have a tremendous need for external validation, and I can’t fool myself into thinking that I don’t.

[00:24:43] William Green: It meant a huge amount to me. But the other thing that was really interesting in Charlie talking about the book is having praised me in this kind of effusive and for me, very life affirming way, he then said, I predict that the book will have a moderate success. And he said, it’ll be about as welcome as rat poison.

[00:25:03] William Green: in most places and the other people on the call kind of started to laugh and I sort of, I laughed and I was like, you know, I said to my publisher afterwards, you know, I would never dare to ask Charlie for a blurb for the book, but I actually would seem to sort of exploitative and manipulative.

[00:25:18] William Green: But when I told my editor at Scribner this, he said, that would be an amazing blurb. You just put certified rat poison, Charlie Munger. On the cover, but Charlie was making a really serious point, which is, as he explained it, and he was kind of talking over the other people on the call while they were sort of laughing, slightly embarrassed at the fact that he just said my book was like, rat poison, it would only be moderately successful.

[00:25:41] William Green: Charlie started to explain fairly insistently, no, he said the book he said richer, wiser, and so forth, I guess he couldn’t remember the happier part. He said it’s so revolutionary and so critical intrinsically of the traditional wealth advisory business that he said, I think it’s going to be widely detested.

[00:26:00] William Green: And he said, the reason is it threatens a lot of people’s livelihoods. And as, as he explained it, he said, there are a lot of people in the financial world, in the investment business. Who, not to put too fine a point on there, I mean I’ll quote him even though this is a family show and you’ll forgive me for using this language, said there are a lot of people who are selling sh*t to morons.

[00:26:22] William Green: And you’re kind of explaining this different approach to investing that makes sense. And that’s very unsettling for people. He said it’s really threatening to a lot of people because he said, if you’re, for example, a wealth advisor and you’re making 800 grand a year, and you’re sending your kids to good colleges and the like and living a nice lifestyle, and you’re not getting great results, but you’re skimming a couple of points off the top in fees, what are you going to do when you read a book like this that says you’re not taking the right approach?

[00:26:54] William Green: He said, basically, You’re going to set the book aside slightly uncomfortably and then get on with doing what you’re doing. And so he said there are all of these people in the financial industry who basically are trapped inside this system where what they’re doing doesn’t necessarily work. And he said similarly with finance professors, if you’re a finance professor, right?

[00:27:14] William Green: You know, you always had sort of colorful contempt for a lot of finance professors. He said, what are you going to do? You’re going to read the book and you’re going to, you’re going to be slightly uncomfortable and you’re going to set aside and get on with what you do. You’re not going to blow up your career because you say what I, my approach doesn’t make sense.

[00:27:27] William Green: And so he said, it’s a little bit like back surgeons who keep doing operations. of a certain type just because it’s the only type of operation they know. He said it’s just human nature that we convince ourselves that the way we’re doing things is the right way. And so he quoted this great line from the author Upton Sinclair.

[00:27:47] William Green: It’s a famous line which is, I think it’s difficult to get a man to understand something when his salary depends on his not understanding it. And so Charlie said, Upton Sinclair had it right, you know, this understanding of incentives of self interest and the way we delude ourselves is very powerful.

[00:28:05] William Green: And so, just to give a sense of what I think Charlie was referring to when he said that I was showing this alternate approach, part of what I write about in the book is, in the chapter that I wrote about Mohnish Pabrai, I talk about Charlie’s approach of basically being like a spear fisherman where you wait by the side of a stream for a long time, maybe months on end and there are no opportunities and then once in a while a big fat juicy salmon goes past a new spirit and then you go back to doing nothing until another opportunity arises and so it’s very counter to the approach of a lot of people on Wall Street who are much more hyperactive, they’re doing stuff the whole time, or maybe they own way too many stocks, so they, they don’t really have the capacity to understand the businesses because they own so many stocks, which is a problem with a lot of Wall Street, or they overcharge and overpromise when they really can’t perform.

[00:28:59] William Green: And one of the things that Charlie was talking about was just how difficult it is to perform. I mean, he often talked about the painfulness of keeping up with index funds that after expenses and taxes, it’s just extraordinarily difficult, especially if you have a big fund, lots of assets. But he also said, even if you have a focused fund, that’s very concentrated and only owns a few stocks, he said, it’s still really difficult because You know, you might have very high conviction in your positions, but you might be wrong.

[00:29:30] William Green: And often, people will come out and they’ll say what their favorite position is, they’ll be very public about saying what their favorite position is, and then that beats into their brain that’s a winning position, and so they have they over believe, as he put it. They become too committed to that stock.

[00:29:50] William Green: So I think there are a few really important lessons here, one of which is just the dangers of having the wrong incentives, the danger that we delude ourselves into believing things that aren’t necessarily true, but seem to be in our own commercial interest, or And similarly, I think one of the most important things for regular investors is just to make sure that the person you’re investing with, if you give someone else your money, that your incentives are aligned with them.

[00:30:18] William Green: You want to make sure the fee structure is fair and that it’s aligned and that they’re rewarded for doing a good job and that they’re not just charging you excessive fees for doing nothing. So that understanding of incentives is very important. The understanding that we lie to ourselves, that we rationalize, that we Sometimes we can’t understand, we can’t accept the truth, so we delude ourselves into thinking that we’re adding value when we’re not, and that’s dangerous and, you know, his approach was always to be brutally rational to try to deal with painful truths.

[00:30:50] William Green: The other thing that came out in the conversation that I also think he’d be happy for me to share, was when I was asking him about Ben Graham, who obviously had an enormous influence on Warren Buffett, he was Warren Buffett’s great teacher and Charlie obviously knew him as well, Charlie said to me, I was asking whether what Graham taught was still relevant.

[00:31:16] William Green: And he said, and these are his exact words. He said, Ben’s philosophy basically said, it can’t be obsolete. And then he said, all investing that’s successful comes from getting more value than you pay for. And so he said, there are different ways of doing that, right? You could look at laggards that everyone disdains that are thinly traded.

[00:31:37] William Green: That’s one way of getting more value than you pay for. Or he said, you could look for value in buying Amazon as someone like Bill Miller did. So he said, you can hunt in various places, but he said, you’re always looking for more prospects than you’re paying for. And those two sentences, I think, are really worth internalizing.

[00:31:54] William Green: That first one, all investing that’s successful comes from getting more value than you pay for, and you’re always looking for more prospects than you’re paying for. But then he also said something else really nice about Ben Graham, which is he said, look, he had a rule. Where every day he said, I want to try to do something generous and something creative.

[00:32:14] William Green: And he said, that’s a nice thought for an academic. And he said for 30 years or so, he taught without pay and he would teach a bunch of nondescript people. And he was always trying to help. He said he helped a lot of people. And he said, it was a very worthwhile life. And that kind of made me think of Charlie as well, over the last couple of days since his passing, that Charlie also helped a lot of people.

[00:32:36] William Green: It was a very worthwhile life. So those are a few recollections from that second encounter. The one other slightly comic outcome from that call is that Charlie and Lou Simpson spoke in very glowing terms about Alibaba, which Charlie has spoken about a lot over the last couple of years, because Charlie made this famously bold bet on Alibaba, which then got absolutely creamed by This sort of wall of regulatory pressures and the like that, that just really crushed it political and regulatory pressures.

[00:33:07] William Green: And I was sort of so carried away by the wonder of this call. I mean, you can imagine I get off this call having listened to Charlie tell me my books are the best investment books ever written. And also there was one point where someone asked Lou Simpson. What he thought of the book, and he was like, oh, it’s a great book, and he started talking about how, I thought maybe he was just being polite, but in any case, he said it was, he said it was a great book, and that it was great to be able to learn from people’s stories, that’s a wonderful way to learn but Lou talked about how he had just bought an Alibaba, and how it was screamingly cheap, And Charlie had bought this huge position in Alibaba and he said, look, if I had more cash, I would be all in.

[00:33:41] William Green: I’d be all in with that cash, I think, because, you know, it’s so cheap. And, you know, I think partly just carried away by the by my joy about this this life affirming call. I then go and buy. Alibaba at some point after that call, I can’t remember when exactly, and I was looking at it, and in some ways it made sense, right?

[00:34:02] William Green: I mean, it was very cheap, it was out of favor, and as Lou said, you know, it was a dominant company in a fast growing country that would probably outstrip the U. S. in terms of its growth, so it made certain sense but I really didn’t do the work, and I was relying on these two giants of investing, and in a way it played to my own vulnerabilities. I mean, you call it authority bias, right? It’s one of the biases played to my own vulnerability as someone listening to great investors and great investors who seem to be giving me love that I needed. And so I buy this stock and I was looking at it yesterday and it’s down 62 percent since then.

[00:34:40] William Green: So, I think it’s a good reminder that even the best investors make these costly mistakes, that you gotta do your own work you can’t outsource it, even to Lou Simpson and Charlie Munger, as I did, and the one thing I would say in my defense is that the position size wasn’t crazy, I mean it’s a small fraction of the stake that I’ve had for a while in in Berkshire Hathaway, so, It didn’t kill me.

[00:35:04] William Green: And it’s a small enough mistake. Well, it’s a big mistake, but a small enough amount that it’s instructive and I’m happy to sort of share the embarrassing lessons of it, but it didn’t have a substantive impact on my life. I think that goes back to what I was saying before about the importance. If you’re going to be stupid as I was, make sure that your stupid mistakes are non fatal.

[00:35:26] William Green: So anyway, those are some of the lessons from my encounter, my second great encounter with Charlie. And to be honest, after that, some people would say to me, well, why don’t you try to get Charlie on the podcast? And I just thought that was such a beautiful conversation, that second one, and it was, and the first one was so beautiful, that in a way, I couldn’t improve upon it.

[00:35:49] William Green: I knew how sharp Charlie still was, but I knew that his physical health was ailing, and I just thought, let me just leave it there. What an amazing thing to have had this opportunity to learn from him directly twice, so. So I just wanted to share those very personal memories of learning from Charlie.

