Soldier of Fortune: Warren Buffett, Sun Tzu and the Ancient Art of Risk-Taking | S07 E34
Summary
Investment Strategy: The podcast discusses Toby's new book, which draws parallels between Warren Buffett's investment strategies and Sun Tzu's military philosophies, emphasizing the importance of strategic risk-taking and defensive positioning.
Buffett's Apple Investment: Buffett's investment in Apple is highlighted as a prime example of a Sun Tzu-style strategy, where he capitalized on a well-known company with minimal downside and significant upside, demonstrating skill over luck.
General Re Acquisition: The acquisition of General Re is analyzed as a strategic move to dilute Berkshire Hathaway's overvalued equity with undervalued bonds, showcasing Buffett's defensive mindset and ability to avoid ruin.
BNSF Railway Purchase: The BNSF acquisition is explored as a geographically strategic investment that aligned with shifting trade dynamics and tax advantages, illustrating Buffett's ability to synthesize complex factors into a single strategic decision.
Japanese Trading Companies: Buffett's investment in Japanese trading companies is discussed as a move aligned with improving corporate governance and shareholder friendliness, reflecting a strategic understanding of global economic shifts.
Moral Philosophy in Business: The podcast emphasizes the importance of moral law and character in business, drawing from Sun Tzu's principles and Buffett's practices of partnering with people he likes and admires.
Investment Philosophy: The concept of "via negativa," or avoiding mistakes, is highlighted as a key investment philosophy, advocating for a focus on removing obstacles to investment rather than timing the market.
Emotional Detachment: The importance of maintaining emotional detachment in investing is underscored, with references to Sun Tzu's strategies for achieving victory without direct conflict, applicable to modern investment challenges.
Transcript
This is Value After Hours. I am your special guest host today, Jake Taylor, and we're going to be interviewing our dear friend Toby about his new book that he has coming out. So, Toby, welcome to the show. Happy to have you on here. >> Thanks, Jake. It's good to be It's good to be here. Yeah, I'm sure it's quite the relief to not have to, uh, carry the show, uh, as a host and putting that on me. But, uh, so let's just jump right into it and get after it. I think it's going to be a fun conversation. Uh, what sparked the idea to bring together Warren Buffett and Sunzu and really this concept of risk-taking all into one cohesive narrative? >> So, first of all, fellas, I I apologize for this. The live chat's still not working. I reached out to YouTube They told you to pound sand. They >> they said come back when you're 100 times bigger and we'll talk to you. I have a new book. It's really hard to see the cover here, but that's what it looks like. I'm very proud of the the the cover. It it's uh I think it's a it's a fun cover. Um so I was I've told this story a little bit before, but this this is what happened during during co during the pandemic. I've read SunSu. I read a few versions of SunSu. I I think I read the first one when I was in grade 12 and uh 100% did not get it. And then I had another go at it cuz it's one of those books that I always say it's like The Empress's New Clothes. Like everybody says that they've read it and they love it and it was, you know, impactful. And I totally didn't get it. And I probably tried to have a go at it like every 5 years or so since then, which is I don't want to tell you how many times that is, but probably I've probably gone back to it six or seven times, something like that. And during co during the pandemic, for whatever reason, it sort of clicked for me the first time. And the main reason that it clicked is as I was reading through it, I thought how much uh the Giles So Giles was the original translator who did the 1910 version. He was the first guy to translate it into English. Somebody had had a go before then. That's not true. Someone had had a go, but he said they didn't do a very good clean translation. It had been previously translated into French. And there's a suggestion that Napoleon read it, although that's that's there that's that's no we don't know for sure, but there's a possibility that he read it. So I I read it having read a whole lot of Buffett, you know, equally since I was about 17 years old. And I thought how much it sounded like Buffett. And that was the first idea that I had to try to show why Buffett sounds so much like Sunsu. And so that was really the beginning of the effort to write the book. And it was a struggle to sort of find the best way to illustrate it without going back over a whole lot of stuff that I've done in the past because I do think that a lot of Buffett's career really does, you know, from from when he gets control of Burkshire Hathaway as uh a net net sublquidation value with a whole lot of like busted assets that aren't worth much and then transforming that into where Berkshire Haway is today as the most valuable company in the planet by net worth. Extraordinary performance. He's maintained control the whole way through. It's it's one man's canvas with some assistance from Charlie Munger. I understand, but he's the he's the guy. And um I I wanted to I wanted to illustrate those things. So I I struggled a little bit, but I think I found a way to do it. And I've used his more modern transactions >> um because I think that everybody had he was he was well known enough and his philosophy was well known enough that it's more of an example of skill than it is of luck. So often when I one of the opening stories in the book is is um talking about Apple and contrasting Iron Horn and I can and their activist campaign against Apple with Buffett's subsequent investment in Apple to show the difference between the two approaches. And I say that Buffett's approach is a better example of a Sunsu style strategy which I think a lot of people will not expect because I think that a lot of people think of Sunsu. You know the book is called the art of war and it sounds like this very Marshall aggressive philosophy when I think in actual fact it's it's not really that philosophy. I do think that um really they they say it's a book of peace and this is this is part of the the the philosophical tradition that it comes from. But um I think that that illustration and I think that when I say that I think that Apple is the greatest trade ever because Buffett put so much absolute so much capital to work in absolute terms. uh it was such a large portion of Birkshire Hathaway or Burkshire Burkshire Haway's investable assets and the downside was was minimal and the upside was extraordinary and then it was a four bagger plus and at some point it was more impactful to Berkshire Haway's returns than any other investment in very short order >> and it was out there for anybody to have done it right >> and and anybody could have put that on because it was publicly traded everybody owned an iPhone or an iPad ad or a laptop or knew who Steve Jobs was or or had some an iPod had some there was in the it was it was in the public consciousness. Everybody knew about it. Anybody could have done it as opposed to sort of like the >> I caught this biotech when it was uh you know no one had ever >> I often think of the what's the the South African investment into the Chinese company that >> Yeah. The uh into 10-centent >> 10-centent NAS NASP >> Naspers. Thank you. Yeah, the NASP. I think that that's that's a that's a also a very very impressive deal, but really you would never like you've got to go to the South African stock market to find a Chinese investment like it's and nobody knew who Naspers was before they did that. Whereas Buffett was very well known before he did the Apple deal. And so I think that that's really the best example of something where that's it's really it was skill um rather than there is some luck of course to get the return that he did, but it was skill to to put that all together. And so I wanted to go through and describe why and what sort of qualities SunSu talks about for his generals and for strategy and uh how that was sort of exemplified in the in the Apple Deal and other things that he did. >> Yeah. And then as far as the name of the book, how like you know, Soldier of Fortune, what does that really mean kind of in your context? And and do you mean it in a in a mercenary sense of the phrase? >> Yeah. So not a mercenary. >> Yeah, that's that's the common usage of the term not a mercenary. I meant it in the sense that fortune as representation of fortuna, the goddess Fortuna, which is luck and risk. >> When she when she's with you, she's hot. When she's >> when she's against you, she's mean. >> Cold. Yeah. >> And uh I just thought that people who were like at war with fortune, at war with luck, were soldiers of fortune. And so that's the that's I really had to shoehorn it in there cuz I wanted the title for the book. It could have the book could >> started with the title and then then I was like how the hell do I write a book that has >> that's that's basically it. >> And then um any surprising parallels between say Chinese military philosophy and then the Buffett's letters that you that maybe you didn't expect when you were when you first started out on this project. I think that I I think at a very broad level there are some really great ideas in the art of war and most of them come to when you're thinking about strategy and you're thinking about achieving something it is in some way to look for the the simplest easiest path to sort of not try to and Buffett talks about this all the time which is one of the reasons why I think there are so many parallels between the way Buffett talks and it's not that I think that Buffett's read Sue or that he's based his investment strategy on since it's nothing like that. I'm sure he has read it, but I I doubt that I doubt that he's consciously basing his strategy on I I really do think that there's the >> truth of the Exactly. I think that there's some there's some ex there's a there's a single way to do many of these things and every other way is the wrong way and it's like the Anacarina. Yeah, there's the andarin are happy families. Like there's there's one happy families are all the same. Unhappy families are all unhappy in their own way. >> It's because there's one way to get it right and there's a million ways to get it wrong. And part of the part of the way that you go about getting it right that sounds really stressful because it sounds like well you've got to figure out the single way to do it and all these other ways that don't work. But I I think that um the the via negativa idea. So all of Sunsu is written and I I didn't really realize this until I went to try to write the book and transcribe the that's the art of war um precepts, but a lot of it is written in the negative. So it says don't do this um do not. It's it's all framed up like that. And I think that the significance of of that framing is because it's approaching it from this via negativa um idea which is you you you get to where you're going by not making mistakes basically by by the way of the negative is what it means. So you you try to not make obvious errors and then if you remove all of the ways that are obviously wrong if anything remains then what remains is the only path that you can take. I think that that's for me that simplifies a lot of ideas you can take out. So in an investment context >> real quick I I learned a new version of that um in that I hadn't seen before which is Japanese zoning laws. they will often express it in things that you can't do in that area but otherwise it's open whereas we you know in the US tend to be like well this is commercially zoned or this is residentially zoned but it's you just can't do this here but figure it out otherwise >> I think that's a good approach I think it's a I think it's a simplifying approach because you think about in terms of investment you have like I know that lots of investors like Mesry I know that Guy Spear does this lots of guys have a a checklist which is you know here are all the ways that I've died in the past so let me go and not do this 102 things that lead to you know falling apart and you know in an investment context it might be don't don't take on things that have got too much debt don't take on cyclicals with too much debt you know there lots of ways that you can avoid falling over and I I >> if it's really cheap Toby >> well maybe like There are exceptions to the rule, but you just got to you can deal with that in a sizing context, which I talk about sizing a little bit. That was one of the really unusual things too that um Sunu understood probabilities and he writes about probabilities. He does it in a in a funny way. He does it in a different way that's a little bit counterintuitive when you first read it, but it's really clever. He calls it balancing the chances of life and death. M and this is you know what uh500 years before Fermat and Pascal >> right 2,500 years ago something like that and so he talks about you go you you he has an investment he has a process not an investment process but he has a process which involves and he spells this out a number of different ways he says you do the analysis or you you measurement so you go and measure figure out the quantities do an analysis is um reach a conclusion and then if you have this overwhelming advantage and he gives this he's he uses this archaic which might be might be from Giles but he says uh a grain to a pound which is like 16,000. So he's saying if you're 6,000 times better than the other side then you you know if your chances of life and death are that much then you then you act. >> So that's like a margin of safety then a >> huge margin of safety. Yeah. So I I tried to find three sort of transformative transactions for Birkshshire that were later. So Berkshire was wellknown, Buffett was wellknown. They're reasonably modern transactions and each of them I think illustrates some big themes in the art of war and in sort of strategy generally. >> Let's unpack those then like what was the what was the first one? >> So the first one was General Re. And I think General Re was really interesting because it came Buffett had made the Coca-Cola investment and he'd put about a third of Burkshere's in Birkshshire's capital into Coca-Cola and then inside 3 years it had tripled and so it had become a very serious part of of Birkshire Hathaway and then that was all still in the early 90s and then they went into a large growth market where Coca-Cola absolutely ripped and I think it got to 40 times earnings something like that >> might have been 60 if I remember >> 60 but >> 60 times earnings >> and Bither it's fully priced >> it made up a big chunk of their investable assets and then they were overvalued to the three times book value something like that around that that time as well so it was like very very expensive on what was clearly elevated assets. >> Yeah. So you have elevated internal mark on Coke. >> Yeah. >> Probably. And