Can You Invest Like Warren Buffett?

Can You Invest Like Warren Buffett?

 

In this episode of 'Questions in Finance,' hosts Kate Holland and Veljko Fotak chat about the life and investment philosophy of Warren Buffett, exploring his journey from a young investor to the sixth richest man in the world. The discussion covers his unique approach to investing, the four pillars of his success, and the lessons learned from both his hits and misses in the investment world. Kate and Veljko also reflect on what makes Buffett special and whether his investment strategies can be replicated.

 

Timeline:

 

00:00 Can You Invest Like Warren Buffett?

03:13 Welcome To Questions in Finance

09:32 The Four Pillars: Buffett's Main Investments

14:24 Public vs. Private Holdings: A Financial Overview

21:00 Buffett's Investment Hits and Misses

27:53 Buffett's Political and Financial Maneuvering

30:55 The Williams Energy Rescue

37:40 Cash Reserves and Market Outlook

46:14 Characteristics of Buffett, a Successful Investor

52:12 Journalists' Take on Buffett

54:04 What Makes Warren Buffett Special?

01:00:17 Warren Buffett's Quotes

01:06:42 Let's Summarize Our Warren Buffett Discussion

01:11:27 Buffett is Passing on the Reins to Greg Abel

 

 

Soundtrack:

 

The soundtrack is based on "Walk on a Funky Street" by MondayHopes. Thanks for the music and keep up the good work! Use is under the Pixabay Content License.

Episode Transcript

Veljko (00:00):
Hello Kateryna.

Kate (00:01):
Hello, Veljko.

Veljko (00:03):
You said you want to talk about Warren Buffett today.

Kate (00:08):
Warren Buffett announced at his last shareholder meeting, he kind of dropped a big surprise on everybody, that he will be stepping down as a CEO at the end of this year.
Not too surprising given his age, but still a bit unexpected I think for everybody else.
So I wanted to talk about Warren Buffett.

Veljko (00:26):
I know I'm not going to make many friends by admitting this, but I've just never been in the cult of Buffett.
And don't get me wrong,
I just don't get fascinated by personalities easy, look up to heroes.
Yeah, I I'm just not the guy that reads biographies, let me put it that way.

(00:48):
But I think it comes from a philosophical view of the world, Some of us believe thathistory is moved by great people,

Kate (00:58):
Yes.

Veljko (00:59):
then you have the other theory that great people are a product of the circumstances they emerged in.
And I think I'm kind of leaning more towards the latter.
Napoleon changed the world, but if Napoleon had not been born, Joaquin would have done it.

Kate (01:16):
oh
who plays him.
that's a horrible movie.
I would love to talk about Warren Buffett's Berkshire Hathaway today and discuss a fewthings.
I wanted to talk a little bit about his four pillars of investing, like the four maininvestments that he's made, talk in general about what does Berkshire Hathaway hold

(01:38):
in terms of publicly traded firms that everybody's familiar with talk about the returnsthat Berkshire has provided to shareholders, which is why Warren Buffett is so famous.
Besides that, I also think that he is famous because he just has such a personality,likable personality in a way.
And his shareholder meeting presentations, annual shareholder meeting presentations havebeen a

(02:03):
guiding discussion for many shareholders and even non-shareholders of Berkshire Hathawaywho just wanted to see what Warren Buffett is going to say about the economy.

Veljko (02:14):
No, I really look forward to it.
As I said, don't know much and it sounds like an opportunity for me to learn a lot andperhaps I can push back against more fanboyish things here.

Kate (02:27):
So we always come up with like a fun question.
I didn't really come up with one let's just throw out a couple of options.
What would be a fun question for this Warren Buffett discussion?

Veljko (02:36):
Well, I got two that I think permeate my thinking here.
First, what makes Warren Buffett special?

Kate (02:44):
Uh-huh.
And will there be another Warren Buffett?

Veljko (02:49):
That's exactly what I was going You know what they say, great minds think alike, And fools seldom differ, as well.
What makes Warren Buffett special with a sidebar of can we replicate that?
Can we make another Warren Buffett?

(03:12):
that sounds
So, let's do this.
Welcome to Questions in Finance.
A podcast where we translate academic mumbo jumbo to answer interesting questions inFinance.

(03:34):
I'm Kate Holland.
And I am Veljko Fotak.
Kate and I met when we were PhD students at the University of Oklahoma.
Today we're university professors and we spend our days teaching and researchingcompanies, markets and all things related.

Kate (03:54):
Before we get started, I wanted to point out that there is a video recording of a prequel to this podcast recorded just by me, Kate, on YouTube.
To find it, you will go to YouTube and in the search bar type in questions and finance, nospaces, so no spaces.
Once you see our main page, you'll click on videos and then select the video about WarrenBuffett.

(04:14):
I hope you enjoy it as well.
Let's get started.
First, I would like to mention the four pillars or what's referred to as Buffett's fourmost successful investments and what I guess he credits the growth of his company to.

Veljko (04:30):
Maybe you can just give us the 30 seconds of who Warren Buffett is for the one person that lived under a rock for the last 70 years.

Kate (04:39):
And I'm probably not going to be the best at it, but Warren Buffett is a favorite public investor, has run Berkshire Hathaway, which I would term as a conglomerate.
It's a company that under its umbrella holds a lot of other firms.
Currently about 80 % of its holdings are tied up in other companies that BerkshireHathaway owns.

(05:00):
So these are private firms, not publicly traded, private firms.
in which Berkshire Hathaway has a majority and oftentimes full ownership.
And 20 % of Berkshire Hathaway is allocated to publicly traded firms.
Now, this differs ...back in 1970, we were looking at about 50-50 % split.