[00:36:06] William Green: We’re going to turn to something very different now. We’re going to listen to a clip from a conversation on this podcast that I had with Mohnish Pabrai, a hedge fund manager and philanthropist who became a really close friend and mentee of Charlie’s over the last, I’d say, 15 years. And I love this clip because it gives you a really rich and personal sense of what it’s been like for Mohnish to be in Charlie’s inner circle and what he’s learned from spending so much time with him.

[00:36:37] William Green: So I wanted to start by asking you about Charlie Munger. You’re obviously in a very unusual and privileged position of having Charlie as a close friend and mentor. I think you’ve been friends with Charlie since Warren Buffett introduced you to him back in about 2008. And so I wondered if you could talk about just what it’s been like to hang out with him over the last 14 years, whether there are any particularly memorable experiences you’ve had with him. And then maybe we can get to what you’ve learned from being in Charlie’s orbit over all these years.

[00:37:05] Mohnish Pabrai: Yeah, well, I mean, I have to pinch myself at all of this because, I think on many fronts… I think we, all of us are very privileged to be living in the time of Warren and Charlie. I mean it’d be kind of like living in the time of Newton, Einstein or any of those luminaries we look up to. So, that’s wonderful. And I think in my case, I would’ve never expected to have any kind of a interaction directly with Warren or Charlie. I think that was just not part of the equation. And then of course Warren takes bribes and if you bribe him enough, then he’ll sit down and have a meal with you. And this year, actually I think was the last year that he auctioned off the charity lunch. I’m not sure what it went for, but that’s the last one. And so since he was willing to take the bribe and I had bid for a few years. But in 2007, Guy Spier and I prevailed and we won the lunch, and we met Warren in 2008 and I pretty much just expected that to be it.

[00:38:04] Mohnish Pabrai: I wanted to just thank him in person and I did not expect to end up with any type of an ongoing relationship. And what Warren did during the lunch is he kind of got competitive when my wife told him, my ex-wife told him that she was her true love in life, really was Charlie. And Warren immediately told her that Charlie’s a very boring guy.

[00:38:27] Mohnish Pabrai: and I’m really the one or the two way more interesting. And then he told us that he would arrange lunch with Charlie, just so we could see how boring Charlie is and we could compare who was a better lunch companion. And I thought he was joking, but then the following week, his assistant sent a note to Charlie’s assistant.

[00:38:44] Mohnish Pabrai: And that led to actually in 2009 lunch with Charlie at the California club. Actually, the funny thing was I thought that Charlie Munger lunch was way better than the Buffett lunch. And it was kind of like buy one, get run free, which was great. And of course, you get tongue tied and all of this. And I remember Charlie came to that lunch and then he reaches into his court pocket and he pulls out this printout, which has like Google focus, written on it. And it has my US portfolio, the 13Fs and he’s looking at the portfolio. And this is 2009, everything has crashed and burned. And he looks at Sears Holdings, if it was in my portfolio and he just shakes his head like that, quite extreme disapproval. And then I remember I, we probably had some brief discussion on Sears. And the markets were always already closed that day when we met. But the next day I wiped Sears Holdings out of my portfolio, which was a great, I would say, instant take home value from the lunch.

[00:39:44] Mohnish Pabrai: And then of course what I also did not expect is that lunch would lead to additional interactions and a friendship with Charlie. I never expected that. And then I think a few years after that, I became a substitute bridge partner of his. Every Friday afternoon, Charlie would play bridge at the LA country club with his friends. And they started inviting me when one of the old guys couldn’t make it or couldn’t get out of bed or something. So usually I’d get to know on Thursday night or Friday morning that we have a slot. And I’d say, yeah, you don’t need to give me notice I just drive over.

[00:40:19] Mohnish Pabrai: Those afternoons were really amazing because we would start with lunch at the LA country club. And I’d be sitting there at this table for four and just sitting across from me would be Charlie Munger and Rick Goran. And I’m looking at these two guys, historic figures and all of this. And I would ask them all these questions about the deals in the 60s and the early days when they were working at the Pacific Stock Exchange. And any type of lunch or bridge or dinner with Charlie is always very entertaining. I mean, it’s very educational, but it’s very entertaining.

[00:40:52] Mohnish Pabrai: One of the things that happened the first time I met him to lunch was, as he was talking, I heard the “F” word. And I’m thinking in my head, did God just uttered the F word? And as I’m processing that in the, my head, I hear another F word. Okay. And there were a number of F words during that meal. And then I realized after that every time I met God, the F word just flowed freely. And I’m actually surprised that at the Berkshire Meeting or the Daily Journal Meeting, there’s no F word because it’s so natural the way he speaks that I have never seen him on a interaction with me where there wasn’t colorful language, that has never happened.

[00:41:36] William Green: Is there something that’s changed in the way you operate in the world from actually being up close with Charlie all these years? Like, has he changed the way that you think and behave?

[00:41:45] Mohnish Pabrai: Well, I would say that the greatest learnings I’ve had from Charlie have not come from Well, he said some pretty amazing things to me, so it’d be up there.

[00:41:54] Mohnish Pabrai: But I would say that besides some of those things he said to me, which have been transformational for me, most of my learning from him on the one on one interactions have come from observing him. Not what he’s saying but observing how he functions and observing how his kind of day is structured and how he arranges his life and, you know, the interaction with his grandkids or interaction with his kids or his daughter in law or his manservant and all of that.

[00:42:22] Mohnish Pabrai: So I think that when I just observed Charlie with his friends and family. And just with himself, when he’s reading or something, those have taught me a lot more.

[00:42:33] William Green: Is there stuff that you’ve consciously cloned from the things you’ve observed in the way he behaved? Cause I remember years ago realizing that when you replied to emails, often you would write a couple of words in pen at the top on a printout and have it faxed. And I was like, that’s what Charlie does. Like, so.

[00:42:48] Mohnish Pabrai: Yeah. And actually I probably took that from him because I had received notes like that from Charlie much before 2009. I’d sent something to him or something to Warren, Warren would sometimes send it to him and then I’d get a note back and that sort of thing. And Warren’s notes back many times would be a letter and what not, but Charlie was always a scribble and whatever. But I think that the biggest thing I took away and it’s just so daunting and I’m still daunted by it is, he’s set up in his all, in this kind of lazy boy type easy chair. And on both sides of him are high tables, relatively large tables. And there’s a lot of high powered lights behind him cause his eyesight is not that great. But the best analogy I have is that there’s a big stack of books on one side and other reading materials, and a bar, and value line, what not. And there’s a big stack of books on the other side.

[00:43:40] Mohnish Pabrai: And Charlie’s like an assembly line, devouring. I mean, there’s a engine of these things running through from the unread pile to the red pile. And I would estimate that he’s reading more than 500 books a year. I think it’s more than one a day. Now, he doesn’t read the way we read, he’s skimming a lot. And he’s especially skimming a lot when he’s not, he finds the author rambling or whatever. And so he’s trying to get the nuggets he wants. And they’re in such a wide range. And usually I’d sometimes go in on a Saturday or something to have with him. And he’d be reading something about global warming, some book on global warming or climate change or something. And then they’d be a discussion on, and sometime he would be reading about the Chief of Staff for President Roosevelt.

[00:44:31] Mohnish Pabrai: And then we’d have a discussion on that. And this, I forget the name of the guy, he was Navy admiral. And this guy basically was, you know, Roosevelt really trusted him. And Roosevelt trusted very few. I mean, he was very, you know, he had a lot of cards close to his chest, but with Leahy Admiral Leahy, he had complete trust in Admiral Leahy and Admiral Leahy was kind of like this guy who was like a frat boy.

[00:44:57] Mohnish Pabrai: He liked to have his drinks and whatever, but Roosevelt knew that he didn’t have another agenda and that he was loyal and that he could get candid opinions and such from him. So Leahy, uh, which most people don’t realize. wielded enormous power, this massive amount of power in the Roosevelt administration And so there was a book on Leahy. And then, you know, I read that book later. These subjects would be all over the place.

[00:45:23] William Green: The first thing I want to dwell on for a moment from this clip that we just played from Mohnish is the amazing story that he told of Munger looking at Mohnish’s portfolio, I think in guru focus, and immediately disapproving of his investment in Sears, which Mohnish then very characteristically sold without any emotion, just totally dispassionately sold the next day.

[00:45:47] William Green: And Buffett once said that Charlie could analyze and evaluate any kind of deal faster and more accurately than any man alive, and he said that Charlie could see any valid weakness in 60 seconds, and I think this ability to see weaknesses in companies Was really a critical part of what Charlie brought to Berkshire Hathaway, Warren famously would refer to him as the abominable no man because he could get excited about an investment, a potential investment, and he would mention it to Charlie and Charlie would just immediately see all of the reasons why not to do it. And so I think this ability to see weakness, to see what’s wrong is a really important factor that Charlie brought to Berkshire. The second point to linger on Is this very vivid image of Charlie sitting in his big chair with these bright lights and his failing eyes just devouring books, just, he was this omnivorous reader, this polymath who really embodies the concept of being what he called a continuous learning machine, and I think that’s one of the, one of the things that we can clone from Charlie.

[00:47:10] William Green: I mean, I’m never going to be as smart as Charlie, but I can read, a lot. And I can, I, I’m never going to have his range and depth of knowledge, but knowing the importance of reading broadly and really being inspired by that example is very important thing. And I see it with all of these people like Mohnish and Guy Spier and Francis Chu.

[00:47:34] William Green: So many investors who just read voraciously, partly inspired by Charlie. And it’s worth quoting a famous line from Charlie where he was talking about the fact that when you’re studying, when some, a broad subject like investing, he said, I’ve known no wise person over a broad subject matter area who didn’t read all the time.

[00:47:58] William Green: And then he said, when it comes to something like investing, if you think you’re going to be good at it and not read all the time, you have a different idea than I do. So I think that’s critical. Just the habit of being a continuous learning machine is really important. And the third point is in some way a more obvious one, but I think a really important one to make, which is Mohnish is talking here about hanging out with Charlie as Charlie’s playing bridge with friends and he’s having dinners at Charlie’s house and they’re going to his country club and then, as we heard before, Charlie was on the Zoom calls for Zoom breakfast every week when it was too difficult for him to get around really easily.