then the container holding that is at 3x >> Yeah. >> book value. >> And if you sell your Coke, you get you pay tax at the marginal rate of 35%. So selling is not really a an option. And in addition to that, you you might never get back into Coke again because you there's no guarantee that Coke trades cheaply. I don't think that Coke has really ever got cheap since he bought it. I think it's got less overvalued, but I don't think you could ever say that he would have been able to get back in. And all the time during that holding period, he's been getting very substantial dividends and they're now like 50% of what he invested into Coke on an annual basis. So even though the price got well ahead as an investment, it's been an extraordinary success. But that was 25 years ago that it got to that sort of level of overvaluation. It still hasn't worked off. And so he had some uh that creates a problem and that's a really good problem to have but it's still a problem. >> Yeah. >> Where if Berkshire Haway and and now we know because there was a collapse in 2000 and if Berkshire Haway follows the rest of the market it probably gets cut in half at least and maybe more than that because Coke was down by 50%. Berkshire was overvalued relative to the coke. Berkshire would have come down a lot too. And so one of the principles of um art the art of war of SunS is that you defend first. So you have to be defensively minded and you have to try to avoid ruin. And this is one of the you know we we've had um we've had lots of discussions about this in the past, but avoiding ruin is like that's if you go to zero, doesn't matter how well you've compounded before you get to zero. These are all >> exactly right. >> Uh Lucana. Yeah, >> thank you. Yeah, Luca Delana's got that great Luca Delana has explained erodicity really well in his book and it's a great concept. We should get him back on again to discuss again in the future. But the the whole idea of of SunSu is avoiding this avoiding rule and avoiding this zero. So the way that you do that is you you're defensively minded. you defend first and you that he has lots of these little principles for for defending that are that are great and that apply to equity and business equity investment in business and so on and so Buffett's solution for it is to merge with Genri and they had there had been discussions beforehand they had worked worked together on deals um they knew each other really well they had discussed merging previously but the the valuation wasn't attractive from Birkshshire's perspective and so they finally they came to terms and they were able to do that deal and the advantage and they they achieved it by issuing stock in Burkshire. So they diluted their coke problem and substituted this overvalued equity with probably undervalued bond portfolio because Genry was heavily uh heavily invested in bonds and Genry had some restrictions on it as well. wanted to expand internationally and it was on a quarter by quarter um it was reporting quarterly and that was they were unwilling to invest because then that would show up as a bad quarter and so they were sort of constrained a little bit whereas Berkshire doesn't have those constraints. Uh they still have to report they just ignore those constraints which you which you're allowed to do evidently. Well, plus the capital the the balance sheet behind it allows them to turn what was debt holdings into eventual equity holdings. >> And so they they do that deal, they they dilute down the Coke, the the bonds uh replace the sort of Coke the Coke overvaluation. And then when in 2000 when the rest of the market collapses, all of those bonds rally, which uh bonds sometimes do in a in a in a collapse. It's no guarantee that they did that in the future, but they did on that occasion. And um Burki did extraordinarily well and they had all of this investment capital right at the bottom of the market where everybody else is really struggling, which set them up for a huge 2010 and into the future. And I think that that's a it's an example of how uh being defensively minded and defending and avoiding ruin is actually a huge positive and it helps you gain and be offensive at a at a subsequent time. So that's why I think it's a it's a really powerful example of using those sort of principles in in an investment context. And then to I mean just to think about the mindset at that time for Buffett. He had four years before that he had just nuked $400 million on a Dexter shoes deal that he did with stock. And so you would think like that was the a bit of a cat that sat on the hot stove and yet he was cognizant enough to like that it's still a good idea to do it even though he'd been hurt by it. Is there anything in Sunzu about kind of keeping an open mind about these things and not maybe o not fighting the last war necessarily? >> It's a great line. I It's possible there is. I can't think off the top of my head. It's a good line. It's a good idea. There should be if there's not. >> Yeah, we'll put it in there >> in the second edition. >> Yeah, second edition. The Carile translation. Uh, >> one of one of the things that I love um about about that whole about about all of the deals in the book really is how heavily criticized they are at the time that he does the deals. And it's funny, they're criticized for often for reasons that have nothing to do with >> what actually eventually happens. >> Um, but one thing that everybody missed that Buffett missed too that now is the thing that everybody remembers about that deal, funnily enough, it's not the fact that he did very well out of the bonds. Everybody remembers the weapons of mass destruction >> derivatives exposure which >> you know that one of the criticisms of Berkshire is that they don't do that very deep diligence that is you know I was a corporate lawyer that's pretty standard form to do these incredibly deep diligences and I don't know I'm perhaps that did happen but it doesn't matter they didn't uncover this issue until down the track and they discovered that they had written these incredibly complex contracts where really neither side knew if they ahead or behind or if they owed money or if they were owed money or or they both assumed that they were owed money or it was >> both sides are marketing >> both sides are winning. >> Yeah. >> Yeah. And so what it cost him how much to get unwind those >> I think I think it's significant but still not particularly material in the context of of the entire transaction even though he devoted lots of pages to sort of saying why he had made a mistake and why it was a huge mistake and sort of flagagillating himself which is kind of classic Buffett to >> to do that even though it was a hugely successful deal but I think now if you ask most folks about Gen Ree they would say well it's weapons of mass destruction and derivatives rather than a really positive outcome. >> Not a >> Yeah, it was a mistake. >> Not a master stroke of strategy >> and one that he compounded by issuing stock for even though you know really that's that's what made it such a great transaction that he issued stock, got back debt, got back bonds that rallied into a crash and diluted out the coke. in it was a master masterful transaction and then he just so one of the things that Sun Sue says is you know you keep all of your your plans silent you don't let people know what you're doing you you know >> the genre shareholders don't >> want to feel like they got fleeced right >> right and you might want to do that transaction again in the future you might want to do something similar in the future >> or maybe Bank of America is you know sitting there and you might want to give them a call from the Right. >> So, how about the second second transaction? >> So, the second transaction that I wrote about was the BNSF um the railway deal and and similar that was a the very first I think it's a nice like there's a nice parallel to Graeme. So that's when I sort of I introduce Graeme a little bit and I talk about Graeme and I use that more as uh the mechanics of making an investment which Sunsu also talks about. Sunu goes through how you sort of conduct an analysis. He doesn't do it all in one place. It's sort of spread throughout the the book but I've put it all together into one place so you can see that he has this quite systematic approach. So he tells you how to analyze a situation for a strategy and what you should be looking at and he breaks down basically it's the people and the territory and the conditions and he has you know nice lyrical to so the conditions are heaven >> uh the territories earth and then the commander and and he he goes through these things and then he talks in a separate part about >> you know the way that you actually go and I I mentioned that earlier you go you do the measurement you do the analysis, quantity, measure, measurement, quantity, analysis, and then balancing of chances. And then when you have an overwhelming advantage, then you act. >> If Sunzu was uh in the public markets right now, what what strategy would he be running? Is he a quank guy? Is he running a pod shop? What what do you think? >> I think he's Buffett. >> Okay. >> I think he too easy an answer. >> Yeah, it is. That was obvious, wasn't it? >> I stepped right into that one. But I I like the BNSF deal for a number of reasons. One is that I think it's it's like a it's a geog it's a geography story. It's geographical. Um as well as it's related to Graham and I think Graeme is also very SunSu like Graeme goes through and he has the same sort of you know you've got to conduct this like it's a business-like operation. You go and undertake evaluation. You look at the quantitative stuff. If you look at all of the factors that influence the outcome and then you come to a decision and you look for this margin of safety and then you assume even though you've done all these things it's still going to fail so you don't become too concentrated you don't overcommit all these sort of ideas I think are are good ones but BNSF is a particularly interesting transaction again because it looked to be it was criticized at the time because it's very unlike Buffett he's been talking about >> you know don't >> capital compound >> capital compounders and here He's investing in in a railroad which is the antithesis of a capital like compound. It requires enormous amount >> lost the plot. Huh. >> And that was I think that was the criticism at the time. He like the the opportunity set is just so barren. There's so little to do. And this is during a period of zero interest rates to >> Mhm. >> So everything's fully valued. There's nothing to do. There's nothing for a company the size of Berkshire Haway to deploy capital into. And here he is. He's taken BNSF, which is a railroad capital intensive. So, he's sort of he's panicked and he's he's suffered from FOMO and he's done this deal that looks terrible. But, um he had understood lots of different things that were not obvious to people who didn't follow that stuff as closely as he does. And there's a lot of elements to it which is sort of this complexity and it shows the sort of strategic genius of Buffett in doing this transaction. One of them is um its geography is more to the Pacific, more to the west coast. And so he had perceived that America's relationship was moving from Europe to to Asia, doing more business across the Pacific. And so BNSF is well positioned for that. He also understood that there were some changes to the tax code that were going to allow them to accelerate depreciation on some of their investments. And so they were going to require a lot of money going into this thing, but all of it would appreciate very quickly. And so even though the the after tax earnings might not look that great, the pre the after tax cash flow was extraordinary on all of these investments and it was regulated. And it was also if >> right and you could take the pain early, right? And that's something that they've always been willing to do is take the accounting paying for the cash flow tomorrow, >> right? And and it's also you can transport goods, you know, as America starts transporting more and more goods around because we're all buying online and doing stuff like that. You can railways are still the cheapest way of moving stuff. It's cheaper than moving it by by road train or by truck on on the road. and cheaper in terms of carbon intensity, carbon intensity too. And so I I think that it's I use it to illustrate the the method which is that sort of process of doing the analysis and and making the investment, but also this idea of kudoi which is this it's it's not spelled that way. This is a very funny pronunciation >> term, right? Yeah, >> it's a French term. It means stroke of the eye. They say that like Napoleon talks about it and uh uh von Clauswitz who wrote vom which is on war. He was the Prussian general who wrote he he saw Napoleon fight against the I think the Russians or the Prussians and and as a as a young officer and then when he was older he wrote this book and so he talked about this a little bit but the idea was that these great commanders have this what they call the coupi which is the ability to take in all of these different ideas like the geography and the changes in the tax code and the cheapness of moving it and the the movement from Europe to Asia and all of these things and filter it down into one single transaction which was and to identify BNSF as the right thing to do. And so I talk about Kudoi as being something that I want to develop for myself. And so I think it's an interesting idea. Uh and I think it's um and Sunu talks about a little bit too when they get into the later parts of the book which are a little bit more uh woo a little but I I still think they're interesting ideas and they're worth >> both. Yeah. Yeah. Is that like I mean it sounds like that's um what Buffett's talked about before of that app perceptive mass which is you kind of have all of this constellation of patterns and ideas in your head and then something you see just kind of makes it click into place. >> Yeah. I mean great term. I hadn't I hadn't heard him talk about that but that's a >> Toby. We did a whole veggie segment on that perceptive math. >> I think I think we've done 400 of these now. It's hard to keep track. So I I I used I used BNSF to illustrate those ideas and um I I think it's a I think that does capture the the method and analysis and the kudoy idea which is like I think kudoy is the result of doing the method over and over and over again until you get to the point where it's really second nature >> and then you get the kudoi after you've done these analysis enough you start you expect things to be where they are and then when you find them there then the kudoi is is sort of functioning properly. >> Back up back up the truck. >> Yeah. >> Yeah. >> Is there um maybe you can speak a little bit about the like the the kind of righteousness path that is like and and maybe even the you know the environmental impact of of railroads being that what you can do like one ton can be transported >> how far is it? Is it 