(05:22):
since 1970, Berkshire Hathaway has tended more towards the private side, which makes thema lot like the private equity firm.
And just 20 % of it is in public equities, but public equities get a lot of coverage.
A lot of people talk about what Warren Buffett invests in.
And one way that they know how does Warren Buffett invest in these companies, publiclytraded ones, is obviously because Warren Buffett, like all investors that manage at least

(05:49):
a hundred million dollars, needs to disclose his holdings in these filings called the 13Ffilings.
And so these 13 F filings allow everybody to know how Warren Buffett is changing histrading behavior.

Veljko (06:04):
I don't know why you're talking about 13 Fs Like, can we start with how old this guy is?
Where was he born?
What did he study?
Was he born rich?
Was he born poor?

Kate (06:14):
He is very old.
He's in his 90s now.
He's lived in Omaha, Nebraska, that's where he's been based of his career, even though heowns companies in all places.
So if you think about...

Veljko (06:24):
He's known as the sage of Omaha, right?
I don't know much about Warren Buffett but I do know that he's the sixth richest man inthe world, by current ranking.
his personal net wealth is estimated at about $160 billion, he went to Wharton.
I know that he was born privileged.

(06:47):
Wasn't his father a congressman, And...
his father was also a business owner; his father owned a brokerage.

Kate (06:54):
Basically what makes him special is fundamental financial analysis and reading of 10K statements and understanding good businesses.
And that's how he's tried to
advertise or market himself What I like in that story is this detail towards fundamentalanalysis and understanding of companies' financial statements and really looking at

(07:17):
business fundamentals and thinking about business fundamentals.

Veljko (07:21):
We can talk about him as an investor, that's what he's famous for.
Although there are at least some narratives about his wealth creation to talk about theother side of the balance sheet, He was very good at generating cheap capital to fund his
investments,

Kate (07:37):
I see, I see what you're saying.
Cheap capital from returns from Geico, the insurance company.
Geico is his big insurance company.

Veljko (07:44):
I think it's also important to say, for the people who don't know who Warren Buffett that he has a certain mystique in his folksy image.
In a world of finance that's full of people that wear dressy and shiny suits and they lovefast cars, Warren Buffett kind of looks like...
An old Professor, English Professor, is wearing his tweet jacket

Kate (08:09):
He's lived a very simple life in a simple house.
And he's also been known for getting all of us to think about our haircuts because he'smentioned previously that he thinks twice about paying 10 or $20 for a haircut because he
thinks about what if he would instead invest this money?
What would this money be in 10, 20 and 30 years?

(08:32):
And for him, his career spans 60 years.
So even 60 years.
And then this $10 becomes, I don't know, $30,000, $50,000.
And he decides that that's too much for a haircut.
So he has made us all think about day-to-day purchases and being careful with thosebecause instead we can invest the money and that money can grow for us in retirement.

Veljko (08:56):
He was known for being a very disciplined cost-cutter the businesses that he acquired.
We will soon talk about his philosophy.
But I guess what you're saying is that this investment philosophy, obsession with costefficiency in these businesses, it really mapped onto his private life as well.
He was a frugal person, or at least he cultivated the image of an extremely...

(09:18):
frugal and modest and non-flashy person.
And overall just kind of seems like a cheerful old guy that it would be nice to hang outwith.
Although I do suspect that it's a much more curated persona he lets on.

Kate (09:32):
Okay, let's talk about the four pillars.
is gonna take us into a discussion of his hits and misses overall in terms of trading.
So four main companies that he credits his success to are number one, Geico,
the insurance company, as you've mentioned, this is a company that has generated a lot ofmoney for him that needs to be invested to generate returns to them, pay claims if they

(09:59):
come up.
So, Geico insurance, we all know the Geico Gecko from the commercials.
After Warren Buffett has invested in Geico, it became a private company, so it's no longerpublicly traded.
So, number one, insurance.
Number two, an energy company called MidAmerican.
in which he invested back in 1999.

(10:20):
That company also became private after his investment and has grown considerably in theenergy space through multiple acquisitions.
I'm going to add another story there later about an energy company called Williams where Iworked.
And because of Warren Buffett's interest in the energy sector, because of thismid-American pillar that became a pillar,

(10:43):
Actually, Williams has an interesting story with Warren Buffett in 2002.
So we'll come back to that.
Number three, BNSF Railroad, BNSF Santa Fe Railroad, which in 2009 became fully owned byWarren Buffett.
And again, I think at that time became a private firm, was no longer publicly traded.

(11:04):
So all of these are currently private.
The fourth pillar is going to be still publicly traded.
and you can probably guess what it is.

Veljko (11:12):
I mean, if with pillars you talk about these famous investments, I guess you're going to talk about Apple, right?

Kate (11:17):
That is correct.
That's the fourth one and that's one of his most successful investments, I guess.

Veljko (11:24):
Yeah, which is a little bit of a paradox, Because first, you haven't spoken about his investment philosophy, But...
I was thinking back to our previous conversation about his education.
I know that he was Bill Graham's student, But at some point you...
you should tell us a little bit about this value investing idea and what stands behind it.

(11:45):
Apple is very contrary to how we usually perceive this value investment philosophy.
It's the type of company that even swore he would never invest in Apple.

Kate (11:55):
Initially, initially, but then, as Apple has matured and grown, he understood the valuation a lot better.
But yeah, his philosophy is mostly he wants companies with very strong cashflow inbusinesses that he can understand.
And what you're talking about, I think is that initially, especially from 1995 to like2000, he was quoted saying, I don't understand these tech businesses.

(12:18):
Apple.
is, was a tech business, but with time, he came to understand the product, appreciate thesteady cash flows coming from Apple.
So I guess Apple became a company that he was comfortable investing in and that wasfitting his philosophy.

Veljko (12:34):
See, but again, I don't know a whole lot about Warren Buffett.
But from the little that I understand, insurance stands on its own, Because the insuranceplay, and we should probably explain this to our listeners, When you have a financial
conglomerate and you're buying an insurance company, you're not doing it because theinsurance company is generating abnormal profits.