[00:48:45] William Green: And I think this is a really vital thing to remember about Charlie. The degree to which he loved hanging out with friends, the degree to which he constructed his life so that it wasn’t just about making money and material success. A lot of it really, I think, was about the relationships and enjoying the journey in the company of fantastic people and I think one of the things that when I think about what I’ve learned from studying the great investors that’s had the biggest impact on me is just this sense that when you look back at the end of your life, you want to have had these incredibly rich relationships and you want to have touched a lot of people’s lives and you want I think Charlie really embodied that one, one reason why there’s been such an outpouring of affection for him since his passing is that he did touch so many people on this personal level.

[00:49:40] William Green: And in, in the epilogue of my book, which is really about what actually constitutes a truly rich, a truly successful, truly abundant life. I actually opened the chapter with a quote from Charlie that I think sums this up where he said, if all you succeed in doing in life is getting rich by buying little pieces of paper, it’s a failed life.

[00:50:03] William Green: And he said, life is, more than being shrewd in wealth accumulation and so I think this is a really vital lesson that we want to learn from Charlie. It’s not about just making money. And yet at the same time, it is a pretty all consuming business. You know, being extraordinary as an investor is very demanding and it’s hard to build the relationships that are really rich at the same time.

[00:50:26] William Green: I remember when Mohnish took a video in Charlie’s home where he asked Charlie about my book, he said something like, you know, are there any big insights that really struck you from the book? And Charlie said, yeah, how many of us got divorced? And I think that’s true that it was very difficult for a lot of the great investors to sustain really rich married lives because they they were so focused, they were so consumed with their work and also maybe the fact that a lot of them are pretty unemotional didn’t necessarily help in their relationships. But even so, I think it’s really key to think about this idea of what actually constitutes a truly abundant life and the degree to which relationships are at the heart of it.

[00:51:15] William Green: In any case, in our next clip, you’ll hear Mohnish talking about another very distinctive aspect of Charlie’s character, which is that he was extremely rational and extremely unemotional when it came to stocks, and yet he did have this kind of, remarkable emotional intelligence that I think enabled him to be a great friend.

[00:51:36] William Green: He understood human nature and I think it’s not a coincidence that one of the things we’ll remember him for is the extraordinary essay that he, he wrote on the 24 causes of human misjudgment. I mean, he understood human psychology. So anyway, here’s Mohnish once again.

[00:51:54] Mohnish Pabrai: I would say that when I talk to Charlie about stocks or different subjects, there’s a very high degree of rationality. Extremely high degree rationality. I think rationality is an important trait. I don’t think you can do these things if you’re not going to be objective. I think patience is important in investing. One of the most important skills. Rationality is up there. I think that when we realize, we have to be true to ourselves, when we realize we’ve made a mistake, you cannot lie to yourself. You have to be candid about the fact that you’ve made a mistake. And you have to move on and go from there.

[00:52:30] William Green: On the subject of rationality, before I forget to ask you this, I was giving a talk about a year or so ago on Fire Island. I remember, so there are a lot of money managers living out there, and I was talking about the book and I said something about Charlie and how unemotional he is and how when he bought Wells Fargo at the bottom tick in 2009, he had no fear, no anxiety, nothing about it.

[00:52:53] William Green: I was saying how unemotional he was and how that’s the same with people like Bill Miller and Howard Marks, all of the best investors and Chris Davis, who is close to Charlie and is now on the board of Berkshire and knows them both very well, came up to me afterwards. He’s like, it’s not entirely right. It’s more nuanced than that because, if I remember rightly, he was talking about how when things went horribly wrong for Charlie’s hedge fund, his limited partnership back in the seventies, I guess, during that brutal period around ’73, ’74, he said it was extraordinarily painful for him to be letting down shareholders. Can you talk about that nuance because I feel like I haven’t quite cracked this idea of how unemotional great investors are.

[00:53:35] Mohnish Pabrai:  talked to Charlie about that period and he said that when he wound up his partnership in 74, he distributed all the holdings, in kind, to his partners. He gave them the positions and he told them don’t do anything, keep them. Eventually a lot of those positions got converted into Berkshire stock, and they were big home runs. Blue Chip and different things got diversified, retailing and so on. They all got rolled into Berkshire. So he said in the end, all of them did really well. I think he decided that at that point he did not want to manage money. I think he decided that the end of ’74, that wasn’t a direction he wanted to go in. He made that decision and got everyone to a good end point and moved on.

[00:54:30] William Green: When you judge his lack of emotion, is it, how would you characterize him because he is clearly… I had this expectation before I went to interview him, for example, for the book. I thought, God, he doesn’t suffer fools and he’s brusque and he can be rude. He’s famously rude at times. I remember Bill Miller telling me that he’d walked into him in New York once, he’d run into him, and said, Charlie, hi. And Charlie turns in and says, who the hell are you? Then they end up walking together and chatting for an hour. You told me, no, no he’s this really soft, really sweet guy. So there is something there where he’s a much gentler and softer human being. I’m wondering if in addition to being this hyperrational thinker, there is this soft emotional side or whether there’s a emotional stuntedness that comes with a lot of these great rational machines.

[00:55:18] Mohnish Pabrai: I think both Warren and Charlie have beautiful souls. And those souls are covered with a hard exterior. The reason they’re covered with the hard exterior, so they, I think, they don’t get hurt. They have a lot of people coming at them with all kinds of things. I think this exterior protects them, but I think when you get to their inner circle, the inner circle doesn’t deal with the hard exterior, you’re dealing with a person. That’s why I find that Charlie is a very different person when I’m playing bridge with him or when I’m having dinner with him versus at the Berkshire meeting, for example, on stage and so on. They’re two very different people. He has a very high degree of emotions. I think he’s able to control them. I have had a lot of great input into struggles I had in my personal life from Charlie, where I found that the empathy level was really high. These were not investment discussions, related to investments or money or any of those things.

[00:56:20] Mohnish Pabrai: They were related to human things. When I was having trouble in my marriage and I discussed those things with him, he was amazing. It was incredible. And he was able to see me through and gave me tremendous advice. In the end, I think I’m in a much better place now than I used to be. So Charlie was very helpful. And that came from this really warm, soft person with a very high empathy and high emotional understanding and such, so that was beautiful.

[00:56:48] William Green: It’s interesting to me that you see this quality in him of having this slightly tough, scary exterior, but a gentle interior because I think that’s probably a pretty good description of you as well because you’re always slightly intimidating. And I think the more I’ve got to know you and become friends with you over the years, I think there’s a softness under the bombast and opinion. I suspect you when you see that in him, you’re also seeing it in yourself?

[00:57:18] Mohnish Pabrai: Well, I think so. One of the things that really was, I think, life altering for me and enhanced my life a lot was my membership in YPO. One of the things that happens YPO, which is young president’s organization, is we get put into these groups of eight to 12, which are forum. The interesting thing about forum is that everything that goes on in forum is confidential and because I cannot even share with my spouse what’s going on, people are willing to open up about things that they would not never open up, even with very good friends. What I found is that in forum magic happens when you open up. Many times, this has happened to me, I’ve been in YPO for 25 years, many times I have a problem and I’ve wrestled with this problem a hundred times, and I can’t find a good solution. And I say, I’m going to take it to my forum, but I don’t think these guys can help me because I’ve already thought about it. I’m pretty smart, et cetera. I take it to the group, and in about 30 minutes, they’ve solved it.

[00:58:14] Mohnish Pabrai:  This has happened so many times in my life that I’m stunned. I’m stunned by it. So what I’ve come to realize, which a lot of humans don’t understand, what I realize is that in order for me to get the most value from Charlie, I have to put my cards on the table. The good, the bad, the ugly. I’ve got to put all the cards on the table. I’ve got to have him see the whole picture, and that is not easy for a human being to do. I remember the first time, I think it was 2012 or 2013, when I was having issues in my relationship and I had talked to Li Lu about it. And he said, you should talk to Charlie about this.

[00:58:57] Mohnish Pabrai: Because he helped me through a few things, but he said… So I met Charlie and I laid my cards on. And I could not have laid my cards out if I didn’t have that very long history with YPO, where I understood that when you lay your cards out, magic happens. I was laying my cards out in front of God, who’s like beyond human. It took him like five minutes. It took him less than five minutes to sort through it and said, okay, this is how you’re going to deal with this. Not only did he tell me how to deal with it, he told me what the outcome would be. He said, listen, this is what you’re going to do, and this is what the outcome’s going to be, and this is where we’re going to ride off into the sunset. It happened exactly the way he said. It was just beautiful.

[00:59:37] William Green: Is that from extraordinary patent recognition or EQ? Where’s that coming from?

[00:59:46] Mohnish Pabrai: The funny thing is Charlie told me he doesn’t read fiction, and I don’t think he sees many movies. I don’t want to go into this because a lot of this is very personal, but he gave me the name of a movie. He said, did you see this movie? I said, yeah. He said, go see it again. And I did. This time I saw it on the context of what he was talking about. It’s like, here’s a guy who was bringing up Hollywood movie to help me with some issue that I’m having. I didn’t think he even has ever watched a movie like that, for example. So I think he’s seen so much, even when he was talking to me about the issues, he brought up his friends who had similar issues and he’s seen so much. ’98, you’ve seen everything under the sun.

[01:00:33] Mohnish Pabrai: He’s got eight kids he’s got grandkids, he’s got daughter-in-laws and son-in-laws and second wife and first wife and all of that. There’s a lot of, and friends and business associates and people who have acted below the belt with them and all of that. They’ve seen all of that. And so what both of them are able to do, Warren and Charlie have been able to do, they’re able to understand humans so well. They’re so good at understanding the human dynamic. If I thought Charlie was a great investor, I thought his ability to help me with my personal problems was off the charts.