500 miles on one gallon? >> Yeah. So it's it's more efficient in terms of fuel. It's more efficient in terms of carbon intensity than anything else. So it's there's a lot of good reasons why it's it's a it's good for the environment and it's efficient and that's one of the things that that's one of SunSu's ideas as well that you're looking for efficiency which you know you could I could torture that into an analogy for return on invested capital or something like that. I didn't I didn't do that but I could have got there. But I I think that the the idea of the righteousness is really something that came in in the third part of the book. >> Okay, let's do let's talk about that then in the the third deal. >> So when he was 90 he announced this deal. So this is only 5 years ago now. Um and they'd never really invested materially meaningfully. This is a little bit of a weasel word I guess but they'd never invested materially outside of the US. So I know they had done transactions outside the US but um Japan you know they bought the famously made the announcement they' taken very significant positions in all of the shoga SOA shower uh the conglomerates the Japanese conglomerates >> trading houses >> the trading houses and so they were all set up in the Maji period to be Japan's conduit to the rest of the world in terms of trading um because Japan is resource poor and so they needed to find a way and The way that they achieved it was by vertically integrating a lot of these things. So they buy the mine, buy the processor and so on. And so they have these these things touch every single aspect of a lot of the stuff that they're involved in. And they do it very very well, pretty efficiently. And the criticism of Japan has always been that the corporate governance wasn't very good and that they had all these cross shareholdings which made them way too complicated to kind of value and you couldn't exert any pressure externally if they weren't performing the way that you would hope that they should and >> and you get terrible roes >> terrible roses and as a result the valuations are uh discounted to that extent >> and so Buffett um takes these positions in five years ago. So 2020 was when the announcement was made, 2019, 2020. And the um what what really stands out is that he had again using the coup he had perceived that these there was this there was this move towards better corporate governance and they were becoming increasingly shareholder friendly and also that they were sort of I think they're similar in some respects to Burkshire Haway. They're not identical, but they're similar ideas and they're conglomerates that touch many different aspects of the of the uh global economy. And so you're not really exposed to Japan or any single thing. It's sort of a it's a reasonable portfolio bet on these things where the valuations were very very low. I outline them in some detail in the book. But the the what what really stands out there's this idea in Sunsu that in some places it's called the moral law. or in some places it's called the way. And so that's this dowist idea. And so Dowoism is a sometimes it's described as a religion, sometimes it's described as a philosophy. I use it more as a philosophy. I'm not really sure how it becomes a religion, but it's a I I describe it as a philosophy and it's outlined in a series of foundational texts. Da diqing uh theangi and the art of war is the third sort of uh foundational text from that period and they talk about some of these principles and I think and I use that as an opportunity to sort of discuss those principles and several of them are very important I think and I really are exemplified in Buffett and one of them is this idea of the moral law. So Buffett calls it character or you know you show the internet business with people you want to be in you like and admire and you got to conduct yourself in a way that will make people who you like and admire want to do business with you. you to to find a good partner, you have to be a good partner and you behave honestly and fairly and you do all these things and he kind of Buffett has written about it and talked about it quite a lot and I've captured a lot of that and I've also tried to capture what the dowists and the art of war says about this the art of war it's one of the very first things that um that Sunu discusses and it's one of the five elements that he says when you're assessing which of the two he he does this you do this analysis at the You ask five questions to determine which of the two sides is likely to prevail in a conflict. And one of the questions is which of the two sides follows the moral law or which of the two sides follows the way and which in which >> of the two sides are the people more likely to follow the leader without being dismayed by danger. And the idea is that if you have uh some sort of totalitarian state where people are sort of forced to fight, they won't do as well against people who are fighting for their own freedom probably. And so they're they're looking at the are the leaders moral and just and doing the right things, looking after the people, or are they sort of despots and oppressing the people? And the the idea is that the moral and just people should prevail. And so I think that that applies just as well in business. I remember when I was when I was getting started, I had this impression that business was very um cutthroat, was ruthless, and that in order to survive, you had to be smarter than everybody else. >> And I remember reading Buffett >> and feeling like there was some hope that you could do business in a >> good person also. >> Yeah. >> Yeah. you didn't have to destroy everybody along the way and you could still do well by you know by behaving well and so I I I love Buffett for that and I was that was the one of the main things that I was surprised when I read the art of war that I was I thought well this is that's actually a sensible that's a good approach this there's some basis in decency you know for doing this stuff so I uh I I try to make that one of the one of the most important ideas in the book >> where would to outside of Buffett like where might you be able to find that in if you were looking at a company is it does that live in the proxy statement >> that's a good question I think you probably have to listen to what people say in totality >> I think there are a lot of people out there who behave in very well I think most people in a most I think most people in a fortune 500 type context are pretty good moral most people are behaving pretty well I would say everybody, but I think most people are doing a pretty good job. Um, but I think the >> wonder about the relativity though sometimes like, well, is there isn't it the most common excuse? Well, everyone else was doing it, right? And Buffett's always said that like that's one excuse that will never fly at Berkshire. >> Well, it's a again, it's a strategic type argument, too. like the with the AI capex investments that we're looking at now, >> how can you not throw a whole lot of money at this problem? Like what if you >> I I don't I'm glad I don't I mean I I've kind of made that decision. I'm not I'm not participating in it. But um it's one of the things that you perhaps you could forgive somebody like if you're in the MAG 7, can you not do it? It's that's not really a question of morality. That's more of a question of sort of strategy. That's like mutually assured destruction or something like that. >> Yeah. It's a prisoner's dilemma kind of thing. >> Yeah. And the other thing that I discuss in the context of that moral law and the way there are some other ideas in the dowist literature that I think are really interesting and one of them we just you mentioned earlier is that woowooi idea >> and I think when people hear this idea it does sound very kind of it's very woo woo. It sounds like you've gone a little bit soft. >> Yeah. >> In the head. >> That's right. But I think that properly understood, it's one of my favorite ideas in the book and it's become increasingly sort of important and a powerful idea I think and I think it there's some great lines in there that illustrate this idea. So the idea of wooi is sort of there is a natural flow to most events that most events are going to go. we sort of all know how they're going to play out and you either play out alongside them or with them and take advantage of them or you stand in their way and you're utterly destroyed by them. And so it's better to be in the flow of the way that these things are going to to go. And I think that's while that does sound a little bit soft like there's a great line in there where they say I'm going to mangle the quote a little bit but they he took the one of the one of the philosophers talks about wooi as you know it's great to be a good farmer but it's you don't have to be a great farmer in the in the spring. You know you you >> anyone can grow in spring. Yeah. >> Sew in the spring. You know, sew when you take advantage of the spring. >> Uh just, you know, take advantage of the natural flow of events. Don't don't stand in the way. It's basically the idea. It's it's totally to me it's just it's probably obvious and it's probably trite to say it but it's good to just have that reminder that >> particularly if you're a contrarian like part of what we're trying to do is to find things where the the whole everybody is not in agreement because that's how you get if everybody thinks that something's going to happen then the bet is >> fully priced for that. >> Exactly right. And so the other side is the one that's underpriced. And so you have to find the underpriced bet and you have to factor that into your assessment of of wooi. >> Maybe it maybe talk about uh Buffett's approach to the the trading company's management as a wooue insight. >> I think that he was um he was open about what his intentions were. He told them very early on that he was going to buy up to a certain level and that they would look for a way to participate alongside them if they had any deals that they wanted to do. And I think he sent Greg to deepen the relationship. Greg Ael who's the now who who will be CEO at the end of the year. So that's right. Isn't he take formally steps in at the end of the year? >> Yeah. And I think that that where previously they might have viewed a foreign investor as an interloper or an aggressor, they were more prepared to welcome him. Also because he had this great reputation that he developed over an entire lifetime or business career of treating everybody fair fairly and investing the way that he has. And so I think that that set all of that stuff that he had done beforehand, all of the writing that he had done previously set him up to, you know, be the right person and they were prepared to believe what he was saying, which was that he would buy up to a certain level. He was just going to be a passive investor. He'd provide advice or talk to them if they if they wanted that. and then he was asking to take those positions up which they have done subsequently and they've continued to invest in the equity and invest in projects alongside some of these businesses. So I think it's been an incredibly successful investment uh in in what's been a tough investment landscape for a company as big as Birkshshire that they've done extremely well applying some of these principles that that I think our son sus in origin >> maybe um this is a little bit more of an oddball question but you know how how do you address this contradiction that I often feel actually this is very uh I'm just this just asking for myself, but this contradiction between, you know, compounding that comes from owning great assets for really long periods of time and letting them flourish and being that, you know, favorite holding period of forever versus timing the market, for instance, with a big cash pile, which Berkshire has also done. Like it feels like they've done both of these. How do you how do you square is can Sunzu help us square that seeming contradiction? >> No. Damn it. Uh, >> all right. I'm out of here. May >> maybe Yeah, I think that one of the things that I talked about in relation to the Apple investment at the start is to contrast because I've written about Ian and Einhorn and Apple uh in in previous books. And so it's a I think it's a it's a signal transaction that anybody could have seen coming. And I contrast his approach to it or or their approach to it first, which was Apple essentially didn't change much in between Einhorn and I can doing their >> saber rattling >> their campaign and Buffett taking his position. And the difference really was that they both persuaded Apple to pay out some of its cash holding to do some buyback and to to to take care of some of the the cash on the balance sheet, but there was really not much that happened operationally. There wasn't there wasn't any great leap that changed the the nature of the company. It just sort of perfected itself where that it had that one imperfection that they both focused on. It was a fairly simple one to eliminate. But Buffett didn't invest while it was imperfect >> to that extent. >> And then once that imperfection was taken away, then he was able to see that it was a it was a perfected investment. They were a management team that looked after the balance sheet, obviously a great business, consumer, franchise, all of those other things that were now lined up. And so all of the impediments to making that investment were removed. And so if if you're a if you're a via negativa investor and it's got that problem that precludes you making the investment, you don't and when the when the obstacle is taken away, then you make that investment and then and then it works out. And I think that that's how he approaches everything. He's in many different things in uh United UNH, United Healthcare more recently. Clearly, it's a business that he has liked for a long time because the business hasn't really changed in complexion much over the last few years, but the valuation improved pretty dramatically over the last 12 months until about a month or so ago. And he was probably the catalyst for that turnaround in that event too >> where he was it was in freef fall. This is UNH was in freef fall until I announced that Buffett had taken a big position in which case it bounced. So the only impediment for UNH was the valuation. When I say the only impediment, I guess that's a pretty big impediment. But that the case remains that that was true that it was too expensive and he didn't invest and then when it got cheaper he did invest. And so I think he does all of the he knows all of the businesses that are sizable and often listed and he's and he's identified the imperfection that prevents him from investing in them. when the imperfection is removed, then he takes the position and to the extent that the imperfection exists, it sits as cash at Berkshire Hathaway. And so I like that. I think that's I think it's an incredibly I think one of the things that makes investing hard is that you do have this incredible FOMO. You do have this desire to do things. It's hard to