(12:58):
You're doing it because insurance companies generating cheap capital to fund your otherinvestments.
The typical insurance model, the people that are buying insurance or the businesses thatare buying insurance from you are paying a premium over time.
so you're accumulating money over time.
And then if something happens that triggers a claim, you have to

(13:21):
paid, But that happens at some point of time in the future.
In the meantime, you have this money and you can invest Do something with it, And this is,first of all, one of the pillars of his investment model, Buy an insurance company,
generate cheap internal funds to then purchase other businesses.

(13:42):
when
We talk about Warren Buffett as an investor, A lot of people think of an investor assomebody who goes out and buys shares in companies.
And that is what Warren Buffett does and it isn't, Because he's the guy that takes overthe whole company,

Kate (13:59):
Berkshire Hathaway's take was always acquiring businesses with good owners and letting those owners run the companies and hands off.

Veljko (14:08):
I was on an impression that we basically had this team of managers that they would throw into a company and that they would just cost cut, cost cut, cost cut, cost cut.

Kate (14:18):
They keep the original founder and the original founder runs the company and they largely run it pretty much how they've been running it before.
if you think about Berkshire Hathaway, what is Berkshire Hathaway?
It's a conglomerate that's really built at its base on insurance, energy, railroad, andApple.

Veljko (14:37):
I was under the impression that Berkshire Hathaway was mostly in cash.

Kate (14:41):
Right now they are holding $333 billion in cash.
large amount of cash.

(15:29):
Here Here is the Wikipedia page.
And so it's just a great resource.
They do a great job listing his private holdings.
the Wikipedia also update things.
This shows you the four pillars that we've discussed.
And uh here we can see some of Warren Buffett's largest uh publicly uh traded firmholdings as of right now.
And I wanted to mention a few stories behind some of these companies.
let's talk about some of these holdings and then we will come back to the story of
Berkshire Hathaway itself.
We've already discussed the holdings of Apple.
This was one of the four pillars.
Also, interestingly enough, Warren Buffett holds quite a bit of money in financialindustry.
he still holds a ownership in Bank of America.
He also used to be invested in JPMorgan and Wells Fargo, but he divested those positionsin 2020.
around 2020 to 2022 with the COVID infusions.

(15:53):
He also holds a significant stake in American Express, in Visa and in MasterCard.
So all of the card services and Bank of America.
significant holdings in financial firms.
Significant holdings in oil and gas, Occidental Petroleum and Chevron also.

(16:16):
a large part of his position.
And Coca-Cola and Kraft Heinz is going to be in the food category.
But Coca-Cola goes back to, this was one of his earliest investments.
He's held this position for 40 years.
And interestingly in 2024, the dividends that Warren Buffett got from Coca-Cola was $770million just in the dividend alone.

Veljko (16:42):
I mean, from the little I understand about Warren Buffett's investment philosophy, Coca-Cola fits it a lot better than Apple, isn't Coca-Cola a typical dividend paying stock

Kate (16:53):
Apple became a dividend paying stock as well, a while back.

Veljko (16:57):
But yeah, I can see.
know what you mean with that.
mean, if you're meaning they're paying dividends, yeah, but I don't know what theirdividend yield is.
I certainly wouldn't call them attractive, right?

Kate (17:10):
Yeah, I mean, he was looking at the share appreciation.
By the way, Berkshire Hathaway themselves does not pay a dividend.
They reinvest all of the money back into a company.
So while they appreciate the dividend paying stocks like Coca-Cola, they themselves chooseto reinvest the money back.
And of course they do that in their private subsidiaries as well.

(17:30):
I just wanted uh to give an overview, of the large publicly traded firms.
in Warren Buffett's portfolio.
And again, I guess if I were to split these into groups, we have tech here, we havefinancial services with Bank of America, American Express, Visa, and MasterCard, also

(17:52):
CHUB, we can throw in the same category here, and Moody's, I guess, these are allfinancial companies.
We have energy consistent with some of his private holdings, with Occidental, Petroleum,and Chevron.
He's really had long-term relationship with Vicky Holub the CEO of Occidental and hassupported her through multiple acquisitions that have been deemed questionable actually by

(18:17):
several other uh shareholders, large shareholders of the firm.
And there's Coca-Cola and Kraft Heinz with Coca-Cola being a holding for 40 years inBuffett's portfolio.
And he's a known big fan of Coca-Cola as well.
another thing I'd like to point out is that while he has a work award Warren Buffett andBerkshire Hathaway has really outperformed S&P 500 over the last 25 years and really over

(18:46):
the lifetime of Berkshire Hathaway going back to 1965.
It's not true for every single year.
There have been 11 years in the history of Berkshire Hathaway when the company hasunderperformed the S &P 500 index.
And again, it's the biggest period of underperformance
in combined years has been 95 through 99.

(19:08):
Berkshire Hathaway today employs 392,000 people.
So quite a few.
And again, like where does it employ them?
Remember that Berkshire Hathaway owns a lot of companies.
if we go back to our list of firms that Berkshire Hathaway owns, the private firms,

(19:29):
the employment in all of these companies, we see See's Candy, we see the gas stations,some energy firms, NetJets by the way, close to Veljko's heart.
is that right?
Is that the one you had the job over from?

Veljko (19:46):
yeah, I did before it was bought out by Warren Buffett.

Kate (19:49):
see, I see.
Geico.
So the people who work in all of these companies count towards the 392,000 employees ofBerkshire Hathaway.
I just wanted to mention some of these holdings.
Again, it goes back at least in Warren Buffett's words to four pillars for him, which isinsurance (Geico), energy (Mid-American),

(20:16):
railroads (BNSF Santa Fe), and his investment in Apple.