[01:01:10] William Green: One thing that strikes me both about Warren and Charlie, that you would have a much keener sense of than I do is I think they’ve both improved tremendously as human beings over the years. They’ve worked on themselves, and I was very struck by that. I’ve mentioned this before, when I went to the Daily Journal meeting, and I saw his kindness in the way that he treated people around him. In the way that he treated these disciples. And even, I remember as he was walking out of our interview and even I remember as he was walking out of our interview and I was of course, trying to detain him and talk longer and ask him more questions. He said to me, in this kind of plaintiff way, “These people are waiting for me. I can’t keep them waiting.” There was a sense of courtesy and decency and kindness. I would say I actually love for the disciples who’d come to see him. That was really surprising to me, given his reputation for toughness.

[01:01:58] Mohnish Pabrai:  I think Charlie, you know, I think Li Lu wrote an essay about this, they would meet for breakfast and Lilu would show up 10 minutes before for breakfast and Munger would already be there.

[01:02:08] Mohnish Pabrai: Then he started showing up 15 minutes before, and Munger would already be there. Then he started showing up half an hour before, and Charlie was already there. And he’s, you know, he was wondering how much before our stated time. And then finally, Charlie told him, I come early to read my paper. You don’t need to come early, leave me alone.

[01:02:25] Mohnish Pabrai: And then they would both arrive early to do their work. And then they’d meet for breakfast. You know, I learned from Charlie that, and I actually made a change in the way I operate. is to show up or show up early every if I have a coffee with someone at 9am, I’m going to make sure I’m there at 8. So I think for him, it’s very uncourteous to be late.

[01:02:47] Mohnish Pabrai: And I think one of his grandkids was telling me that they were all going to take a private jet to Omaha and Munger’s, I think the jet was supposed to take off at eight o’clock or something. And Munger’s planning to get there at like 7. 15 or something to the airport. The grandkids can explain to him that jet’s going to wait for us, but that’s not going anywhere.

[01:03:06] Mohnish Pabrai: It’s not a scheduled flight, but that didn’t mean anything to Charlie. He was there before any other family member, you know, and he just sat there and he’s just reading.

[01:03:14] William Green: I’ll tell you a story about this actually, that involves you, which is, as I think, you know, I had this kind of wonderful two hours zoom breakfast with Charlie and a few other great investors back in, I think, July, 2021.

[01:03:26] William Green: And crazily, they’d said the homework was to read my book and they all wanted to discuss the book, which is, this is, you know, I mean, I can’t tell you how inadequate I felt as it’s like, yeah, I’m going to teach Charlie something about how to invest. And it was Lou Simpson and people like that. And I knew that Charlie was going to arrive early because I read that introduction that Lee Lu had written to, I think the Chinese edition of Poor Charlie’s Almanac, where I think he talked about Charlie always being early.

[01:03:51] William Green: So I signed on five minutes early. And as a result, I’m on this call, alone, at the start, before Lou Simpson and all these other guys, Mark Nelson, get on, just with Charlie, and so the very first thing I did, actually, is I said to him, Mohnish and I are friends, and he speaks incredibly highly of you, obviously, and I, you know, I interviewed you for my book, if you remember.

[01:04:11] William Green: And he said to me, he starts waxing lyrical about you, and he said, very specifically, he said, Mohnish is a very highly ethical person, and he said, he’s so mathematical, and he’s so smart, and he said, he knows he can make more money by being ethical, and he said to me, people like Mohnish and me, we actually don’t deserve nearly as much credit for our morality as we deserve if we were doing it against our own interests.

[01:04:34] William Green: He’s like, we’re both actually doing better in business and life because we’re ethical. And I thought it was a really interesting insight into life and business and Charlie and you, and I wonder if you could talk about that idea of being ethical as a competitive advantage, because I think many of us are taught as we’re growing up and starting in the business world or watching succession or billions or whatever, we’re taught that we need to be hard edged and self serving and selfish to succeed.

[01:05:01] William Green: And here’s this kind of grand old man of business and investing saying, No, you should actually be decent and it’s not a zero sum game and it strikes me as a hugely important insight.

[01:05:12] Mohnish Pabrai: Yeah, and actually, Charlie is absolutely right. Probably a huge portion of why I’m so ethical is because of self interest, enlightened self interest.

[01:05:22] Mohnish Pabrai: So I think what people don’t realize is most things in life function on trust. They don’t function based on contracts. They function based on trust. So if you become very trustworthy, it gives you a massive competitive advantage, huge leg up in life. And the thing is that this trustworthiness doesn’t come overnight, but it’s kind of like on a log scale.

[01:05:50] Mohnish Pabrai: It’s like kind of like truthfulness, right? I mean, you sometimes use those small lies, but if you eliminate all lies, you know, the power versus force we’ve talked about, what happens is that, you know, those attractive fields come into play and the humans feel they can trust you. And once humans feel they can trust you, the whole universe is at your disposal.

[01:06:11] Mohnish Pabrai: We see that in spades in Berkshire Hathaway. You know, Berkshire Hathaway does all kinds of things where they just say something to someone and people will accept that. They don’t need to have it in writing or anything like that. It just warns, word is enough. And so how do you get there? Well, you get there by having a consistent life where you are, have demonstrated repeatedly that you are playing the game very ethically.

[01:06:38] Mohnish Pabrai: Playing the long game and looking at things to make sure that your business partners and vendors and whoever you deal with is treated extremely well. You know, Ray Kroc used to say that there were three stools on which McDonald’s stands. He says, my franchisees. My vendors and my employees, right? The franchisees were all entrepreneurs, right?

[01:07:02] Mohnish Pabrai: They own the, and he felt he had to make sure that they did really well, the people supplying the French fries and the cups and the plates and all of that at McDonald’s, Ray Kroc wanted to make sure they did really well. So he’s not trying to squeeze them for the last penny. He wants them to do well, right?

[01:07:20] Mohnish Pabrai: Because he says that it’s part of my ecosystem. And I have taken those lessons to heart. So like, if I have a relationship with a printer for my business, I want those relationships to go on for decades. I want the printer to do well. I don’t want to be squeezing him every time and get three quotes and take the lowest and all of that.

[01:07:39] Mohnish Pabrai: I don’t want to do it that way. You know, I want to make sure that it’s fair and we don’t need to go to multiple quotes. We just run our business on trust. And so what happens is that when you show trust in a company or a human being, they react really positively. My baseline when I’m dealing with anyone, my baseline is that the other person is a very high quality person or a very high quality company and I can completely trust them.

[01:08:04] Mohnish Pabrai: Then I wait to see if they do stuff which violates that trust. If it does violate the trust, we’ll move on, you know, we’ll do something else. But I think when you upfront demonstrate the trust, a lot of good things happen. So I think this notion of being ethical, running things properly, gives you such a tailwind in life that it’s, you know, like getting Peter Kaufman says.

[01:08:28] Mohnish Pabrai: If crooks knew how much money you could make by not being crooked, they would stop being crooks, you know, because basically you make a whole lot more money by being honest. You make a very little bit of money by being crooked, you know, so it’s a complete no brainer to be ethical and honest.

[01:08:47] William Green: There’s so much we could discuss in this excerpt from my conversation with Mohnish. Not least the importance he placed on being authentic and open and honest in his relationship with Charlie. But I really want to zero in on just one idea here, which is Charlie’s observation that he and Mohnish had figured out that they can make more money by being ethical. As Charlie put it, we’re both actually doing better in business and life because we’re ethical.

[01:09:17] William Green: It’s such an important insight and so distinctive of Munger to believe that you want to operate in this ethical way that gives you a a kind of reputational advantage and draws extraordinary people into your orbit. People who want to do business with you and who want to help you. And I remember Charlie when I went to the Daily Journal meeting, where I interviewed him that time in 2017, talking about how, he said I don’t want to brutalize my suppliers.

[01:09:48] William Green: He said his philosophy of life and business was win. He wanted his suppliers to do well. He wanted his employees to do well. He wanted his partners to do well. And in fact, Charlie famously. said that the highest and best culture is a seamless web of deserved trust, and he said it’s not much about procedure, it’s just totally reliable people correctly trusting one another, and he said that’s the way an operating room works at the Mayo Clinic, and obviously it was the way that Warren and Charlie have operated for all these decades at Berkshire Hathaway.

[01:10:23] William Green: Our next clip follows on pretty neatly from this subject. It’s from my interview with Tom Gayner, who is the CEO of Markel Corporation, and Berkshire was the first stock that Tom bought at Markel back in 1990, and he’s owned it ever since. If I remember rightly, over 34 years, his stake in Berkshire has ballooned into an enormous position that’s worth something like a billion dollars.

[01:10:52] William Green: Over the years, he’s also spent a good deal of time with Buffett and Munger. And again, this clip is about the power of building relationships that are based on trust.

[01:11:04] William Green: There was something you said to me when I first interviewed you, I think probably back in 2014 or 15, that I was very struck by, that I’ll read back to you, where you said, sometimes, People can build great careers and enjoy great successes for a period of time through bluster and bullying and intimidation and slipperiness.

[01:11:22] William Green: But that always comes unraveled. Always. Sometimes it takes a while, but it does. The people you find that are successful and just keep being successful year after year, I think you find those are people of deep integrity. I thought that was a really interesting insight, and I’ve struggled with it for a while I think partly because I had kind of lost a political battle at a company where I had worked, and I was like, well actually, I think kind of in some ways the snakes won, maybe that was self-deluding and I was a snake myself, and then I would look at kind of the political situation, I would see you know, the corruption of politics by business and big money and the like, And there’s a part of me, you know, and then also, I mean, look, Charlie Munger has talked about how Sumner Redstone was always his example of what I don’t want to be in life, and he was like, look, this guy made much more money than me, but even his kids and his wives hated him, and I never met Sumner Redstone, I’m not trying to bad mouth him, but You know what I mean, this question of whether it’s actually better to live your life this way or to do business this way or to look at the counterexample of these people who are tremendously successful while having very sharp elbows and leaving a trail of lawsuits in their wake.

[01:12:31] William Green: Can you talk about that? Cause I, I feel like some people just assume that capitalism is kind of vicious and nasty and self-seeking. And that’s the way it goes. And I think you’re pointing us towards actually a different system that may actually work better in the long run.