sit there and not do anything. But I think if you take that via negativa approach which I think was Charlie Manga's idea and I do discuss manga in the book and give him credit for that idea and give him credit for some of the other ideas towards the end of the book as well and I discussed their partnership in the last chapter in the in the epilogue. >> Yeah, let's talk about that a little bit as Charlie's role there as architect. Well, I think that Charlie kind of Charlie's responsible for articulating the via negativa idea and he's also Buffett credits him as being as providing the blueprint and he and he says that he was the general contractor who who built to the blueprint. But I think that Charlie really is the font of the idea of wooi of that you know you want to be don't be in little things that are dying that are too cheap. >> Be in things are going to grow and perhaps the growth does bail you out if you make a a valuation mistake when you're investing. Not that Buffett's making a valuation mistake but >> he's looking for these things that can grow and compound and be bigger in the future. And so it just changed the way that he approached the investment. So I call that the woo, the dowist sort of part of the philosophy towards the end of the book. But I think that you got to give credit to to Manga for that. >> Imagine the uh the woowoo of Charlie's own personal net worth and like identifying Buffett just like well this guy's clearly obsessed about doing this like he's quite good at it. I'm just gonna let him do what he's gonna do and I'll cheer him on. >> Give him credit. He did it with BYD. He did it with Leelu. All the same idea. Just find someone who's >> extraordinary and and put some capital behind them and let them >> and then leave them alone. Basically, >> alone, cheer them on. And >> I think it I think that manga is also uh a a good example of that moral law >> possibly even more not not more forcefully maybe forcefully might be the wrong word but more um more explicitly perhaps than than Buffett is. >> Yeah. >> Where he talks about >> you know investing with people who Buffett calls it like and admire but Ma's a little bit more fire and brimstone than that. >> Yeah. And so >> or Old Testament. Yeah. >> Like they they clearly they they've rubbed off on each other and they've got fairly similar um moralities and moral judgments about the world which I also subscribe to. So I I like that philosophy. And so I the book all I try to do in the book is to discuss the ideas where they're found in in the art of war and then show really how Buffett and Manga and Berkshire Hatheraway have implemented them in a business context. And so I say you take what is an ancient Marshall philosophy and apply it in a modern business context and it still works surprisingly well. I think that it's the the really the amazing thing is how flexible the art of war is and some of the ideas in the art of war some of the ideas in the art of war are fairly I've joked about them before like if you're crossing a salt marsh and you're attacked to get your back up against the woods I get that that's not something that you can apply in your day-to-day life and I don't >> I think we could >> we could do some analogy >> yeah let's go >> land that plane >> I don't think I can not on short notice >> so that was the book I it took me a long time to write the book because I I I I felt like the I could I told it the first time I told it, I told it starting with Berkshire Hathaway when it was formed or when when Buffett took it over through to today and it just felt too much like everything else that I'd written in the past and it was a little bit boring because everybody knows that story and it's been told over and over again. And I do tell it at the end of the book um sort of in passing to to kind of give some due credit to to what they what they had achieved there. But I wanted to do it the book in these three modern transformative deals that I think are a little bit underappreciated or even you know negatively viewed in some respects even though they were massively successful because of the way Buffett talks about them and because the uh the genius of what was achieved there was difficult to identify and I I didn't identify them. I think you told me initially and I think that Chris Bloomstrand was the one who uh who figured out Jen re in particular. So I I give full credit to to Chris Bloomstrand for that and Chris >> Chris wrote about it in his letters. Chris reviewed uh the the manuscript for me. So um to the best of my ability, it's it's a recapitulation of what what Chris told me. So credit to Chris for that and I thank him very very much for that. Um, but I had a lot of fun writing it and I I'm proud of the uh the what has finally emerged and in particular I I love this this cover too. It's a little bit hard to see. >> Hang on. What if I do that? There we go. >> Put it Put it over your face. There we go. >> Yeah. Well, you know, I mean, as uh I got to watch behind the scenes for the last few years as you've been working through this project, and so I'm just as your friend, I'm quite pleased for you to get it over the finish line. >> Relieved. >> Yeah. Get it >> that you don't have to discuss it anymore. >> No, no, no. Just not for you, just to have it kind of dislodged from your from your guts, which is always the the making of a good book is it's, you know, it's something that you have to get out of you, right? >> It's funny. It was e it's easier to in general terms, it's easier to conceptualize and and I think I hope that when people read this they they go and have a look at the Giles translation of Sunsu as well which I found I I've read through it many many times now I was going to do that but okay >> but I like I I find it kind of magical like it's not all magical it's there's there's lots of parts of it that are unreadable and and I and I wouldn't worry about those too much but I think it I think it's uh when he talks about strategimm and when he talks about some of his approaches I think it's it really is an incredible work and it's hard to fathom that it's as old as it actually is >> because some of the ideas are so powerful and they talk about sort of just developing this sensit he talks about developing this sensitivity to conditions and timing and understanding what's happening in terms of territory and knowing yourself knowing your own your own emotional state which is something that I've written about a lot in quantitative value and other and it's something that I think is very important that you you know the rugged Kiplings if if you can keep your head all about you're losing there. It's like I really do think that that is the thing that separates good performers from bad performers and people who have very in sport in business in lots of different contexts where just remaining emotionally detached >> when everybody else is and we we'll go through inevitably we'll go through >> as well. Is that uh >> yeah, both ways. >> Everyone thinks about downside, but >> we're we're going through a period of unusual FOMO at the moment. I think it's a there's lots of indications of how much speculation there is in the market. And this is one of those times where you can it looks very easy. Everything's going up a lot. People are showing their $10 million personal portfolios from like a standing start in 2020. >> Yeah, those are never those victory laps usually don't age well, do they? So for some of them it will, for some of them it won't. But you don't what whatever the way that they have done it. It's not going to be the same way that you can achieve it from here. >> Mhm. >> Because the market those opportunities were available in 2020 and it's 2025. You know that that's the the nature of this that you have to find the opportunity that's going to work to 2030 or 2035 and not blow you up along the way. And I I hope that that's what this book does is it gives people um some emotional distance or at least it makes the argument for keeping some emotional distance to the upside and the downside. >> I know something of the John Boyd material ended up on the cutting room floor for this book. Maybe just give us like two minutes on how how that fits in. I ended up cutting it because it was a little bit too much of a stretch. So, I think I have to write a separate book >> to discuss this stuff. >> 2028. >> I don't I don't know if I'm the person to write it. Un I don't know if I have the qualifications to write it, but I I that that wouldn't necessarily hold me back. >> Say it didn't stop you from this. >> It's never stopped me from anything, but yeah, >> I I may I may do that. But the Boyd stuff, I think, is extraordinary because Boyd Boyd talks about psychological warfare. >> And just a little context, Boyd was a a fighter pilot, >> right, >> for the US Air Force. >> Boyd's a fighter pilot who became like a a philosopher of um strategy and he bought lots of copies of Sunsu and he regarded Sunsu as his Rosetta Stone and he filled them full of marginalia and underlined them. though this is all told in lots of different there's a there's a book about Boyd and there's which I I don't want you to go and buy buy my book first and then go and buy >> the Boyd book but um and he's also produced these these slides that are very very hard to read >> um which is why I think they should be turned into a book someone should go through and and make these into a more conversational easily understood but his to the extent that he talks about psychological warfare I found that very powerful because you There are the the modern world in particular because of the way that we engage with the modern world through social media and through uh the news is just updated so quickly. There's this assault on your mind all the time from foreign governments, from businesses trying to sell you stuff, from your friends, from, you know, inadvertently, you know, creating FOMO and trying to get you to behave and trying to influence the way you think. And um just being aware that it's happening, I think is a huge advantage that you can step back. I like the way um I'm just blanking on whose idea it is, but uh why am I being shown this now? like why am I seeing this now? >> It's Ben's >> uh epsilon theory. >> Ben Hunt. >> Ben Hunt. Yeah. >> Yeah. Yeah. >> He's definitely thought about this stuff. But Sunu talks about that that's that that idea of uh you know you can victory without battle is this idea of SunSu where you don't engage until you know you're going to win and you figure out how you're going to win before you engage. And that's really all investment too. like that. I see people all day long like Open is a stock that's out there that there's a hedge fund manager trying to stampede people into open which is this >> is that the one hanging out in front of Drake's house? >> Yes. Yeah. >> I mean that's a psychological >> it's a scop. >> It's one way to do it. I suppose >> the there's no fundamental value to this thing. It probably was going to be a donut before this little kathuffle has sort of happened in the stock, but it's a 10 bagger since or it was at one point maybe more so maybe because I think it might have got down to 50 or 60 cents and I think it topped out above $10. So maybe it's more like maybe it was a 20 bag at peak the trough. >> I doubt that there's anybody who's got 20 bags in it. But >> that's one of those things that you should be able to see that for what what it is. They're just bringing attention to it to get a run out of it in the short term, but fundamentally it's still broken and that will go back to where it was eventually. >> And you need to be I think you need to be able to recognize these things for what they are and avoid them. >> Some games. >> Yeah. Zero some games. And it's a it's an it's a meme. It's an attempt to sort of meme this thing into reality the way all of these other attempts have been made. I don't think it's particularly honorable work honestly. >> Yeah, there's there's a lot of that now, isn't there? It's quite >> And I saw it at some point. >> Even all the the gambling uh facilitating gambling so easily now I don't think is the moral high ground. >> Evidently, we're limited in California a little bit. I didn't even realize that because I haven't. >> It doesn't. >> That's what happened when you tried to download Kishi or whatever. >> I learned over the weekend. >> Yeah. >> Yeah. Yeah, I I don't think it's good. I don't think it's good to be able to I mean I don't think it probably doesn't really matter, but there are people who are vulnerable to this stuff who shouldn't be doing it. But it's not like I think the gambling stuff I think people are in a mindset where they're gambling where I hope for for the most part people are doing it with like sums of money that they can afford to lose. But I think when >> you you find it in Robin Hood and other things like that where >> there's something it's a different mindset like this is where you can improve your life and make money. And I think that there's a problem with people doing it in with significant sums of money in Robin Hood. So I think Robin Hood might be worse than the than the gamblers cuz it's sort of gamblified gamified gamblified investing. >> Yeah. >> But now they there's 50 times leverage and >> oh my god >> Coinbase >> zero DTE options. We're in the the golden age, brother. >> The golden age of graft. >> Golden age of blowing yourself up. We're coming up on time. If people want to follow along and get in touch with you. >> Very good. >> I say that so much. >> Ida, where where can they get the book? >> So, the book is available for pre-sale on Amazon. Uh the Kindle version is up. There is a hard cover and a paperback coming and the audio is uh in the process of being record. >> Do you read it yourself? >> I don't. I >> Come on. You got the voice for it. >> Uh >> yeah, man. >> I got a pro. I got someone who knows what they're doing. It's the guy who did the the last book, uh, Scott Pollock. I love his voice. He's got this nice, uh, he does the he did NPR in Atlanta. He's got smooth tones. >> Fair enough. >> He does a better job than I do. He's got more of an in He's got a He's got a nice voice. I'm I'm an amateur in this stuff. >> Fair enough. All right, everybody, make sure you go pick up that book. You know, we have done this show now for a long time without We don't ask for very much very often. YouTube takes all the money that ever is ever made on this thing. So, >> one thing one thing that I would say is if you if you really enjoy the book, a fivestar review is really helpful. If you really didn't like the book, send me an email and tell me why you hated it. >> Uh yeah, >> Toby's burner uh email. >> Thanks JT. >> Yeah, >> thanks folks. We'll be back next week with a guest. >> Yeah, it'll be back to normal next week. us talking to somebody instead of us talking the whole way through. Me talking the whole way through. I appreciate everybody. Uh we'll see you then and hopefully we'll get the chat fixed. Like I don't know what's going on in the chat. Impossible. Oh >> jeez. All right. Cheers everyone. >> Peace.