(21:20):
One interesting thing I guess we can look in the last three years just to see uh how theproduct mix of companies helps Warren Buffett of set uh some of the changes that occur in
the markets.
whenever the market doesn't do too well, he still has the private companies and these arelifestyle businesses.
the railroad is still gonna bring in money to him.
It might be less than it was in the year of the boom when we are in the recession,
he is holding the whole company privately.
So he's not looking at the fluctuations in its stock price.
He's looking at the actual earnings because all of the earnings belong to him.

(23:41):
so let's talk about some hits and misses for Warren Buffett.
And these are not like all, these are just some that have been mentioned and I wanted tohighlight them.
We are going to talk about companies I guess in which when he invested was in the werestill publicly traded.
And I'm going to highlight as his hits Coca-Cola, we already talked about it.
He's been very, very happy with that investment.
And BYD is another one he has been quite happy with as well.
And that's been only recently made in 2008.
And Charlie Munger, who is his friend and partner in business, who unfortunately passedaway also recently, has highlighted this company.
It's a Chinese company that makes batteries and electric cars.
To Warren Buffett, he invested $230 million for a 10 % ownership stake in 2008.
And
Two years later, this 230 million was worth $2 billion.
an excellent return on investment.
And they started trimming their stake in BYD sometime around 2020, 2022, slightly reducingit.
Another hit, I guess all of his four pillars are hits, Geico, MidAmerican, BNSF Santa Fe,and Apple.
But here, I'm just gonna mention MidAmerican.
He purchased
75 % stake in this, a utility company in 1999.
And that's what got him interested in the energy business.
And the operating cashflow growth for this company from 2000 to 2004 went from $122million to $4 billion.
So pretty significant growth this energy sector.
A lot of came about
from additionally acquired energy assets.

Veljko (22:51):
you were telling us about the success stories of the good people at Berkshire Hathaway.
We have Warren Buffett with his fateful sidekick Charlie Munger, And they went on theirbig successful acquisitions,
ultimately, when you're looking at this performance over time, you're beating the S&P bya couple of percentage points on an average every year.

(23:16):
And in the world of stonks going to the moon, that doesn't sound like, fantasticperformance compared to the thousands.
And yet, the magic of a couple of percentage points every year, year after year.
very stable, We're buying very safe, stable companies.

Kate (23:36):
very stable.
Coca-Cola, once a person starts drinking it, pretty much cannot drop it for life.
So, you know, very steady stream of income.
BYD, electric cars, which are gonna be sold pretty much everywhere in the world and peopleare gonna just need more of them, except for the States.
but, and energy,
Those are very stable businesses.

Veljko (23:59):
I think that there is a philosophy that gets revealed when you start connecting the dots.
so one big tip is beat the market by a couple of percentage points and live for a verylong time you will.

Kate (24:14):
that are cashflow generating uh steady businesses, right?

Veljko (24:19):
but what I'm trying to say is that some of this massive wealth creation is, it's a modest wealth creation on a yearly basis compounded over a very long

Kate (24:30):
Right, you're highlighting an important point

Veljko (24:32):
And at that point, it's also important to have faithful shareholders, Don't pull out when you're having a bad year, perhaps...

Kate (24:42):
99, that period of time of underperformance.

Veljko (24:45):
Correct.
I mean, that would have been enough to sink anybody,

Kate (24:48):
what you have to remember is that Warren Buffett and Berkshire Hathaway do not draw any money from their shareholders after they've sold the initial shares.
They have not had any cash coming in from shareholders.
They only have cash coming in as cashflow from their holdings, their private firms andwhatever the payouts they get from their publicly traded ownership.

(25:22):
Berkshire Hathaway A shares traded at a very expensive valuation.
They have not long ago, they go split away Berkshire B type shares, which is the sameshare, but just at a lower valuation to allow some smaller investors to get in.
Berkshire is not getting money from shareholders.
Shareholders pretty much looking at it as a way to earn returns for themselves.

Veljko (25:29):
I never really thought about that, but yeah, if you're generating capital through your insurance business for your investment purposes, then you also don't have to have season
equity offerings, right?
didn't know.

Kate (25:44):
no dividend payouts.
It's all just been capital appreciation, capital gains.

Veljko (25:48):
Wow, yeah, that's fantastic.
think that in 2025, everybody knows that the secret to a successful financial conglomerateis either buy a bank or an insurance company and generate cheap capital.

Kate (26:01):
You're giving me a great opening because one of the misses in is an airline.
So buy an insurance company or bank will give me a great investment, but do not buy anairline because apparently that's a horrible investment.
And Richard Branson, owns Virgin Atlantic Airlines was once asked, how do you become amillionaire?

(26:22):
And he says, well, that's very simple.
You should be a billionaire.
Then you buy an airline company and you become a millionaire.

Veljko (26:30):
I heard that.
it, but it is a funny one.
that actually.
And so he did purchase shares in US Airways
he was probably already a billionaire by the time he did it, so he was really testing it.

Kate (26:41):
He invested in 1989, $358 million in US air to get about close to 10 % ownership in their preferred stock.
He lost, I guess, a large part of that investment because what he underestimated largelywas the advice from Richard Branson and that deregulation in the airline industry

(27:06):
in the early 90s had just extremely unpredictable influences on a variety of airlines.
So US Air from 1990, a year after his investment to 1994 continued to post losses.
And eventually as a company was acquired by American Airlines actually merged with USAirways and then it's now part of American Airlines.

(27:31):
That's one of the misses for Warren Buffett is US Air.
So investing in airlines is difficult and you could become a millionaire by doing that ifyou were a billionaire before.
And especially difficult in the early nineties and why this was such a big miss for himwas figuring out how does the deregulation of the airline industry influence all of its

(27:53):
players.

Veljko (27:53):
it's interesting, We, course, like the meat of the man for many reasons, mostly deserved.
And yet he does like to play this political place, In some sense.
I'm thinking of he very famously came to the rescue of the US automotive sector.
2007, 2009, And especially, I think he had a big stake in GM at the time.