[01:12:46] Tom Gayner: Right? And I do think that capitalism is a much better system than what it’s given credit for. And I think businessmen oftentimes do a horrible job of communicating the positives of a capitalist system. So Adam Smith, who’s given credit for being sort of the father and the intellectual creator of the system of Catholicism. I believe his title was Professor of Moral Philosophy. at University of Edinburgh or Glasgow or wherever he was at the time.

[01:13:16] Tom Gayner: So he approached the idea of capitalism from a moral lens and thought it was a superior system and wrote books about it in that way. Secondly, success, I think, is something that you shouldn’t define along only one variable. It’s a complicated equation. There are a lot of things. that go into the idea of success.

[01:13:38] Tom Gayner: So, if you were to, again, the realm of athletics cause things just popped into my head from athletics stuff. And so if you look at Muhammad Ali and his career as a boxer. And his probably reputation well deserved for being the greatest fighter ever. Well, that’s probably true, but if Muhammad Ali needed to be a tennis player or a chess player, he might not have been so successful.

[01:14:02] Tom Gayner: So if you’re going to define success, make sure you define arena you’re talking about. So just to say the word success in and of itself. is it’s too limited. It’s not enough. So I do not know the family structures of Sumner Redstone or Charlie Munger for that matter. I’m guessing that Charlie Munger’s success probably has more dimensions to it.

[01:14:26] Tom Gayner: But that is just a pure guess on my part. And two points about Charlie Munger was the notion of you know, if you want to be success, the best way to do that is to deserve it. So he operated with the idea of trying to be someone who deserved the success that he has earned. And I think that’s a fundamentally important way of doing these.

[01:14:48] Tom Gayner: And there’s a business practice, there’s a life practice that flows from that. So if I just met you. And we were talking about a deal or a project or some commercial transaction. And I said, William, trust me. You can’t help it. If again, if we don’t know one another, that is going to cause 99 times out of a hundred, just a hint of doubt in you, because if I say, trust me.

[01:15:11] Tom Gayner: Your natural human reaction is, I can’t trust this guy. And the notion of trust is not going to flow immediately if I start it that way. But if instead I say, William, I’m going to trust you and I’ve done some work or there’s some and some basis for saying I, I trust you. I trust you, and I trust you. I trust you.

[01:15:31] Tom Gayner: I trust you. I trust you and offer the gesture of trust first without demanding reciprocation or equality. I just do that in an unconditional way. What I have observed is that you’ll do one of two things. You will either honor. That trust, or you’ll violate it. And if you’re going to violate the trust, you’ll probably do it sooner rather than later.

[01:15:54] Tom Gayner: And in so doing, you’ll have sorted yourself and we’re just not going to do business again. But if you honor that trust and start to trust back, what happens is that starts to cascade. And it’s another element of compounding that takes place in your relationship with people. If you trust first, if you offer.

[01:16:11] Tom Gayner: That service, that, that value first, and you initiate that the world will sift and sort itself and orient and give you enough people and enough opportunities. We have these compounding trust relationships that it just becomes marvelous over time. Same thing would be said in a, in the word of love.

[01:16:30] Tom Gayner: If I say, love me, and you’re trying to meet somebody, you’re trying to develop a relationship, you say, love me. I don’t think that’s going to work. If you offer love and then you offer it unconditionally, is everybody going to love you back? No, but a lot of people will, and they’ll do it in.

[01:16:46] Tom Gayner: Enduring, consistent, systemic ways. So just to orient yourself to be the initiator of trust, to be the initiator of love, and then don’t be stupid, reciprocate and compound and grow the trust relationships and the love word relationships and filter out the ones where you’re not getting reciprocity. If you stay at the game long enough, and I’ve been at it 40 some years.

[01:17:10] Tom Gayner: You’ll find you have a wonderful group of people that are enjoyable, fun relationships that keep you coming in the office and doing what you’re doing as opposed to wanting to go play golf instead. That’s working out for me.

[01:17:23] William Green: You once described yourself to me as a node in a neural network, which I thought was a really interesting image.

[01:17:30] William Green: And the more I observe you, the more I’ve seen that this is one of your great competitive advantages that, that you’re surrounded. by people in your ecosystem who wish you well and want to help you, and It’s a remarkably powerful thing, it’s a different way of playing the game, and I guess it sort of plays to your strengths as well, because you’re a sociable, gregarious guy, but I’m wondering did, was there somebody you saw, whether it was your father, or Buffett or, some, someone at Graham Holdings, or whatever, that you looked at and you’re like, That’s a really smart way of operating in the world, or not just smart, but decent and right and feels good.

[01:18:09] Tom Gayner: The answer to your question is yes, there are people who have managed to somehow be around or bump into or be exposed to that taught me those lessons and have done it over and over and over again. So one of the first ones would have been my father because I was a kid and I was around him and I observed him in that way.

[01:18:25] Tom Gayner: As in the public figures that you speak of somebody like Don Graham or somebody like Warren Buffett, I’ve observed that in them personally for multiple decades and have learned that as an adult, but it doesn’t grow stale or it doesn’t grow old. And as recently as within the last 30 to 60 days. There was a circumstance and a situation in Richmond, Virginia, where there was a gentleman, and I’ve known this guy reasonably well, we’re not real close, but I’ve known him reasonably well for probably the better part of 35 or 40 years.

[01:18:56] Tom Gayner: And there was a, and he’s reasonably well known around Richmond. He’s successful, both in the terms that the world might immediately jump to as successful, but he’s also successful in that I know his children and they’re good people. They’re fun to be around. They have not been warped by affluence in the way that that some are they are successful as well.

[01:19:18] Tom Gayner: And I think when you see that sort of kindness and love based and trust based. That is both financially and in human terms, successful for multiple generations. You’re really looking at something special and you want to pay attention and try to learn something from that. And I was in a conversation with him and somehow it came up that he said, well, he gets up every day.

[01:19:38] Tom Gayner: And the first thought he has is how can he do something for somebody? How can he help somebody? Now, if somebody who I did not know for 30 or 40 years and I was meeting on first, first occasion and I didn’t know a single thing about him, there’s a natural skepticism that one has when you hear somebody say something like that, because you wonder, you know, what’s their angle or what’s going on here really?

[01:20:03] Tom Gayner: But as you get to know somebody and you can have some sense personally that is indeed genuine and you can see 35 or 40 years of track records of how it’s worked out for that person. Because yeah, I think he really does mean what he says. And he does that over and over and over again.

[01:20:18] Tom Gayner: Again, I’ve tried to live this. I’ve certainly been exposed to it and been taught that from my earliest memory. But yeah, here it is within the last 90 days. There was an occasion where I had a chance to drink a cup of coffee or talk to somebody who I knew a little bit. And that was his core message.

[01:20:36] Tom Gayner: Just get it up in the morning. Like, what can I do today that will help somebody. And I’ve seen him do it for 40 years. So you learn those kinds of things that are supposed to them on a regular basis.

[01:20:46] William Green: It’s curious how this turns out to be incredibly helpful, even in the investment business, which we kind of assume.

[01:20:53] William Green: is this ultra-competitive zero sum game where somebody has to suffer for you to benefit. And to some degree, maybe that’s true, but I see in your life and in the life of someone like great old friend Guy Spear, that you guys embody what I call in my book, the mensch effect, where, you know, you’re menschen you’re trying to be decent, kind human beings for lots of people.

[01:21:12] William Green: And I see the world kind of organizing itself around you. So there are lots of people trying to help you. And I was chatting with Josh Tarasoff, a mutual friend of ours the other day, an excellent hedge fund manager who I remember he was talking to you about Amazon years ago, and you ended up buying Amazon after discussing it with him.

[01:21:30] William Green: And it seems like that’s happened to you a lot, right? Where people are exchanging information, in a way that’s kind of selfless, but maybe it’s also because at the time he was invested in Markel but you have that to an extraordinary degree. And it’s instructive for people because I think it, it suggests that there’s another way of going about business and investing that’s actually.

[01:21:51] William Green: more. It requires a degree of courage, right? Because it’s not just guarding everything for yourself.

[01:21:58] Tom Gayner: Well, it’s both courage and cowardice at the same time, because if you really, and all these things tie together, and I think the timeframes in which you’re talking dictates so much of how you would frame things.

[01:22:10] Tom Gayner: So if you’re talking about a short term situation where you’re treating, I don’t know, pick whatever it is that that. Bitcoin, or pork bellies, or auctions. which tend to be measured on day to day, if not moment to moment, or second to second, or nanosecond to second, kind of, kind of measures, those do tend to be win loss games, and there’s a zero sum, and if you win, somebody else loses, but when you stretch those time horizons out over 5, 10, 50 lifetime kind of measurements, I think you have the opportunity to play win games, and that’s just an entirely different way of thinking.

[01:22:48] Tom Gayner: And there’s an illustration of that, of how this can be so successful from a business point of view. I can remember a couple years ago at the Berkshire annual meeting, and Charlie Munger, who oftentimes just puts his finger right on it in terms of behavior and just trying to be stand up people and do the right thing and think longer term.

[01:23:07] Tom Gayner: He said in response to some question, how do you do it? How do you do it? How do you do it? I mean, there’s endless questions. of young, adult types trying to figure out Berkshire. He said, look, we were two guys talking on the phone, and now we are bigger than General Electric. That should not have happened.

[01:23:24] Tom Gayner: And he was just trying to illustrate the point that that General Electric was a company that in many ways lost its way. It had huge, epic advantages. You go back 50 years ago and you look at whatever collection of businesses at whatever place in society General Electric occupied versus whatever position Berkshire Hathaway occupied 50 years ago.

[01:23:44] Tom Gayner: I think it would have been hard to foresee and bet and predict that Berkshire was going to be the one that would be more successful in many of the measurable metrics that you would think about. But that is indeed what happened. And Munger would suggest the word that he likes to use a lot is rational.