Soldier of Fortune: Warren Buffett, Sun Tzu and the Ancient Art of Risk-Taking | S07 E34
Summary
Transcript
This is Value After Hours. I am your special guest host today, Jake Taylor, and we're going to be interviewing our dear friend Toby about his new book that he has coming out. So, Toby, welcome to the show. Happy to have you on here. >> Thanks, Jake. It's good to be It's good to be here. Yeah, I'm sure it's quite the relief to not have to, uh, carry the show, uh, as a host and putting that on me. But, uh, so let's just jump right into it and get after it. I think it's going to be a fun conversation. Uh, what sparked the idea to bring together Warren Buffett and Sunzu and really this concept of risk-taking all into one cohesive narrative? >> So, first of all, fellas, I I apologize for this. The live chat's still not working. I reached out to YouTube They told you to pound sand. They >> they said come back when you're 100 times bigger and we'll talk to you. I have a new book. It's really hard to see the cover here, but that's what it looks like. I'm very proud of the the the cover. It it's uh I think it's a it's a fun cover. Um so I was I've told this story a little bit before, but this this is what happened during during co during the pandemic. I've read SunSu. I read a few versions of SunSu. I I think I read the first one when I was in grade 12 and uh 100% did not get it. And then I had another go at it cuz it's one of those books that I always say it's like The Empress's New Clothes. Like everybody says that they've read it and they love it and it was, you know, impactful. And I totally didn't get it. And I probably tried to have a go at it like every 5 years or so since then, which is I don't want to tell you how many times that is, but probably I've probably gone back to it six or seven times, something like that. And during co during the pandemic, for whatever reason, it sort of clicked for me the first time. And the main reason that it clicked is as I was reading through it, I thought how much uh the Giles So Giles was the original translator who did the 1910 version. He was the first guy to translate it into English. Somebody had had a go before then. That's not true. Someone had had a go, but he said they didn't do a very good clean translation. It had been previously translated into French. And there's a suggestion that Napoleon read it, although that's that's there that's that's no we don't know for sure, but there's a possibility that he read it. So I I read it having read a whole lot of Buffett, you know, equally since I was about 17 years old. And I thought how much it sounded like Buffett. And that was the first idea that I had to try to show why Buffett sounds so much like Sunsu. And so that was really the beginning of the effort to write the book. And it was a struggle to sort of find the best way to illustrate it without going back over a whole lot of stuff that I've done in the past because I do think that a lot of Buffett's career really does, you know, from from when he gets control of Burkshire Hathaway as uh a net net sublquidation value with a whole lot of like busted assets that aren't worth much and then transforming that into where Berkshire Haway is today as the most valuable company in the planet by net worth. Extraordinary performance. He's maintained control the whole way through. It's it's one man's canvas with some assistance from Charlie Munger. I understand, but he's the he's the guy. And um I I wanted to I wanted to illustrate those things. So I I struggled a little bit, but I think I found a way to do it. And I've used his more modern transactions >> um because I think that everybody had he was he was well known enough and his philosophy was well known enough that it's more of an example of skill than it is of luck. So often when I one of the opening stories in the book is is um talking about Apple and contrasting Iron Horn and I can and their activist campaign against Apple with Buffett's subsequent investment in Apple to show the difference between the two approaches. And I say that Buffett's approach is a better example of a Sunsu style strategy which I think a lot of people will not expect because I think that a lot of people think of Sunsu. You know the book is called the art of war and it sounds like this very Marshall aggressive philosophy when I think in actual fact it's it's not really that philosophy. I do think that um really they they say it's a book of peace and this is this is part of the the the philosophical tradition that it comes from. But um I think that that illustration and I think that when I say that I think that Apple is the greatest trade ever because Buffett put so much absolute so much capital to work in absolute terms. uh it was such a large portion of Birkshire Hathaway or Burkshire Burkshire Haway's investable assets and the downside was was minimal and the upside was extraordinary and then it was a four bagger plus and at some point it was more impactful to Berkshire Haway's returns than any other investment in very short order >> and it was out there for anybody to have done it right >> and and anybody could have put that on because it was publicly traded everybody owned an iPhone or an iPad ad or a laptop or knew who Steve Jobs was or or had some an iPod had some there was in the it was it was in the public consciousness. Everybody knew about it. Anybody could have done it as opposed to sort of like the >> I caught this biotech when it was uh you know no one had ever >> I often think of the what's the the South African investment into the Chinese company that >> Yeah. The uh into 10-centent >> 10-centent NAS NASP >> Naspers. Thank you. Yeah, the NASP. I think that that's that's a that's a also a very very impressive deal, but really you would never like you've got to go to the South African stock market to find a Chinese investment like it's and nobody knew who Naspers was before they did that. Whereas Buffett was very well known before he did the Apple deal. And so I think that that's really the best example of something where that's it's really it was skill um rather than there is some luck of course to get the return that he did, but it was skill to to put that all together. And so I wanted to go through and describe why and what sort of qualities SunSu talks about for his generals and for strategy and uh how that was sort of exemplified in the in the Apple Deal and other things that he did. >> Yeah. And then as far as the name of the book, how like you know, Soldier of Fortune, what does that really mean kind of in your context? And and do you mean it in a in a mercenary sense of the phrase? >> Yeah. So not a mercenary. >> Yeah, that's that's the common usage of the term not a mercenary. I meant it in the sense that fortune as representation of fortuna, the goddess Fortuna, which is luck and risk. >> When she when she's with you, she's hot. When she's >> when she's against you, she's mean. >> Cold. Yeah. >> And uh I just thought that people who were like at war with fortune, at war with luck, were soldiers of fortune. And so that's the that's I really had to shoehorn it in there cuz I wanted the title for the book. It could have the book could >> started with the title and then then I was like how the hell do I write a book that has >> that's that's basically it. >> And then um any surprising parallels between say Chinese military philosophy and then the Buffett's letters that you that maybe you didn't expect when you were when you first started out on this project. I think that I I think at a very broad level there are some really great ideas in the art of war and most of them come to when you're thinking about strategy and you're thinking about achieving something it is in some way to look for the the simplest easiest path to sort of not try to and Buffett talks about this all the time which is one of the reasons why I think there are so many parallels between the way Buffett talks and it's not that I think that Buffett's read Sue or that he's based his investment strategy on since it's nothing like that. I'm sure he has read it, but I I doubt that I doubt that he's consciously basing his strategy on I I really do think that there's the >> truth of the Exactly. I think that there's some there's some ex there's a there's a single way to do many of these things and every other way is the wrong way and it's like the Anacarina. Yeah, there's the andarin are happy families. Like there's there's one happy families are all the same. Unhappy families are all unhappy in their own way. >> It's because there's one way to get it right and there's a million ways to get it wrong. And part of the part of the way that you go about getting it right that sounds really stressful because it sounds like well you've got to figure out the single way to do it and all these other ways that don't work. But I I think that um the the via negativa idea. So all of Sunsu is written and I I didn't really realize this until I went to try to write the book and transcribe the that's the art of war um precepts, but a lot of it is written in the negative. So it says don't do this um do not. It's it's all framed up like that. And I think that the significance of of that framing is because it's approaching it from this via negativa um idea which is you you you get to where you're going by not making mistakes basically by by the way of the negative is what it means. So you you try to not make obvious errors and then if you remove all of the ways that are obviously wrong if anything remains then what remains is the only path that you can take. I think that that's for me that simplifies a lot of ideas you can take out. So in an investment context >> real quick I I learned a new version of that um in that I hadn't seen before which is Japanese zoning laws. they will often express it in things that you can't do in that area but otherwise it's open whereas we you know in the US tend to be like well this is commercially zoned or this is residentially zoned but it's you just can't do this here but figure it out otherwise >> I think that's a good approach I think it's a I think it's a simplifying approach because you think about in terms of investment you have like I know that lots of investors like Mesry I know that Guy Spear does this lots of guys have a a checklist which is you know here are all the ways that I've died in the past so let me go and not do this 102 things that lead to you know falling apart and you know in an investment context it might be don't don't take on things that have got too much debt don't take on cyclicals with too much debt you know there lots of ways that you can avoid falling over and I I >> if it's really cheap Toby >> well maybe like There are exceptions to the rule, but you just got to you can deal with that in a sizing context, which I talk about sizing a little bit. That was one of the really unusual things too that um Sunu understood probabilities and he writes about probabilities. He does it in a in a funny way. He does it in a different way that's a little bit counterintuitive when you first read it, but it's really clever. He calls it balancing the chances of life and death. M and this is you know what uh500 years before Fermat and Pascal >> right 2,500 years ago something like that and so he talks about you go you you he has an investment he has a process not an investment process but he has a process which involves and he spells this out a number of different ways he says you do the analysis or you you measurement so you go and measure figure out the quantities do an analysis is um reach a conclusion and then if you have this overwhelming advantage and he gives this he's he uses this archaic which might be might be from Giles but he says uh a grain to a pound which is like 16,000. So he's saying if you're 6,000 times better than the other side then you you know if your chances of life and death are that much then you then you act. >> So that's like a margin of safety then a >> huge margin of safety. Yeah. So I I tried to find three sort of transformative transactions for Birkshshire that were later. So Berkshire was wellknown, Buffett was wellknown. They're reasonably modern transactions and each of them I think illustrates some big themes in the art of war and in sort of strategy generally. >> Let's unpack those then like what was the what was the first one? >> So the first one was General Re. And I think General Re was really interesting because it came Buffett had made the Coca-Cola investment and he'd put about a third of Burkshere's in Birkshshire's capital into Coca-Cola and then inside 3 years it had tripled and so it had become a very serious part of of Birkshire Hathaway and then that was all still in the early 90s and then they went into a large growth market where Coca-Cola absolutely ripped and I think it got to 40 times earnings something like that >> might have been 60 if I remember >> 60 but >> 60 times earnings >> and Bither it's fully priced >> it made up a big chunk of their investable assets and then they were overvalued to the three times book value something like that around that that time as well so it was like very very expensive on what was clearly elevated assets. >> Yeah. So you have elevated internal mark on Coke. >> Yeah. >> Probably. And then the container holding that is at 3x >> Yeah. >> book value. >> And if you sell your Coke, you get you pay tax at the marginal rate of 35%. So selling is not really a an option. And in addition to that, you you might never get back into Coke again because you there's no guarantee that Coke trades cheaply. I don't think that Coke has really ever got cheap since he bought it. I think it's got less overvalued, but I don't think you could ever say that he would have been able to get back in. And all the time during that holding period, he's been getting very substantial dividends and they're now like 50% of what he invested into Coke on an annual basis. So even though the price got well ahead as an investment, it's been an extraordinary success. But that was 25 years ago that it got to that sort of level of overvaluation. It still hasn't worked off. And so he had some uh that creates a problem and that's a really good problem to have but it's still a problem. >> Yeah. >> Where if Berkshire Haway and and now we know because there was a collapse in 2000 and if Berkshire Haway follows the rest of the market it probably gets cut in half at least and maybe more than that because Coke was down by 50%. Berkshire was overvalued relative to the coke. Berkshire would have come down a lot too. And so one of the principles of um art the art of war of SunS is that you defend