(28:19):
And I remember hearing some of the details.
mean, first, he bought preferred shares in the company, right?
And when Warren Buffett buys preferred shares in a company, Warren Buffett gets preferredshares that, you know, Kate or Veljko do not get.
So, you know, he was getting preferred shares and if I remember correctly, they werepaying something like seven or seven and a half percent dividend in a year plus whatever

(28:46):
capital appreciation, of course.

Kate (28:48):
So, I mean, for sure his investments, I'm not sure if I would say I have a political angle to them, but I would say they always have a profit angle to them.
And I think this investment in a car company, he was really coming at it from, okay, I canmake money by giving a capital infusion to this car firm, car manufacturer.

Veljko (29:12):
Fair enough, Kate.
I'm not begrudging anybody a profit motive If you're playing politics to make a profit,that's fair game too, in some sense.
But to understand the investment model, I think that one of his reasons for investing inGM was the expectation of a bailout.
will be coming.
And not only that, but as soon as he was done investing in GM, first he's notoriouslysecluded and secretive.

(29:36):
He doesn't give a lot of interviews, but when he buys a company, you generally hear it,right?
So he invests in GM and then he goes into every big talk show and every financial show onTV, radio, media.
talking about how great of a company this is.
So now people are running out and buying shares in GM.
And what are you buying?

(29:57):
Well, you're not buying preferred shares at 7%, right?
You're buying common stock with a historical dividend yield probably somewhere between 2or 3%.
And I'm going off memory here.
I might not be exact with numbers, But you're not getting the deal that he's getting.
And then famously, a couple of months later, he actually went to Congress to testify abouthow the US automotive sector needs a bailout.

(30:26):
And then we got the Buffett bill.

Kate (30:28):
All true, but you know, the big question is where would GM be without Warren Buffett?
And my counter story to that comes from an energy industry and it's a company that Iactually worked for at the time when this deal happened.
So we're gonna talk about Williams Energy back in 2002.
Williams Energy had a very simple business.

(30:50):
There was really like a pipeline company taking natural gas from one location to another.
They also had an added trading floor operation to that
and at the time novel fiber optics business, which actually was part of the issues thatproblems for Williams.
But the biggest problem for this, good business, everything Warren Buffett's looking for,a cashflow, very steady type business was that Enron went down around the time due to the

(31:20):
accounting scandal back in 2000.
and the whole energy industry, Williams, Dynergy, all of the companies in that space wereextremely tainted by Enron's demise.
And a lot of positions were unwound because they were done with Enron as a counterpartyand came back on the books of all of those other firms.

(31:41):
Well, anyways, Williams all of a sudden found itself in a place where a big part of theirdebt was coming due.
and they could not make a payment.
They could not.
reached out to their bankers and the bankers knew that Williams is in trouble.
And guess what the bankers told Williams.

Veljko (31:58):
Well, given the story, I guess the bankers told him to take a hike.

Kate (32:02):
That's right.
They said, no, we're not willing to extend extra credit to you or restructure your currentloans.
So the banks were kind of banking, banks were banking on Williams going bankrupt and thentaking a claim to Williams assets and banking.
And then, know, in bankruptcies, they would get a hold of Williams assets, get to sellthem and so on.

(32:28):
So
In 2002, Williams was looking for a savior and there was nobody coming to the plate.
So I was working there at the time.
I thought, all right, it's really a bad position because all of the Enron people aretraders who are looking for jobs.
Here in the next week, I will be another trader for Williams looking for a job given thatthere's a lot of Enron traders already out there.

(32:52):
But last moment, Warren Buffett infused
$900 million into Williams.
Nobody else was willing to do it.
I am giving this a very positive spin.
This is related to Warren's Buffett interest in the energy industry in general and hisparticipation in Mid-American because remember he made that investment in 1999.

(33:14):
So just a few years prior to helping Williams.
this $900 million was an amazing life saving deal for Williams at the time.
But
it was an amazing investment for Warren Buffett.
Why?
Because he ended up netting close to a 35 % return on this investment while thisinvestment was collateralized with a pipeline worth $2.7 billion.

(33:47):
So three times the value of the loans that he gave to Williams.
And this was a pipeline from Texas to
New York, so a foolproof asset, so to say.
So he gave $900 million.
Williams did take the money, did survive in a year, paid everything off, and refinancedthe loan at a better rate than 35%.

(34:09):
But Williams ended up giving him $300 million;
great return for Buffett with an investments that nothing could go wrong given thiscollateral, but also an amazing deal for Williams because otherwise they would go bankrupt
because nobody else was coming to the table.

Veljko (34:26):
But I mean...
Clearly, size matters,
in some sense, there aren't many people who have the scale or many financial institutions.
I mean, in some sense, this is very unique proposition.
You have some financial institutions who have that kind of liquidity,
but they're big, bureaucratic, or they manage money on behalf of others.

(34:50):
so they're limited in their ability to pivot.
On the other side, you might have other, younger, more risk-taking funds, but they'reyounger and they're small
and that they can't come up with that kind of scale.
Nevertheless, clearly unique here that allows to capture value others cannot takeadvantage of it.
And yet, I think that one thing that I'm taking away from this that I guess I wasn'tnecessarily expecting coming into the conversation, but is that...

(35:19):
I think we have a simplistic view of the Buffett model.
I think we tell overly simplified stories.

Kate (35:27):
I think it's pretty simple if you give somebody $900 million and in a year you get 300 million from that without any risk.
That's a pretty simplistic way to make money.

Veljko (35:36):
No, but we all knew of Warren Buffett as the value investor.
And we all have this idea that he's going to go for some sort of dividend capture, stablecash flow company type that he can understand.
We know that he cares about cost and that kind of efficiency.
We know that his philosophy is one based on people.