[01:24:01] Tom Gayner: And he would say Buffett and he do their best to make rational decisions day after day after day. I would extend that and say, rationality looks different. When you’re playing a finite win lose game than what it looks like when you’re playing in infinite. Win game. And I think it was James Kors, if I’m remembering the name correctly, who wrote about the infinite game and he talked about, you know, in a finite game, there are rules.

[01:24:29] Tom Gayner: There’s a period of time it’s finite and there’s a winner and there’s a loser. And that’s the definition of a finite game. Infinite games tend to not have so many rules and they don’t have a Time horizon potentially. And the only prime directive that exists in the infinite game is that all of the players of the game have to feel that they’re winning because if they don’t, they’re going to stop playing and the game is no longer infinite. So I just want to play an infinite game.

[01:24:53] William Green: Here again, I think the key point is that a truly successful life really hinges on our ability to build great relationships. When I first met Charlie in Los Angeles, I asked him what we could learn from him and Warren about how to lead a happy life. And he really immediately launched into talking about the quality of their relationships and the joy of partnering with trustworthy, decent people.

[01:25:19] William Green: And Charlie said, look, we have a very simple system, Warren and me. And he said, if you want to have a good partner, be a good partner. And similarly, he said, if you want to have a good spouse, then deserve one. What I find so helpful and practical about this advice is that it’s really just about showing up yourself, whether it’s as a good spouse, a good friend, a good partner, and actually deserving a good outcome.

[01:25:46] William Green: The next clip is about another aspect of relationships, which is the enormous importance of surrounding ourselves with people who aren’t just yes men, but who are willing to challenge our views and To force us to think differently, and I think this is really one of the great strengths of Charlie is this willingness to actually seek out what he would describe as disconfirming evidence.

[01:26:11] William Green: The person speaking here in this next clip is Joel Greenblatt, who’s one of the most successful and admired hedge fund managers of all time. Here’s Joel, anyway, from a conversation that I had with him a year or so ago.

[01:26:24] William Green: You’ve also obviously had this great partnership with Rob Goldstein going back many years. I think if I’m right in saying he joined you in 1989, fresh out of being magna cum laude at Tufts, he was maybe eight years younger than you. And so through all of these different iterations, most recently with the long, short, very diversified portfolio, he’s been at your side. And it was interesting to me because you see a lot of these great partnerships in investing.

[01:26:48] William Green: Buffett obviously has Munger, Howard Marks has Bruce Karsh, Nick Sleep has Keith Zakaria. They’re all of these partnerships. There’s obviously something very helpful about having someone to bounce ideas off and Buffett always refers to Munger as the abominable no man. And I was curious if you could tell us something about Your relationship with Rob, who most of us don’t actually hear much about, and what it is that he brings to the game, and how it helps to have a partner, why it might be useful, whether it’s to guard against your own hubris, or blind spots, or ignorance, or bias, like, what does it actually do to have a partner?

[01:27:25] Joel Greenblatt: I’m so happy.

[01:27:25] Joel Greenblatt: that you brought up that analogy with Charlie Munger. About the no man, because Rob is one of the most independent thinkers I know. And so it doesn’t matter if I come to him with an idea that I think is great. That carries no weight with him until he’s done his work and is, will not be a yes man in any way, shape or form.

[01:27:46] Joel Greenblatt: He respects me, so he’ll do the work and then decide whether he agrees. And I feel the same way about him. Any ideas that he comes up with, I value, but I want to do my own work. And we’re both do not shy with each other because we’re wired just to want to get to the right answer. I think there’s dynamics between partners that may come into play, including emotion of some sort of past history, or you name what could come into play.

[01:28:11] Joel Greenblatt: But if you can just focus on what are the facts in front of me and be cold hearted and be willing to hurt the other’s feelings or feel like you’re not going to hurt their other feelings, because they actually want to hear what you have to say. That’s our relationship. And so if it gets past both of us, it’s usually a pretty good idea.

[01:28:26] Joel Greenblatt: And I think that’s and it’s hard to get through, but he’ll say no, most of the time. And I am difficult with him because even though I respect him enough to do the work on that idea. And the other part of it is that it’s hard to be partners because if you’re pointing fingers when things go wrong, and things always go wrong, things won’t work.

[01:28:44] Joel Greenblatt: And so I would say we’re both big boys in that sense. That if a mistake’s made, it was both our mistakes because we only do things that we agree with together. Someone’s not off doing their own thing. And this other one’s doing their own thing, or I don’t agree to go along just not to hurt his feelings or anything.

[01:28:59] Joel Greenblatt: We’re just like, very blunt. So we’re in it together. And so that’s really a partnership and we’re only trying to get to the truth. And it’s just very hard because with personalities and things going wrong a lot and stress and things of that nature, it’s very hard to keep that kind of relationship going.

[01:29:14] Joel Greenblatt: So I really think it’s more towards the incredible qualities Rob has in that regard rather than me, right? You need at least one person to maintain that spirit. And Rob is very selfless and thoughtful and independent minded. And as a partner, I couldn’t think of anyone better to be in, especially in the investment business.

[01:29:31] Joel Greenblatt: And one of the best, I think I told you, I consider myself an average analyst when you’re Looking at businesses and Rob is one of the best I’ve ever seen and cuts to the heart of matters very quickly. And since we’re only going for truth, that saves a lot of time. It’s just worked out incredibly well.

[01:29:45] Joel Greenblatt: And I think we would have made many more mistakes apart than together. What I’ve noticed that happens to some of the most brilliant investors is since they’re right, most of the time. They probably could do better than anybody else. They, some of them stop listening to other people, even when they say Hey, you’re forgetting this thing.

[01:30:03] Joel Greenblatt: There’s no one there that they’ll listen to. And I have that with Rob and Rob has that with me. We know that we’re not going to just go along. We’re going to say, hey, that doesn’t make sense for these reasons. So you got to explain this to me before I feel comfortable with that. And if you see some people who’ve had a great career and have done very well, sometimes they make mistakes that you can’t even fathom because they don’t have someone to bounce ideas off of, to tell them that they’re wrong, tell them they’re wearing no clothes when they’re not.

[01:30:29] Joel Greenblatt: And just because they’ve been successful over such a long period of time. And I think it’s a great analogy. Buffett has Munger and I’m sure he, even though he’s one of the world’s great investors, he’s thrilled to have a partner of that caliber. That’s kind of an equal. And I have that with Rob Goldstein.

[01:30:46] William Green: I think Joel Greenblatt makes a vitally important point here, which is that however successful and smart you are, even if you’re as brilliant as Warren Buffett, you need people close to you who are willing to challenge your ideas and who are going to make sure that you keep an open mind. Part of the success, actually, of Berkshire Hathaway is really that Warren kept Charlie around for all those decades to challenge him, and they just actively sought out opposing opinions and disconfirming evidence.

[01:31:16] William Green: In a world where most people really cling pretty defiantly to their existing beliefs and to their prejudices without challenging them. Charlie once said, if Berkshire has made modest progress, a good deal of it is because Warren and I are very good at destroying our own best loved ideas. And then he said, any year that you don’t destroy one of your best loved ideas is probably a wasted year.

[01:31:42] William Green: And in fact, if you think about it, Really, the whole of Bookstore is based on this idea of destroying your best loved ideas and upgrading them. So think about the fact that in the early days of Berkshire, Buffett was really addicted to buying what he would call cigar butt stocks, where they were pretty beaten down, cheap stocks that weren’t great businesses, but there was a, another puff of smoke in them, and as he wrote back in, I think, the 2014 annual report, Munger really cured him of this addiction to Cigar Butt Stocks.

[01:32:14] William Green: And he said, Charlie was responsible for establishing the design of today’s Berkshire. And he said, the blueprint that Charlie gave me was simple. And he summed it up this way. He said, forget what you know about buying fair businesses at wonderful prices. Instead, buy wonderful businesses at fair prices.

[01:32:31] William Green: So this intellectual breakthrough led to them buying stocks like Coca Cola and more recently, Apple. And these purchases really couldn’t have happened if they weren’t so determined to challenge their own ideas. And I was thinking of this recently, because after one of my recent episodes, where I was chatting with a very interesting investor called Anthony Kingsley, an English investor, and we were talking about ESG, this whole environmental, social, and governance movement.

[01:33:00] William Green: And Anthony is very thoughtful about this whole area, and balanced and reasonable in his views on this. And I looked afterwards at some of the comments on the YouTube video of our conversation, and somebody had written, nobody cares about woke ESG. Fail. And then he wrote, climate change is a hoax. Laugh out loud. And then another person wrote, Lost me at ESG. And I was just looking at those comments from those two people, and I was just thinking, why would you want to close your mind like that? And I’m not saying it to be critical, because I have a closed mind about plenty of things. But when you think about the attitude of Warren and Charlie, it’s really the opposite of that.

[01:33:42] William Green: It’s constantly challenging yourself by saying, why could I be wrong? Why might there be a better approach to this? And this is one of the reasons why Charlie had such great admiration for someone like Darwin. that Darwin could challenge his religious beliefs and come up with his argument in The Origin of Species really only because he had this willingness to contemplate disconfirming evidence, and it was something that Charlie had huge admiration for.

[01:34:12] William Green: Another reason why Charlie has been so successful is that he never wanted to hide his mistakes. And in the clip that we’re about to listen to, you’ll hear Chris Davis talk about this mental habit of Charlie’s, which I think has been critical, really, to Berkshire Hathaway’s success over all these decades.

[01:34:32] William Green: And Chris, who runs a firm called Davis Advisors, has been very close to both Warren and Charlie for a long time. Charlie’s been a good friend and mentor to Chris for many years. So we’ll listen here to Chris talking about how to learn from your mistakes, how to structure your physical environment so you make wise decisions and how not to bury your mistakes.

[01:34:56] William Green: One thing that’s very distinctive, obviously, about the culture of Berkshire that I guess comes a lot from Charlie is this habit of rubbing their nose in their mistakes, of admitting when they’ve where they’ve gone wrong. And the first time I met you, I think, was when I interviewed you Richard Wiser, happier for the book in your office at the Rockefeller Center back in, I think 2017, and I was very struck when you were giving me a guided tour of your office that you had set up, I think what you called a wall of mistakes.