first. So you have to be defensively minded and you have to try to avoid ruin. And this is one of the you know we we've had um we've had lots of discussions about this in the past, but avoiding ruin is like that's if you go to zero, doesn't matter how well you've compounded before you get to zero. These are all >> exactly right. >> Uh Lucana. Yeah, >> thank you. Yeah, Luca Delana's got that great Luca Delana has explained erodicity really well in his book and it's a great concept. We should get him back on again to discuss again in the future. But the the whole idea of of SunSu is avoiding this avoiding rule and avoiding this zero. So the way that you do that is you you're defensively minded. you defend first and you that he has lots of these little principles for for defending that are that are great and that apply to equity and business equity investment in business and so on and so Buffett's solution for it is to merge with Genri and they had there had been discussions beforehand they had worked worked together on deals um they knew each other really well they had discussed merging previously but the the valuation wasn't attractive from Birkshshire's perspective and so they finally they came to terms and they were able to do that deal and the advantage and they they achieved it by issuing stock in Burkshire. So they diluted their coke problem and substituted this overvalued equity with probably undervalued bond portfolio because Genry was heavily uh heavily invested in bonds and Genry had some restrictions on it as well. wanted to expand internationally and it was on a quarter by quarter um it was reporting quarterly and that was they were unwilling to invest because then that would show up as a bad quarter and so they were sort of constrained a little bit whereas Berkshire doesn't have those constraints. Uh they still have to report they just ignore those constraints which you which you're allowed to do evidently. Well, plus the capital the the balance sheet behind it allows them to turn what was debt holdings into eventual equity holdings. >> And so they they do that deal, they they dilute down the Coke, the the bonds uh replace the sort of Coke the Coke overvaluation. And then when in 2000 when the rest of the market collapses, all of those bonds rally, which uh bonds sometimes do in a in a in a collapse. It's no guarantee that they did that in the future, but they did on that occasion. And um Burki did extraordinarily well and they had all of this investment capital right at the bottom of the market where everybody else is really struggling, which set them up for a huge 2010 and into the future. And I think that that's a it's an example of how uh being defensively minded and defending and avoiding ruin is actually a huge positive and it helps you gain and be offensive at a at a subsequent time. So that's why I think it's a it's a really powerful example of using those sort of principles in in an investment context. And then to I mean just to think about the mindset at that time for Buffett. He had four years before that he had just nuked $400 million on a Dexter shoes deal that he did with stock. And so you would think like that was the a bit of a cat that sat on the hot stove and yet he was cognizant enough to like that it's still a good idea to do it even though he'd been hurt by it. Is there anything in Sunzu about kind of keeping an open mind about these things and not maybe o not fighting the last war necessarily? >> It's a great line. I It's possible there is. I can't think off the top of my head. It's a good line. It's a good idea. There should be if there's not. >> Yeah, we'll put it in there >> in the second edition. >> Yeah, second edition. The Carile translation. Uh, >> one of one of the things that I love um about about that whole about about all of the deals in the book really is how heavily criticized they are at the time that he does the deals. And it's funny, they're criticized for often for reasons that have nothing to do with >> what actually eventually happens. >> Um, but one thing that everybody missed that Buffett missed too that now is the thing that everybody remembers about that deal, funnily enough, it's not the fact that he did very well out of the bonds. Everybody remembers the weapons of mass destruction >> derivatives exposure which >> you know that one of the criticisms of Berkshire is that they don't do that very deep diligence that is you know I was a corporate lawyer that's pretty standard form to do these incredibly deep diligences and I don't know I'm perhaps that did happen but it doesn't matter they didn't uncover this issue until down the track and they discovered that they had written these incredibly complex contracts where really neither side knew if they ahead or behind or if they owed money or if they were owed money or or they both assumed that they were owed money or it was >> both sides are marketing >> both sides are winning. >> Yeah. >> Yeah. And so what it cost him how much to get unwind those >> I think I think it's significant but still not particularly material in the context of of the entire transaction even though he devoted lots of pages to sort of saying why he had made a mistake and why it was a huge mistake and sort of flagagillating himself which is kind of classic Buffett to >> to do that even though it was a hugely successful deal but I think now if you ask most folks about Gen Ree they would say well it's weapons of mass destruction and derivatives rather than a really positive outcome. >> Not a >> Yeah, it was a mistake. >> Not a master stroke of strategy >> and one that he compounded by issuing stock for even though you know really that's that's what made it such a great transaction that he issued stock, got back debt, got back bonds that rallied into a crash and diluted out the coke. in it was a master masterful transaction and then he just so one of the things that Sun Sue says is you know you keep all of your your plans silent you don't let people know what you're doing you you know >> the genre shareholders don't >> want to feel like they got fleeced right >> right and you might want to do that transaction again in the future you might want to do something similar in the future >> or maybe Bank of America is you know sitting there and you might want to give them a call from the Right. >> So, how about the second second transaction? >> So, the second transaction that I wrote about was the BNSF um the railway deal and and similar that was a the very first I think it's a nice like there's a nice parallel to Graeme. So that's when I sort of I introduce Graeme a little bit and I talk about Graeme and I use that more as uh the mechanics of making an investment which Sunsu also talks about. Sunu goes through how you sort of conduct an analysis. He doesn't do it all in one place. It's sort of spread throughout the the book but I've put it all together into one place so you can see that he has this quite systematic approach. So he tells you how to analyze a situation for a strategy and what you should be looking at and he breaks down basically it's the people and the territory and the conditions and he has you know nice lyrical to so the conditions are heaven >> uh the territories earth and then the commander and and he he goes through these things and then he talks in a separate part about >> you know the way that you actually go and I I mentioned that earlier you go you do the measurement you do the analysis, quantity, measure, measurement, quantity, analysis, and then balancing of chances. And then when you have an overwhelming advantage, then you act. >> If Sunzu was uh in the public markets right now, what what strategy would he be running? Is he a quank guy? Is he running a pod shop? What what do you think? >> I think he's Buffett. >> Okay. >> I think he too easy an answer. >> Yeah, it is. That was obvious, wasn't it? >> I stepped right into that one. But I I like the BNSF deal for a number of reasons. One is that I think it's it's like a it's a geog it's a geography story. It's geographical. Um as well as it's related to Graham and I think Graeme is also very SunSu like Graeme goes through and he has the same sort of you know you've got to conduct this like it's a business-like operation. You go and undertake evaluation. You look at the quantitative stuff. If you look at all of the factors that influence the outcome and then you come to a decision and you look for this margin of safety and then you assume even though you've done all these things it's still going to fail so you don't become too concentrated you don't overcommit all these sort of ideas I think are are good ones but BNSF is a particularly interesting transaction again because it looked to be it was criticized at the time because it's very unlike Buffett he's been talking about >> you know don't >> capital compound >> capital compounders and here He's investing in in a railroad which is the antithesis of a capital like compound. It requires enormous amount >> lost the plot. Huh. >> And that was I think that was the criticism at the time. He like the the opportunity set is just so barren. There's so little to do. And this is during a period of zero interest rates to >> Mhm. >> So everything's fully valued. There's nothing to do. There's nothing for a company the size of Berkshire Haway to deploy capital into. And here he is. He's taken BNSF, which is a railroad capital intensive. So, he's sort of he's panicked and he's he's suffered from FOMO and he's done this deal that looks terrible. But, um he had understood lots of different things that were not obvious to people who didn't follow that stuff as closely as he does. And there's a lot of elements to it which is sort of this complexity and it shows the sort of strategic genius of Buffett in doing this transaction. One of them is um its geography is more to the Pacific, more to the west coast. And so he had perceived that America's relationship was moving from Europe to to Asia, doing more business across the Pacific. And so BNSF is well positioned for that. He also understood that there were some changes to the tax code that were going to allow them to accelerate depreciation on some of their investments. And so they were going to require a lot of money going into this thing, but all of it would appreciate very quickly. And so even though the the after tax earnings might not look that great, the pre the after tax cash flow was extraordinary on all of these investments and it was regulated. And it was also if >> right and you could take the pain early, right? And that's something that they've always been willing to do is take the accounting paying for the cash flow tomorrow, >> right? And and it's also you can transport goods, you know, as America starts transporting more and more goods around because we're all buying online and doing stuff like that. You can railways are still the cheapest way of moving stuff. It's cheaper than moving it by by road train or by truck on on the road. and cheaper in terms of carbon intensity, carbon intensity too. And so I I think that it's I use it to illustrate the the method which is that sort of process of doing the analysis and and making the investment, but also this idea of kudoi which is this it's it's not spelled that way. This is a very funny pronunciation >> term, right? Yeah, >> it's a French term. It means stroke of the eye. They say that like Napoleon talks about it and uh uh von Clauswitz who wrote vom which is on war. He was the Prussian general who wrote he he saw Napoleon fight against the I think the Russians or the Prussians and and as a as a young officer and then when he was older he wrote this book and so he talked about this a little bit but the idea was that these great commanders have this what they call the coupi which is the ability to take in all of these different ideas like the geography and the changes in the tax code and the cheapness of moving it and the the movement from Europe to Asia and all of these things and filter it down into one single transaction which was and to identify BNSF as the right thing to do. And so I talk about Kudoi as being something that I want to develop for myself. And so I think it's an interesting idea. Uh and I think it's um and Sunu talks about a little bit too when they get into the later parts of the book which are a little bit more uh woo a little but I I still think they're interesting ideas and they're worth >> both. Yeah. Yeah. Is that like I mean it sounds like that's um what Buffett's talked about before of that app perceptive mass which is you kind of have all of this constellation of patterns and ideas in your head and then something you see just kind of makes it click into place. >> Yeah. I mean great term. I hadn't I hadn't heard him talk about that but that's a >> Toby. We did a whole veggie segment on that perceptive math. >> I think I think we've done 400 of these now. It's hard to keep track. So I I I used I used BNSF to illustrate those ideas and um I I think it's a I think that does capture the the method and analysis and the kudoy idea which is like I think kudoy is the result of doing the method over and over and over again until you get to the point where it's really second nature >> and then you get the kudoi after you've done these analysis enough you start you expect things to be where they are and then when you find them there then the kudoi is is sort of functioning properly. >> Back up back up the truck. >> Yeah. >> Yeah. >> Is there um maybe you can speak a little bit about the like the the kind of righteousness path that is like and and maybe even the you know the environmental impact of of railroads being that what you can do like one ton can be transported >> how far is it? Is it 500 miles on one gallon? >> Yeah. So it's it's more efficient in terms of fuel. It's more efficient in terms of carbon intensity than anything else. So it's there's a lot of good reasons why it's it's a it's good for the environment and it's efficient and that's one of the things that that's one of SunSu's ideas as well that you're looking for efficiency which you know you could I could torture that into an analogy for return on invested capital or something like that. I didn't I didn't do that but I could have got there. But I I think that the the idea of the righteousness is really something that came in in the third part of the book. >> Okay, let's do let's talk about that then in the the third deal. >> So when he was 90 he announced this deal. So this is only 5 years ago now. Um and they'd never really invested materially meaningfully. This is a little bit of a weasel word I guess but they'd never invested materially