(35:58):
Good managers.
But now you are showing me a side of him through both of these examples of Warren Buffettas the buyer of distressed assets, as the rescuer of distressed companies
to his base philosophy of looking at undervalued businesses and obviously a distressedasset, if you can find the good one, is an undervalued business if it recovers.

(36:27):
Yeah, but you see how this is a much more eclectic story.
Coca-Cola is what I'm expecting to be the prototypical Buffett investment.
And now we just spoke of, well, his biggest holding is in Apple, something that doesn'tfit that mold in many ways, or maybe you were arguing, maybe it does a little bit more

(36:50):
today.

Kate (36:50):
Recent things that maybe don't quite fit the mold are also his investments or more recent investments in Japanese companies, Mitsubishi, Mitsui and so on, which are a lot like
Berkshire Hathaway.
They're actually conglomerates that hold a variety of businesses under the umbrella.
The most known ones would be cars in their case.

(37:11):
And Warren Buffett was just attracted by the very low valuations.
So that's underappreciated asset angle there.

Veljko (37:21):
No, I understand that to some extent when you have the size of Berkshire Hathaway, you have to park your money somewhere.
Yes.
Unless you park it in cash as they're doing right now, right?

Kate (37:35):
They have $333 billion sitting in cash.

Veljko (37:40):
And, How do you interpret that?
Is that just a huge amount of pessimism about the state of the US economy?
everything's overvalued.

Kate (37:50):
Basically, he's not seeing any opportunities that he looks for that would be, diamonds in the raw, so to say, or something that will give him a lot of appreciation.
He has not commented a lot on the cash holdings he has mentioned to the market to notworry about it, that they're earning some interest on it, that they're preparing for the

(38:11):
next,
big opportunity to come along.
That's why they're holding so much in cash, but he has not mentioned anything.
One thing that he said is that he believes in the US economy.
He always has, and he thinks that in the long term, it's a great investment.
So that's how he framed it, but he did not, unlike he usually does, he has not done a lotexplaining that cash pile and has...

(38:37):
really tried to stay away from the topic.
One can make conclusions on his actions, but he is not commenting on it.

Veljko (38:45):
But to be clear, This has nothing to do with the current market turmoil.
I mean, my understanding is that the proportion of cash in their investment portfolio hasbeen steadily increasing over the last five years so this is not trade tariffs.

Kate (39:00):
oh
they really had a switch to cash at the end of 2023, beginning of 2024.
From right before COVID to through COVID, so 2019 onwards, they stayed at about 100billion in cash.
That's their, I guess, more or less norm over the last five years.
But from the end of 2023, beginning of 2024, they have just almost exponentially startedincreasing their cash.

(39:26):
A big part of that came from their sales related to Apple.
They have unloaded a lot of Apple shares in 2024 and 2025.
And that's where a lot of it came from.

Veljko (39:39):
So, Warren Buffett...
Is Gung Ho the US Economy?
But staying a lot in cash and building a stake in BYD, a Chinese car manufacturer

Kate (39:51):
Don't forget the Japanese conglomerates as well.
Yet, the shares in BYD and the shares in Japanese conglomerates don't come close.
His largest involvement is again with US private firms and still $75 billion in Apple,still $45 billion in American Express,
close to $30 billion in Bank of America and $25 billion in Coca-Cola.

(40:16):
What we are talking about here was BYD and Japanese firms, are like pennies on the dollar.

Veljko (40:22):
Anybody who preaches Ben Graham, value investing, don't buy that which you cannot understand, should not be buying stakes in a Chinese EV manufacturer.
I mean, talk about a black box.
And don't get me wrong, I'm a big fan of BYD and I think it's a company that

(40:46):
especially if you compare it to Tesla, it's greatly undervalued.
And yet, if you believe in transparency, if you believe in good accounting...

Kate (40:56):
Well, let's think about it from Warren Buffett's perspective, The company has a lot of potential.
It has a very easy for him to understand model, know, make batteries in electric cars,sells them, cashflow comes in, and he's putting in $230 million for 10 % ownership stake.

(41:17):
Remember $230 million in 2008.
is significantly less than what he got in Williams in interest alone, not counting the$900 million loans that he gave them in 2003.
He got back $300 million from Williams in interest plus the $900 million bags that heloaned.
So it's 230 million for Warren Buffett in 2008.

(41:41):
That's again, like he can probably gamble that the way and not feel it.

Veljko (41:46):
That's the spare change he found under the mat when vacuuming his car, which he probably vacuums himself because...

Kate (41:53):
and in two years, it became a 10X return, so not bad.

Veljko (41:58):
Fair enough.
So, okay, those are some really fascinating anecdotes.

Kate (42:04):
I got one more.
All right.
I want to talk about the misses.
We already mentioned one miss, the airlines, the US Airways.
What is the problem with that it's very hard to mess with deregulation and understandingthe effects of deregulation tough for all investors, including Warren Buffett.
So that's, guess, the lesson learned there.

Veljko (42:25):
So is that like saying politics are harder to forecast than economics?
Or just because you know how to read a balance sheet doesn't mean you know how to forecastan election?
you...

Kate (42:34):
not so much in election.
I guess we're talking here specifically about
Early 90s, the airline industry deregulation.

Veljko (42:41):
Yes.
It's interesting because you mentioned also net jets.
But I think that came a lot later on.

Kate (42:50):
Well, I can tell you exactly when it came and how much he paid for it.
He bought it in 1998, so not much later, and he paid $725 million, and then he had 100 %ownership in the company.

Veljko (43:07):
When he purchased the company, anybody who was there, most of the people who were employed there had some degree of share ownership, they had a general share ownership compensation
plan, partially because they were struggling to generate cash.
And so to pay people, they were giving them shares.
And when Warren Buffett came in and bought the company, literally, janitors andsecretaries.

(43:28):
started showing up with Porsches and Lamborghinis.
And it was a merry time for everybody.