[01:35:28] William Green: That was Wall of Shame. A wall of shame. Yeah. That was inspired I guess, by Charlie and his effort to reduce standard stupidities by rubbing his nose in his mistakes. I think it’s really fascinating as an idea relate, well, this whole idea of how you can structure your physical environment actually to tilt the odds in favor of making wiser decisions.

[01:35:52] William Green: And I wondered if you could talk about that wall of shame, the wall of errors, the wall of mistakes, how you think about it, how it came about, why it’s really helpful for you.

[01:36:01] Chris Davis: Well, it goes, I mean, it goes so much back to what we were talking about immutability and this relationship between how we can improve ourselves.

[01:36:11] Chris Davis: And as you said, you changed your wiring and of course, our wiring is got this plastic nature and is capable of us. It is not at the extremes. I mean, right. We all know. I mean, what clinical depression is something very serious but this idea of, you know, the connection of our physical environment, our physical bodies to our mental state.

[01:36:34] Chris Davis: Of course, those things are related. C. S. Lewis wrote an interesting essay I read a long time ago about praying. And he said, you know, people have this view. I can pray anytime. I don’t need to be on my knees. And he made a very strong case that you should be on your knees because the connection between our brains and our bodies is strong enough that position, which is of course a position of incredible submissiveness, affects our wiring.

[01:37:01] Chris Davis: In a much more modern interpretation, there was a in the early days of the idea of internet video, it was streaming. There was, at that time, laptops wasn’t really the thing. It was just desks and this skeptic said to me, well, nobody’s ever going to watch a movie on their computer screen because when you’re on your computer, you’re leaning forward three degrees.

[01:37:25] Chris Davis: And when you’re watching a movie, you’re leaning backwards three degrees and you’re different people. When you’re leaning forward, when you’re leaning back, you have different expectations. Your sensory apparatus is working differently. Well, of course, that’s true, right? Now, he was wrong because then you can put your laptop in bed and lean back and read all sorts of things, but so I do think you know, Charlie very early told me to put pictures in my office of people that I wouldn’t want to disappoint so that if I was on the cusp of making a decision that was in that gray zone, I might look around.

[01:38:00] Chris Davis: And I might feel a little less comfortable making it I don’t think he expected that I would have a bronze bust of him in my office, which I in fact do, but you know, and my grandfather, I had Warren, Charlie, you know, people that I admired and I wouldn’t want to disappoint. And then Charlie said to me, you know, when you create directors, you run a mutual fund that the relationship between you and your end investors is very tenuous.

[01:38:23] Chris Davis: Not like Berkshire, where Warren sat at a table and knew his original investors. You know, we work with financial advisors and, you know, and he said, so have a board of directors that you’re proud. And you’re proud of them and you don’t want to disappoint them and you certainly don’t want to mislead them.

[01:38:40] Chris Davis: Because they’re the face of your shareholders and that’s how we ended up with people like Tom Gaynor and serving in that capacity. Who do you want to report to? But you’re absolutely right. The symbolism, when we visit companies, we’re always looking for symbols. You know, is there an executive cafeteria or do the executives eat, you know?

[01:38:59] Chris Davis: Are there reserved parking spaces? Are there, you know, the Palazzo’s? And we’re always looking for those sort of subtle cues. And so, of course, we’ve tried to internalize that ourselves. So you mentioned the wall of shame and that’s probably a very good and tangible example. So we bring the stock certificates of our biggest mistakes and we put the transferable lessons because and we lead these mistake reviews as a team, Danton, my partner and I lead those because I worked at other firms and I saw.

[01:39:30] Chris Davis: You know, the success having a thousand fathers and failure being an orphan. And I worked for one individual that he just, it was always somebody else’s fault. And it was so clear that this man who was an incredible analyst was going to fail as a portfolio manager and as a businessman. Because, you know, as a portfolio manager, he had a hard time revisiting his work.

[01:39:55] Chris Davis: And then as a business, he created a culture where people were afraid to admit their mistakes and had to pin the blame. And it was always the company lied to us or, you know, somebody else’s fault. So. So I think it’s a really useful thing.

[01:40:09] William Green: So when you went back and you looked at something like AIG, for example, which I remember you telling me once was definitely your most painful and expensive mistake where You know, this had gone from being one of the world’s biggest financial companies and great insurance companies to almost collapsing and having an 85 billion bailout from the government and during the financial crisis.

[01:40:30] William Green: And you obviously were a big shareholder and an expert in financial companies. So particularly painful, like what, when you came out of that and you went back and you did your postmortems, was there something where you actually changed the way You invested or the way that you looked for disconfirming evidence like was that process of really rubbing your nose in your mistakes, practically helpful to you in making you a better investor.

[01:40:57] Chris Davis: Yeah, I mean, the goal, each plaque that’s written on the bottom is not what happened, right? It’s what was the transferable lesson learned from what happened, right? In other words, our goal is to earn a return. on those mistakes, on the money that was lost. By the way, there wasn’t money lost on all of them.

[01:41:16] Chris Davis: There’s one on that wall where we made, I don’t know, six or seven fold on our investment. It was just trying to recognize that we had gotten lucky. So, you know, obviously the mistake wall, the wall of shame is focused on process, not on outcome. So Warren, and I’m sure you wouldn’t mind my saying this once, I was asking him about this idea of having a significant loss on an investment.

[01:41:40] Chris Davis: He said, oh you shouldn’t be afraid of having a loss. It’s, you know, going back to, you were talking about Thorpe and you think of the Kelly criteria of how much to bet. You know, he said to me, I’ll bet you a billion dollars on a coin toss if you give me two to one odds. And so I’m willing to take a 50 percent chance of losing a billion dollars.

[01:42:02] Chris Davis: because the odds are so much in my favor, but I wouldn’t bet you 10. So I have to size the bet right. I have to make sure I know the odds. So if he took that bet and the coin came my way, it wouldn’t go on a mistake wall for him. I mean, I’m speculating. So I’ll say it from my point of view. If we took that bet with 2 to 1 odds and it didn’t come out and we had a loss, we wouldn’t say there was a transferable lesson to learn from that.

[01:42:29] Chris Davis: Unless the coin was rigged or something like that. So we’re thinking very much about what the transferable lesson is learned. So you’re right. AIG was the biggest one.

[01:42:41] William Green: This idea that Chris Davis mentions of studying your mistakes and talking about them openly and figuring out the transferable lesson is a huge competitive advantage.

[01:42:52] William Green: Most of us, as you know, want to bury our mistakes, but definitely not Munger. I remember once going to the Berkshire Hathaway Annual Meeting in Omaha, I think this is back in 2017, And Munger was talking to an audience of about 40,000 people, and he said we failed you by not buying Google. And then as if that wasn’t enough, he added, we blew Walmart, too, when it was a total cinch.

[01:43:20] William Green: And I just remember being so impressed by the fact that he actually wanted to highlight the mistakes, he didn’t want to bury them. He famously explained this concept once where he said I like people admitting they were complete stupid horses asses And he said I know I’ll perform better if I rub my nose in my mistakes And he said this is a wonderful trick to learn and it’s definitely something that I’ve tried to I’ve tried to learn from Charlie over the years maybe that’s why I feel so compelled to talk again and again about my mistake of buying Alibaba and losing 62 percent instead of trying to claim what a brilliant uninspired investor I am.

[01:43:59] William Green: And I think it’s not really about self-flagellation or wallowing in our sense of shame or embarrassment about our mistakes, it’s really a very practical thing it’s learning the lesson, learning the transferable lesson, as Chris Davis puts it, and then moving forward, and I remember actually Joe Greenblatt once saying the same thing to me, that he was very good at learning the lessons from his mistakes, but he didn’t wallow in it, he didn’t beat himself up he learned the lesson and then he moved forward.

[01:44:26] William Green: The other insight that I really like in that clip from Chris Davis is this very practical idea of structuring your physical environment in a way that somehow tilts your behavior towards making better decisions or acting in a wiser or more ethical manner. And I love that very practical idea of having a wall of shame to remind you of your mistakes but also I really like the idea Chris mentions of having a wall with photos of your heroes or quotes from role models of yours who inspire you and Chris mentioned that he has a bronze bust of Munger in his house, and It’s funny because I actually have a bronze bust of Munger in my home as well.

[01:45:09] William Green: It was given to me actually by Guy Spier many years ago and shipped to me from India to England and has then gone from England to America. And Guy has one in his office in Zurich and in his home in fact in the study in his home. Mohnish has a bust of Munger too, and I seem to remember when I visited Li Lu in his office in Pasadena, he had a bust of Munger as well.

[01:45:34] William Green: And it’s funny because Munger also actually had a couple of busts. He had one, I think, in his home of Lee Kuan Yew, the former leader of Singapore, who was responsible for making Singapore extraordinarily successful. Munger was a huge admirer of his. And he also had a bust of Ben Franklin, who he revered. So I love this idea of actually surrounding yourself with images of people who inspire you, who make you want to be better.

[01:46:04] William Green: The final clip that I’m about to play you is also from Chris Davis, and it’s about another really important and very practical lesson that I love that I’ve learned from Charlie over the years, which is really about the importance of playing games that you’re actually equipped to win and avoiding games that you’re ill equipped to win.

[01:46:26] William Green: It’s also interesting if you invert it, right? And you go back to what Charlie was saying at the annual general meeting, where he was talking about avoiding toxic people. And he said, look, get toxic people out of your life and do it fast. And there was a wonderful moment where Warren said, we’ll do it tactfully if possible.

[01:46:42] William Green: And Charlie was like, yeah, I don’t mind a little tact, but just get them out of your life. And so it’s, in a way it gets back to Tom’s comment that you want to extend trust first. But if people don’t reciprocate, boy, do you get away from them quickly?

[01:46:58] Chris Davis: Well, for me, for example, one of the things I love about stocks is it’s not a negotiated transaction.