outside of the US. So I know they had done transactions outside the US but um Japan you know they bought the famously made the announcement they' taken very significant positions in all of the shoga SOA shower uh the conglomerates the Japanese conglomerates >> trading houses >> the trading houses and so they were all set up in the Maji period to be Japan's conduit to the rest of the world in terms of trading um because Japan is resource poor and so they needed to find a way and The way that they achieved it was by vertically integrating a lot of these things. So they buy the mine, buy the processor and so on. And so they have these these things touch every single aspect of a lot of the stuff that they're involved in. And they do it very very well, pretty efficiently. And the criticism of Japan has always been that the corporate governance wasn't very good and that they had all these cross shareholdings which made them way too complicated to kind of value and you couldn't exert any pressure externally if they weren't performing the way that you would hope that they should and >> and you get terrible roes >> terrible roses and as a result the valuations are uh discounted to that extent >> and so Buffett um takes these positions in five years ago. So 2020 was when the announcement was made, 2019, 2020. And the um what what really stands out is that he had again using the coup he had perceived that these there was this there was this move towards better corporate governance and they were becoming increasingly shareholder friendly and also that they were sort of I think they're similar in some respects to Burkshire Haway. They're not identical, but they're similar ideas and they're conglomerates that touch many different aspects of the of the uh global economy. And so you're not really exposed to Japan or any single thing. It's sort of a it's a reasonable portfolio bet on these things where the valuations were very very low. I outline them in some detail in the book. But the the what what really stands out there's this idea in Sunsu that in some places it's called the moral law. or in some places it's called the way. And so that's this dowist idea. And so Dowoism is a sometimes it's described as a religion, sometimes it's described as a philosophy. I use it more as a philosophy. I'm not really sure how it becomes a religion, but it's a I I describe it as a philosophy and it's outlined in a series of foundational texts. Da diqing uh theangi and the art of war is the third sort of uh foundational text from that period and they talk about some of these principles and I think and I use that as an opportunity to sort of discuss those principles and several of them are very important I think and I really are exemplified in Buffett and one of them is this idea of the moral law. So Buffett calls it character or you know you show the internet business with people you want to be in you like and admire and you got to conduct yourself in a way that will make people who you like and admire want to do business with you. you to to find a good partner, you have to be a good partner and you behave honestly and fairly and you do all these things and he kind of Buffett has written about it and talked about it quite a lot and I've captured a lot of that and I've also tried to capture what the dowists and the art of war says about this the art of war it's one of the very first things that um that Sunu discusses and it's one of the five elements that he says when you're assessing which of the two he he does this you do this analysis at the You ask five questions to determine which of the two sides is likely to prevail in a conflict. And one of the questions is which of the two sides follows the moral law or which of the two sides follows the way and which in which >> of the two sides are the people more likely to follow the leader without being dismayed by danger. And the idea is that if you have uh some sort of totalitarian state where people are sort of forced to fight, they won't do as well against people who are fighting for their own freedom probably. And so they're they're looking at the are the leaders moral and just and doing the right things, looking after the people, or are they sort of despots and oppressing the people? And the the idea is that the moral and just people should prevail. And so I think that that applies just as well in business. I remember when I was when I was getting started, I had this impression that business was very um cutthroat, was ruthless, and that in order to survive, you had to be smarter than everybody else. >> And I remember reading Buffett >> and feeling like there was some hope that you could do business in a >> good person also. >> Yeah. >> Yeah. you didn't have to destroy everybody along the way and you could still do well by you know by behaving well and so I I I love Buffett for that and I was that was the one of the main things that I was surprised when I read the art of war that I was I thought well this is that's actually a sensible that's a good approach this there's some basis in decency you know for doing this stuff so I uh I I try to make that one of the one of the most important ideas in the book >> where would to outside of Buffett like where might you be able to find that in if you were looking at a company is it does that live in the proxy statement >> that's a good question I think you probably have to listen to what people say in totality >> I think there are a lot of people out there who behave in very well I think most people in a most I think most people in a fortune 500 type context are pretty good moral most people are behaving pretty well I would say everybody, but I think most people are doing a pretty good job. Um, but I think the >> wonder about the relativity though sometimes like, well, is there isn't it the most common excuse? Well, everyone else was doing it, right? And Buffett's always said that like that's one excuse that will never fly at Berkshire. >> Well, it's a again, it's a strategic type argument, too. like the with the AI capex investments that we're looking at now, >> how can you not throw a whole lot of money at this problem? Like what if you >> I I don't I'm glad I don't I mean I I've kind of made that decision. I'm not I'm not participating in it. But um it's one of the things that you perhaps you could forgive somebody like if you're in the MAG 7, can you not do it? It's that's not really a question of morality. That's more of a question of sort of strategy. That's like mutually assured destruction or something like that. >> Yeah. It's a prisoner's dilemma kind of thing. >> Yeah. And the other thing that I discuss in the context of that moral law and the way there are some other ideas in the dowist literature that I think are really interesting and one of them we just you mentioned earlier is that woowooi idea >> and I think when people hear this idea it does sound very kind of it's very woo woo. It sounds like you've gone a little bit soft. >> Yeah. >> In the head. >> That's right. But I think that properly understood, it's one of my favorite ideas in the book and it's become increasingly sort of important and a powerful idea I think and I think it there's some great lines in there that illustrate this idea. So the idea of wooi is sort of there is a natural flow to most events that most events are going to go. we sort of all know how they're going to play out and you either play out alongside them or with them and take advantage of them or you stand in their way and you're utterly destroyed by them. And so it's better to be in the flow of the way that these things are going to to go. And I think that's while that does sound a little bit soft like there's a great line in there where they say I'm going to mangle the quote a little bit but they he took the one of the one of the philosophers talks about wooi as you know it's great to be a good farmer but it's you don't have to be a great farmer in the in the spring. You know you you >> anyone can grow in spring. Yeah. >> Sew in the spring. You know, sew when you take advantage of the spring. >> Uh just, you know, take advantage of the natural flow of events. Don't don't stand in the way. It's basically the idea. It's it's totally to me it's just it's probably obvious and it's probably trite to say it but it's good to just have that reminder that >> particularly if you're a contrarian like part of what we're trying to do is to find things where the the whole everybody is not in agreement because that's how you get if everybody thinks that something's going to happen then the bet is >> fully priced for that. >> Exactly right. And so the other side is the one that's underpriced. And so you have to find the underpriced bet and you have to factor that into your assessment of of wooi. >> Maybe it maybe talk about uh Buffett's approach to the the trading company's management as a wooue insight. >> I think that he was um he was open about what his intentions were. He told them very early on that he was going to buy up to a certain level and that they would look for a way to participate alongside them if they had any deals that they wanted to do. And I think he sent Greg to deepen the relationship. Greg Ael who's the now who who will be CEO at the end of the year. So that's right. Isn't he take formally steps in at the end of the year? >> Yeah. And I think that that where previously they might have viewed a foreign investor as an interloper or an aggressor, they were more prepared to welcome him. Also because he had this great reputation that he developed over an entire lifetime or business career of treating everybody fair fairly and investing the way that he has. And so I think that that set all of that stuff that he had done beforehand, all of the writing that he had done previously set him up to, you know, be the right person and they were prepared to believe what he was saying, which was that he would buy up to a certain level. He was just going to be a passive investor. He'd provide advice or talk to them if they if they wanted that. and then he was asking to take those positions up which they have done subsequently and they've continued to invest in the equity and invest in projects alongside some of these businesses. So I think it's been an incredibly successful investment uh in in what's been a tough investment landscape for a company as big as Birkshshire that they've done extremely well applying some of these principles that that I think our son sus in origin >> maybe um this is a little bit more of an oddball question but you know how how do you address this contradiction that I often feel actually this is very uh I'm just this just asking for myself, but this contradiction between, you know, compounding that comes from owning great assets for really long periods of time and letting them flourish and being that, you know, favorite holding period of forever versus timing the market, for instance, with a big cash pile, which Berkshire has also done. Like it feels like they've done both of these. How do you how do you square is can Sunzu help us square that seeming contradiction? >> No. Damn it. Uh, >> all right. I'm out of here. May >> maybe Yeah, I think that one of the things that I talked about in relation to the Apple investment at the start is to contrast because I've written about Ian and Einhorn and Apple uh in in previous books. And so it's a I think it's a it's a signal transaction that anybody could have seen coming. And I contrast his approach to it or or their approach to it first, which was Apple essentially didn't change much in between Einhorn and I can doing their >> saber rattling >> their campaign and Buffett taking his position. And the difference really was that they both persuaded Apple to pay out some of its cash holding to do some buyback and to to to take care of some of the the cash on the balance sheet, but there was really not much that happened operationally. There wasn't there wasn't any great leap that changed the the nature of the company. It just sort of perfected itself where that it had that one imperfection that they both focused on. It was a fairly simple one to eliminate. But Buffett didn't invest while it was imperfect >> to that extent. >> And then once that imperfection was taken away, then he was able to see that it was a it was a perfected investment. They were a management team that looked after the balance sheet, obviously a great business, consumer, franchise, all of those other things that were now lined up. And so all of the impediments to making that investment were removed. And so if if you're a if you're a via negativa investor and it's got that problem that precludes you making the investment, you don't and when the when the obstacle is taken away, then you make that investment and then and then it works out. And I think that that's how he approaches everything. He's in many different things in uh United UNH, United Healthcare more recently. Clearly, it's a business that he has liked for a long time because the business hasn't really changed in complexion much over the last few years, but the valuation improved pretty dramatically over the last 12 months until about a month or so ago. And he was probably the catalyst for that turnaround in that event too >> where he was it was in freef fall. This is UNH was in freef fall until I announced that Buffett had taken a big position in which case it bounced. So the only impediment for UNH was the valuation. When I say the only impediment, I guess that's a pretty big impediment. But that the case remains that that was true that it was too expensive and he didn't invest and then when it got cheaper he did invest. And so I think he does all of the he knows all of the businesses that are sizable and often listed and he's and he's identified the imperfection that prevents him from investing in them. when the imperfection is removed, then he takes the position and to the extent that the imperfection exists, it sits as cash at Berkshire Hathaway. And so I like that. I think that's I think it's an incredibly I think one of the things that makes investing hard is that you do have this incredible FOMO. You do have this desire to do things. It's hard to sit there and not do anything. But I think if you take that via negativa approach which I think was Charlie Manga's idea and I do discuss manga in the book and give him credit for that idea and give him credit for some of the other ideas towards the end of the book as well and I discussed their partnership in the last chapter in the in the epilogue. >> Yeah, let's talk about that a little bit as Charlie's role there as architect. Well, I think that Charlie kind