Kate (43:32):
The (19)95 through 1999 tech boom, fell under that same story.
Okay, back to Warren Buffett's misses; I'm gonna just briefly mention this one.
Solomon.
So Solomon...
I actually had an internship in Salomon Smith Barney part of my MBA summer internship.

(43:53):
a bit familiar with them,
Berkshire bought preferred shares in Salomon Brothers in 1987, back when it was still oneWall Street's biggest firms.
And then what followed was a 1991 scandal, a banking scandal.
The traders at Salomon Brothers were accused of rigging treasury note auctions.

(44:15):
That was a big problem.
eventually made this a bad investment.
So I guess what Buffett learned from that is that he never wants to deal with a scandalthat...
doesn't stop that keeps going on.
So in his words, he said, can handle, I'm gonna just read here just a second.
"I can handle bad news, but I don't like to deal with it after it has festered for awhile." And that has festered for a while.

(44:44):
He's actually said that, Salomon was reluctant to immediately face up to the bad news,which has created the eventual.
demise of the company.
Salomon never recovered and in 97 it sold itself to Travelers Group and then eventuallyCity Group, that was the umbrella on the Salomon Brothers.
So Buffett actually had to come in and step in as a chairman to clean up the mess.

(45:08):
So participated in the company very closely, but this has turned him away from a bank.
as that has a scandal that doesn't get resolved quickly.
So I guess another lesson there from that miss if you see a scandal that doesn't settle ina short period of time, just get out.

Veljko (45:27):
This is also interesting because to go back to the previous theme of this is a more complicated man and a more complicated story than many make it out to be, The usual
narrative is they bet on the right people and then they let them do their thing.
So hands off, investment approach.

(45:47):
And yet here you're describing a situation where things were not going the right way.

Kate (45:54):
Mm-hmm.

Veljko (45:54):
They must have realized we didn't bet on the right horse. And they were ready to actively step in, So you have the passive investing, but you're monitoring.
You're not letting it go too far.
And you clearly have the ability and the capability of stepping in if need be.
And you have the distress investments.
And perhaps this is what it takes to be...

(46:16):
You can't be the greatest investor of all times, or at least the most famous one, and be aone-trick pony.

Kate (46:23):
to be able to adapt.

Veljko (46:28):
perhaps there are core principles here.
Don't buy what you don't understand.

Kate (46:33):
Don't buy something that's in the scandals that doesn't get resolved immediately and that the company doesn't face up to.

Veljko (46:39):
Yes, focus on cash flows.

Kate (46:42):
Don't buy firms and industries that's going through a very rapid period of deregulation because it's very hard to predict anything.

Veljko (46:51):
And see, and yet here it does feel to me like...
Again, I haven't followed his history close enough to make a definitive statement, but itdoes seem to me like Berkshire Hathaway does play on political bills
they were following the airline industry through a deregulation phase or trying to...

(47:12):
I think that they made plays in the energy industry also around the time when there werebig regulatory actions.

Kate (47:22):
They were trying to guess the right industries.
It's just that the airline was one of their misses, yes.
Banking too, with Solomon, but just from a different perspective.
That was just a scandal.
The biggest miss, the biggest miss according to Warren Buffett is Berkshire Hathaway.

(47:44):
Berkshire, the textile manufacturer, yeah, so now we know Berkshire Hathaway as a holdingcompany, but actually this is considered by Warren Buffett, let me see in his words, it's,
he showed some childish behavior in this investment.
And so let me tell you the story.
So in 1962, Warren Buffett started buying shares.

(48:06):
So bought shares in this company called Berkshire Hathaway, which was a textilemanufacturer in New England.
And at the time, textile manufacturing was starting to fold in New England because they were faced with foreign competition.
This is back in the 1960s already.
So actually this was a family run company with Seabury Stanton running it and holding asignificant amount of shares and his brother also holding a significant amount of shares

(48:34):
except for the brothers didn't get along.
So Seabury Stanton's brother sold his shares to Buffett for $7.50 a share.
Therefore Buffett became a major shareholder in this struggling textile manufacturer.
Two years later, in 1962, Seabury Stanton, the CEO of this textile manufacturer, Berkshire Hathaway, approached Buffett and said that he is looking to buy the company out and he

(49:01):
made the verbal offer to Buffett of $11.50 a share.
So he's already profiting from $7.50 to $11.50 a share.
Yet, whenever the actual official offer, the written document arrived,
offer in the document was $11.37.
So just slightly less than $11.50.

(49:24):
And that slightly lower price made Buffett really angry.
And he did not tender his shares.
He did not tender the shares.
And instead he did some things that I, you know, like, like as he said, showed somechildish behavior here.
He ended up
buying more shares at a higher price in a struggling textile manufacturer, an industry heknew nothing about in order to fire Seabury Stanton because he didn't like what Seabury

(49:55):
did with this lower offer.

Veljko (49:57):
I see.
OK, that's a really fascinating story.

Kate (50:00):
But then in 1965, Seabury and his son, who was a treasurer, stepped down after Buffett has accumulated a large stake and all of a sudden Buffett had on his hands this pretty much
dying textile manufacturer that he knew nothing about the business that he paid up for.
And he considers that to be one of his biggest misses.
Of course, he has closed the textile manufacturing and then he used Berkshire Hathaway

(50:25):
as a shell, as his holding company for everything else.
it's a very different Berkshire Hathaway because it's a holding company for his businessesthan the initial textile manufacturer.

Veljko (50:36):
No, that's a fascinating story.
Especially because I knew that Berkshire was a textile manufacturer, but I was somehowunder the impression that they had bought it because they wanted to use it basically as a
financial shell.
I didn't realize that this was an actual...
business that he intended to actively run or co-run initially.

Kate (51:01):
uh
his own words, you know, so this is Warren Buffett talking about himself and Seabury Stanton,who was the CEO of Warren Buffett.
Through Seabury's and my childish behavior, after all, what was an eighth of a point toeither of us?
He's talking about the difference in the price.