[01:47:07] Chris Davis: And if I look over my whole career at the private deals I’ve done personally, as a firm, we’ve done some with great success. But when I look at the ones that I’ve done personally, it’s a pretty poor record. And it’s particularly poor because I can’t imagine looking somebody in the eye and lying. And so, you know, when you’re in a negotiated transaction with a seller I am terrible at that.

[01:47:32] Chris Davis: I would not, what I love about stocks is the price is set. I’m not negotiating with the other person. That is, I view that as a weakness in me not a strength, but I’ve been able to structure my life. So my inability to be a hardnosed negotiator. has not hurt me, you know, in other words, to be a little naive and, you know, except you know, it doesn’t help me when I, you know, buy an apartment or something.

[01:47:59] Chris Davis: And I learned subsequently that people were lying through their teeth about whether a fireplace works or something, you know, then I feel like a sucker. Oh, I shouldn’t, I should have had an inspection on that element or so on. But, you know, for me, stocks are wonderful because I don’t have to have. I don’t have to have that negotiated transaction.

[01:48:21] Chris Davis: The I think the idea of when somebody has lied to you, it’s one of the reasons I think short selling would be such a terrible way to live. You have to, you know, that toxic person, you can’t get them out of your life. You’ve got to, you’ve got to spend every waking hour studying that toxic person, you know, trying to elucidate all the ways that they’re toxic and deceitful and lying and stealing.

[01:48:45] Chris Davis: Well, that’s a tough way to go through life immersed in toxic people. So I, I like Charlie’s and Warren’s philosophy a lot more. And as I say, you know, there are people where I think where stocks sort of create the perfect venue where you don’t need that individual on the other side.

[01:49:04] Chris Davis: You don’t need to come to terms with the seller and whatever, for me, the behavioral biases I have that would make that very difficult. Instead, I have a set price and I can figure out what to do with that price. So it’s, I, you know, what I would say is that all of the people have in common, a Tiger Woods trick, which I really love, which is I, whenever I talk about sports, you have to footnote that I don’t know anything about almost any sports.

[01:49:32] Chris Davis: But I like sports because I find it metaphorically rich. And so, Tiger Woods, I think it was his first British Open. As I understand it, the weakest part of Tiger Woods game at that point was his coming out of the sand trap. He was not very good at that. relative to the people that were the best at it.

[01:49:52] Chris Davis: And they were playing the British Open at a course that was renowned for these bunkers that look like you know, they were created by a piece of artillery and, you know, the deep nasty bunkers. And so the press was really pushing Tiger on, you know, have you been working on your sand game?

[01:50:11] Chris Davis: And they were watching him in the practice rounds. And he said, no, I’m working on my drives and my low irons. And they said, why? And he said, because I don’t want to go in the sands. And he played the entire British open and didn’t go into a bunker once, which is an incredible sort of mental model to have.

[01:50:34] Chris Davis: Which is, and you know, if you can identify your weaknesses, yes, trying to reduce how severe they are, you don’t want weaknesses that are going to take you down, but then trying to architect your life. So you avoid them is the best of all. And I would say something that Warren and Charlie and many of the people you mentioned have done well as they’ve structured their lives.

[01:50:54] Chris Davis: So whatever their weaknesses are it hasn’t been taken them down. And so you mentioned Charlie’s bluntness. I don’t think that would have served Charlie as the CEO of a Fortune 500 company. It wouldn’t have served him as a manager of a lot of people. It wouldn’t serve him to have to, you know, when you go from a platoon to a company to a brigade, you know, all those romance.

[01:51:19] Chris Davis: There’s a turning point where all of a sudden you can no longer communicate directly. You have to begin to communicate with stories and you have to allow yourself to become a, some sort of, you know, some sort of an out of who you are. And that I think would have been, I mean, I’m speculating, but I think it would have been very difficult for Charlie.

[01:51:39] Chris Davis: So Charlie structured his life in a way where those personality traits of his didn’t set him back. Warren is an incredible communicator and exudes this sort of warmth that people can feel. But he has a very hard time, as he says, describes, you know, making those really hard decisions to fire somebody or to replace them.

[01:52:00] Chris Davis: So he structured, here he is as the CEO of a Fortune 500 company. where over time, he’s had to make very few of those decisions. So he’s structured his life to minimize those weaknesses and so on. So I think there’s a very powerful lesson for people to carry out, is not to necessarily obsess on your weaknesses, but to do your best to structure your life so that you can avoid a lot of them.

[01:52:24] William Green: You made a fascinating observation about the difference between Charlie and Warren’s approach to human interactions back when we were talking in May in Omaha, where I was pointing out someone, I’ll try not to be too specific, but someone asked a really stupid question, and I was mentioning that Charlie just dismissed it instantly, like he didn’t pretend that it was anything but a stupid question, And Warren replied in such an incredibly deft way, where he didn’t insult the person who’d answered, who’d asked the stupid question, he turned it into a useful teaching lesson about something else, so that people in the audience got something out of it, and it was so emollient, it was so charming, and so deft, and I mentioned this to you, like his brilliant diplomacy, and you were saying The funny thing is, actually, in some ways, Charlie is the soft hearted guy, even though it doesn’t seem it.

[01:53:22] William Green: Warren is this sort of brilliant machine who studied Dale Carnegie and how to win friends and influence people. And he has, as you put it, super high processing speed. So he’s able to tick all of these boxes and know how to behave in a way that’s going to be kind and thoughtful. And I just thought it was such a fascinating observation.

[01:53:42] William Green: Can you talk a little bit more about that? I don’t know if I’m doing justice to your observation.

[01:53:47] Chris Davis: Well, I, you know, what I’d say is Warren shows any visitor that comes to see him, you know, his Dale Carnegie certificate. hanging in his office. And he talks about how important that was. And people don’t read much Dale Carnegie anymore.

[01:54:04] Chris Davis: It’s really worth reading. It’s enormously useful. And it is a very practical guide. You know, it’s the subtitle is how to make friends and influence people. And we hear that in our modern You’re now, and that sounds very disingenuous or manipulative or somehow lacking integrity. I actually totally disagree.

[01:54:25] Chris Davis: I think it was, it is a way, you know, as John Wooden famously said you haven’t taught unless they’ve learned. You know, I think it is a way to, to do your best to make sure that somehow you aren’t communicating something you don’t wish to communicate or don’t intend to communicate. And so I think Warren was an incredible student of that mindset.

[01:54:49] Chris Davis: And so you’re absolutely right. And by the way, Ben Franklin was too. I have written down, I should have brought it in. I book of things that I’ve jotted down, mostly quotes from books or poems, you know, since I was in college. And one of them is about Ben Franklin talking about how he knew people that were very effective at winning arguments, but they never win one.

[01:55:15] Chris Davis: influence or goodwill and that would have served them better. And the reason they didn’t is they on the course of their winning the argument, they tended to humiliate the other person. And in so doing they impressed people with their intelligence, but they also gained an enemy. And ultimately that set the back.

[01:55:36] Chris Davis: So, and Charlie would hold up Ben Franklin as his Dale Carnegie. So, I mean, both of them have enormous, you know, have learned ways Charlie once told me he, he wears suits in part because he said I’m so unconventional in other ways that if I at least wear a suit, People immediately assume I’m conventional in some ways and that, that’s probably helpful. But he, you know, that it was purely a practical matter.

[01:56:03] William Green: I think it’s such a helpful and practical lesson that you want to identify your weaknesses and then structure your life so that you avoid them. And likewise, you want to identify your strengths and then play to them. I remember when I went to the Daily Journal annual meeting in Los Angeles years ago, someone asked Charlie for career advice and he replied, you have to play in a game where you’ve got some unusual talents.

[01:56:28] William Green: And he said, if you’re five foot one, you don’t want to play basketball against some guy who’s eight foot three. It’s just too hard. And he said, you’ve got to figure out a game where you have an advantage and it has to be something that you’re deeply interested in. I really have thought about that a lot over the years, whenever I’m trying to decide what to do, whether to do a particular project, I really try to think about whether I’m actually wired to succeed in that particular game, and this really applies to investing as well, right, if you’re trying to decide whether to pick individual stocks, I think you have to think about whether you’re actually wired for it, You’ve got to be really rational.

[01:57:08] William Green: You’ve got to be not that emotional. You’ve got to be able to think for yourself. You’ve got to be willing to go against the crowd. And so this ability to know yourself and to know what you’re built for is really hugely important and to have the discipline to stick with games that you’re equipped to win.

[01:57:26] William Green: I also really relished the tiny in passing observation from Chris Davis about Charlie wearing a suit because it helped him basically to pretend that he was more conventional than he really was. And for those of you who are watching the video of today’s recording, you’ll notice that for the first time ever on this podcast, I’m wearing a suit today. Which I’m wearing in honor of Charlie for, partly in recognition of that comment from Chris. And the truth is, really, that Charlie was anything but conventional. He was this great maverick and iconoclast, he was totally idiosyncratic, truly one of a kind. And I hope as you’ve heard in this episode, He was this kind of curious mix of characteristics.

[01:58:12] William Green: He was funny, he was brusque, he could be rude, but he was kind and generous, and he was brilliant, and he had this unfailing curiosity this quest for more knowledge and for stories and to study human nature and to keep learning. There was something irrepressible about his intellect and his mind and his fascination with life. And I just don’t think we’ll ever see his like again. He’s totally unique. I remember once when I was in London interviewing Nick Sleep, and Nick said to me, we were talking about Warren and Charlie, and he said somewhat wistfully, Yeah, we’re just lucky to have lived in the same era as Warren and Charlie.

[01:58:58] William Green: These two extraordinary guys who happened to be there at the same time. taught us all of these things. And so I really just feel so fortunate to have learned directly from Charlie, to have had some contact with him personally, and also to have talked to all of these remarkable people about what they’ve learned from him.

[01:59:19] William Green: And so I hope today I’ve done some justice to Charlie and sharing some of these lessons from him. And I hope you’ve enjoyed this special tribute to him and that you find it inspiring as well, studying him and thinking about what we can learn from him. So, Charlie, if you’re listening up there, thank you really for everything. You’re just an extraordinary character and we’re all fortunate to have lived in the same era as you.

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