of Charlie's responsible for articulating the via negativa idea and he's also Buffett credits him as being as providing the blueprint and he and he says that he was the general contractor who who built to the blueprint. But I think that Charlie really is the font of the idea of wooi of that you know you want to be don't be in little things that are dying that are too cheap. >> Be in things are going to grow and perhaps the growth does bail you out if you make a a valuation mistake when you're investing. Not that Buffett's making a valuation mistake but >> he's looking for these things that can grow and compound and be bigger in the future. And so it just changed the way that he approached the investment. So I call that the woo, the dowist sort of part of the philosophy towards the end of the book. But I think that you got to give credit to to Manga for that. >> Imagine the uh the woowoo of Charlie's own personal net worth and like identifying Buffett just like well this guy's clearly obsessed about doing this like he's quite good at it. I'm just gonna let him do what he's gonna do and I'll cheer him on. >> Give him credit. He did it with BYD. He did it with Leelu. All the same idea. Just find someone who's >> extraordinary and and put some capital behind them and let them >> and then leave them alone. Basically, >> alone, cheer them on. And >> I think it I think that manga is also uh a a good example of that moral law >> possibly even more not not more forcefully maybe forcefully might be the wrong word but more um more explicitly perhaps than than Buffett is. >> Yeah. >> Where he talks about >> you know investing with people who Buffett calls it like and admire but Ma's a little bit more fire and brimstone than that. >> Yeah. And so >> or Old Testament. Yeah. >> Like they they clearly they they've rubbed off on each other and they've got fairly similar um moralities and moral judgments about the world which I also subscribe to. So I I like that philosophy. And so I the book all I try to do in the book is to discuss the ideas where they're found in in the art of war and then show really how Buffett and Manga and Berkshire Hatheraway have implemented them in a business context. And so I say you take what is an ancient Marshall philosophy and apply it in a modern business context and it still works surprisingly well. I think that it's the the really the amazing thing is how flexible the art of war is and some of the ideas in the art of war some of the ideas in the art of war are fairly I've joked about them before like if you're crossing a salt marsh and you're attacked to get your back up against the woods I get that that's not something that you can apply in your day-to-day life and I don't >> I think we could >> we could do some analogy >> yeah let's go >> land that plane >> I don't think I can not on short notice >> so that was the book I it took me a long time to write the book because I I I I felt like the I could I told it the first time I told it, I told it starting with Berkshire Hathaway when it was formed or when when Buffett took it over through to today and it just felt too much like everything else that I'd written in the past and it was a little bit boring because everybody knows that story and it's been told over and over again. And I do tell it at the end of the book um sort of in passing to to kind of give some due credit to to what they what they had achieved there. But I wanted to do it the book in these three modern transformative deals that I think are a little bit underappreciated or even you know negatively viewed in some respects even though they were massively successful because of the way Buffett talks about them and because the uh the genius of what was achieved there was difficult to identify and I I didn't identify them. I think you told me initially and I think that Chris Bloomstrand was the one who uh who figured out Jen re in particular. So I I give full credit to to Chris Bloomstrand for that and Chris >> Chris wrote about it in his letters. Chris reviewed uh the the manuscript for me. So um to the best of my ability, it's it's a recapitulation of what what Chris told me. So credit to Chris for that and I thank him very very much for that. Um, but I had a lot of fun writing it and I I'm proud of the uh the what has finally emerged and in particular I I love this this cover too. It's a little bit hard to see. >> Hang on. What if I do that? There we go. >> Put it Put it over your face. There we go. >> Yeah. Well, you know, I mean, as uh I got to watch behind the scenes for the last few years as you've been working through this project, and so I'm just as your friend, I'm quite pleased for you to get it over the finish line. >> Relieved. >> Yeah. Get it >> that you don't have to discuss it anymore. >> No, no, no. Just not for you, just to have it kind of dislodged from your from your guts, which is always the the making of a good book is it's, you know, it's something that you have to get out of you, right? >> It's funny. It was e it's easier to in general terms, it's easier to conceptualize and and I think I hope that when people read this they they go and have a look at the Giles translation of Sunsu as well which I found I I've read through it many many times now I was going to do that but okay >> but I like I I find it kind of magical like it's not all magical it's there's there's lots of parts of it that are unreadable and and I and I wouldn't worry about those too much but I think it I think it's uh when he talks about strategimm and when he talks about some of his approaches I think it's it really is an incredible work and it's hard to fathom that it's as old as it actually is >> because some of the ideas are so powerful and they talk about sort of just developing this sensit he talks about developing this sensitivity to conditions and timing and understanding what's happening in terms of territory and knowing yourself knowing your own your own emotional state which is something that I've written about a lot in quantitative value and other and it's something that I think is very important that you you know the rugged Kiplings if if you can keep your head all about you're losing there. It's like I really do think that that is the thing that separates good performers from bad performers and people who have very in sport in business in lots of different contexts where just remaining emotionally detached >> when everybody else is and we we'll go through inevitably we'll go through >> as well. Is that uh >> yeah, both ways. >> Everyone thinks about downside, but >> we're we're going through a period of unusual FOMO at the moment. I think it's a there's lots of indications of how much speculation there is in the market. And this is one of those times where you can it looks very easy. Everything's going up a lot. People are showing their $10 million personal portfolios from like a standing start in 2020. >> Yeah, those are never those victory laps usually don't age well, do they? So for some of them it will, for some of them it won't. But you don't what whatever the way that they have done it. It's not going to be the same way that you can achieve it from here. >> Mhm. >> Because the market those opportunities were available in 2020 and it's 2025. You know that that's the the nature of this that you have to find the opportunity that's going to work to 2030 or 2035 and not blow you up along the way. And I I hope that that's what this book does is it gives people um some emotional distance or at least it makes the argument for keeping some emotional distance to the upside and the downside. >> I know something of the John Boyd material ended up on the cutting room floor for this book. Maybe just give us like two minutes on how how that fits in. I ended up cutting it because it was a little bit too much of a stretch. So, I think I have to write a separate book >> to discuss this stuff. >> 2028. >> I don't I don't know if I'm the person to write it. Un I don't know if I have the qualifications to write it, but I I that that wouldn't necessarily hold me back. >> Say it didn't stop you from this. >> It's never stopped me from anything, but yeah, >> I I may I may do that. But the Boyd stuff, I think, is extraordinary because Boyd Boyd talks about psychological warfare. >> And just a little context, Boyd was a a fighter pilot, >> right, >> for the US Air Force. >> Boyd's a fighter pilot who became like a a philosopher of um strategy and he bought lots of copies of Sunsu and he regarded Sunsu as his Rosetta Stone and he filled them full of marginalia and underlined them. though this is all told in lots of different there's a there's a book about Boyd and there's which I I don't want you to go and buy buy my book first and then go and buy >> the Boyd book but um and he's also produced these these slides that are very very hard to read >> um which is why I think they should be turned into a book someone should go through and and make these into a more conversational easily understood but his to the extent that he talks about psychological warfare I found that very powerful because you There are the the modern world in particular because of the way that we engage with the modern world through social media and through uh the news is just updated so quickly. There's this assault on your mind all the time from foreign governments, from businesses trying to sell you stuff, from your friends, from, you know, inadvertently, you know, creating FOMO and trying to get you to behave and trying to influence the way you think. And um just being aware that it's happening, I think is a huge advantage that you can step back. I like the way um I'm just blanking on whose idea it is, but uh why am I being shown this now? like why am I seeing this now? >> It's Ben's >> uh epsilon theory. >> Ben Hunt. >> Ben Hunt. Yeah. >> Yeah. Yeah. >> He's definitely thought about this stuff. But Sunu talks about that that's that that idea of uh you know you can victory without battle is this idea of SunSu where you don't engage until you know you're going to win and you figure out how you're going to win before you engage. And that's really all investment too. like that. I see people all day long like Open is a stock that's out there that there's a hedge fund manager trying to stampede people into open which is this >> is that the one hanging out in front of Drake's house? >> Yes. Yeah. >> I mean that's a psychological >> it's a scop. >> It's one way to do it. I suppose >> the there's no fundamental value to this thing. It probably was going to be a donut before this little kathuffle has sort of happened in the stock, but it's a 10 bagger since or it was at one point maybe more so maybe because I think it might have got down to 50 or 60 cents and I think it topped out above $10. So maybe it's more like maybe it was a 20 bag at peak the trough. >> I doubt that there's anybody who's got 20 bags in it. But >> that's one of those things that you should be able to see that for what what it is. They're just bringing attention to it to get a run out of it in the short term, but fundamentally it's still broken and that will go back to where it was eventually. >> And you need to be I think you need to be able to recognize these things for what they are and avoid them. >> Some games. >> Yeah. Zero some games. And it's a it's an it's a meme. It's an attempt to sort of meme this thing into reality the way all of these other attempts have been made. I don't think it's particularly honorable work honestly. >> Yeah, there's there's a lot of that now, isn't there? It's quite >> And I saw it at some point. >> Even all the the gambling uh facilitating gambling so easily now I don't think is the moral high ground. >> Evidently, we're limited in California a little bit. I didn't even realize that because I haven't. >> It doesn't. >> That's what happened when you tried to download Kishi or whatever. >> I learned over the weekend. >> Yeah. >> Yeah. Yeah, I I don't think it's good. I don't think it's good to be able to I mean I don't think it probably doesn't really matter, but there are people who are vulnerable to this stuff who shouldn't be doing it. But it's not like I think the gambling stuff I think people are in a mindset where they're gambling where I hope for for the most part people are doing it with like sums of money that they can afford to lose. But I think when >> you you find it in Robin Hood and other things like that where >> there's something it's a different mindset like this is where you can improve your life and make money. And I think that there's a problem with people doing it in with significant sums of money in Robin Hood. So I think Robin Hood might be worse than the than the gamblers cuz it's sort of gamblified gamified gamblified investing. >> Yeah. >> But now they there's 50 times leverage and >> oh my god >> Coinbase >> zero DTE options. We're in the the golden age, brother. >> The golden age of graft. >> Golden age of blowing yourself up. We're coming up on time. If people want to follow along and get in touch with you. >> Very good. >> I say that so much. >> Ida, where where can they get the book? >> So, the book is available for pre-sale on Amazon. Uh the Kindle version is up. There is a hard cover and a paperback coming and the audio is uh in the process of being record. >> Do you read it yourself? >> I don't. I >> Come on. You got the voice for it. >> Uh >> yeah, man. >> I got a pro. I got someone who knows what they're doing. It's the guy who did the the last book, uh, Scott Pollock. I love his voice. He's got this nice, uh, he does the he did NPR in Atlanta. He's got smooth tones. >> Fair enough. >> He does a better job than I do. He's got more of an in He's got a He's got a nice voice. I'm I'm an amateur in this stuff. >> Fair enough. All right, everybody, make sure you go pick up that book. You know, we have done this show now for a long time without We don't ask for very much very often. YouTube takes all the money that ever is ever made on this thing. So, >> one thing one thing that I would say is if you if you really enjoy the book, a fivestar review is really helpful. If you really didn't like the book, send me an email and tell me why you hated it. >> Uh yeah, >> Toby's burner uh email. >> Thanks JT. >> Yeah, >> thanks folks. We'll be back next week with a guest. >> Yeah, it'll be back to normal next week. us talking to somebody instead of us talking the whole way through. Me talking the whole way through. I appreciate everybody. Uh we'll see you then and hopefully we'll get the chat fixed. Like I don't know what's going on in the chat. Impossible. Oh >> jeez. All right. Cheers everyone. >> Peace.