(51:22):
He lost his job because, he forcefully left in a way.
And I found myself with more than 25 % capital invested in a terrible business about whichI knew very little.

Veljko (51:39):
I guess there is a strong lesson here about the importance of rational investing rather than passionate investing.
And the fact that he's calling himself out like this is to his credit and also revealsanother big important characteristic of any successful investor, ability to step back
and...
dispassionately analyze yourself and be self-critical and correct.

(52:01):
On the other side, when it comes to the actual anecdote, I don't know, I mean, there is at least some value in establishing a certain reputation somebody who doesn't get taken
advantage of in business dealings.

(52:33):
I've actually listened to a couple of journalists that interviewed him repeatedly, andthey describe him as being...
Well, the one thing that always seems to come out is his en...

Kate (52:22):
let me try to guess.
Journalist description of Buffett, number one point.
wow, that's tough.
I wanna say Shrewd, Shrewd investor, but that's probably not very descriptive.
Value investor, another one is probably not very good either.
Attentive to detail.
That's...

Veljko (52:42):
No, but I'm talking more about how they describe him in interviews.
I've met Warren Buffett, I sit down for an interview, it is the impression I got out ofhim.

Kate (52:50):
easy to talk to...
I would think along those lines.

Veljko (52:54):
Yeah, I think that, sentiment-wise, it sounds about right.
And yet the two things that I heard most often were, one, that he has a huge amount ofenergy.
yeah, and I've heard multiple journalists say that, especially recently with him not beingso young anymore,
They would schedule interviews and try to get questions out very quickly, thinking theyhave half an hour or 45 minutes.

(53:20):
And then four hours later, they're sitting there, they're out of questions, and he'sasking, "Anything else?
You want to talk about anything else?"

Kate (53:28):
Well, you know, and his shareholder meetings, he's always very precise.
He does a five minute warning before it ends and then that's closing remarks.

Veljko (53:35):
I didn't know that.
And the other thing that I've heard being said multiple times journalists that haveinterviewed him is that he has an ability to pilot.
I've heard the word pilot.
I've heard the word domineer, the conversation.
But I've also heard people praise his ability to do it in very elegant

Kate (53:55):
I see.
Interesting.

Veljko (53:57):
I guess the comment being that you don't realize how he's smoothly controlling and holding the room and the conversation.

Kate (54:05):
This is interesting. We started out with the question of what makes Warren Buffett special?
Can there be another Warren Buffett?
I guess maybe all of these things kind of fit into that story we've described him as aninvestor, but this describes his personal side.
After our discussion is done, if you are asked what makes Warren Buffett special, whatwould be the three or five things that you would mention?

Veljko (54:27):
You can't turn this on to me.
If if anything, I'm asking you this because you are the Buffett fan here.
The one thing that really did strike me about Warren Buffett, and it goes back to this...
We were talking about this folksy image, But the one thing that did strike me about him...
is that he seems to always talk about companies using very simple and uncomplicated Wewant good businesses that are controlling costs.

Kate (54:58):
Good founders.
of businesses.

Veljko (55:00):
Yeah,
the one thing that strikes me about Warren Buffett is that every time he's talking aboutcompanies, this is not the complicated mumbo jumbo of the hedge fund managers talking
about, an alphabet soup of ratios and whatnot,

Kate (55:15):
No, I mean, he does talk about ratios and financial analysis

Veljko (55:19):
Okay, fair enough.
So maybe I'm wrong.

Kate (55:22):
In common interviews, the things that go into the press, of course, he brings it down.
Perhaps he translates the mumbo jumbo for an average person to understand, which we aim todo in our podcast in a way.

Veljko (55:34):
maybe this reinforces, though, the impression that I had that this folk's image is a bit of an image, That there is a sophisticated mind behind it that understands numbers, that
understands balance sheets...

Kate (55:47):
Sure.
He's been known to have almost, an extremely accurate memory, close to photographicmemory.
given that over his lifetime, he's probably looked at, I don't know, 70 to 100 thousand10K reports and remembers a variety of patterns.
You can think of him as a chess player who has these chess plays memorized.
A lot of patterns come to him given his good memory.

(56:10):
That's in addition to him being a very sophisticated investor who is able to thentranslate what he's doing to an everyday person who perhaps doesn't understand things in
depth as he does.

Veljko (56:24):
So let me then more explicitly turn this question back to you.
Can you name a couple of things that make Warren Buffett special, unique, and a lot richerthan me?

Kate (56:38):
It is tough, I think there's several things.
It's really his down to earth personality and I guess his willingness to live a simplelife in Omaha, Nebraska combined with his true love for understanding of companies,
financial research, like he enjoys reading 10K reports and he's admitted to it multipletimes

(57:01):
and he's done it throughout his life from the very beginning.
Building a company that has allowed many people to retire without scandals.
What comes to mind is Bernie Madoff was another very positive character for a long timeuntil late age, until it was revealed that it's all a big financial scam.
With Warren Buffett, we have all of the positive attributes without the negativeattribute.

(57:26):
I think it's his humility, also his ability to face up to his mistakes and talk about hismistakes, to live a simple life while being the sixth richest person in the world and to
be happy with simple things and to be happy talking to everyday people and explainingthings to them in a

(57:47):
uniting language.
He is not a divisive person.
He is really a person who tries to unite everything, including his shareholder meeting,which he's made into a huge event that brings about a lot of fans, but also people who
want to listen to his advice.
So I think there's this uniting scheme, simplicity, yet sophistication and preference forthorough analysis of, fundamentals.

(58:13):
Those things make it a difficult to replicate successful investor.

Veljko (58:18):
Because ultimately the one thing that really stands out to me the passion that you claim about reading 10Ks, I

Kate (58:28):
That and I think also anytime that we gain power as he has or gain financial strength, a lot of the times it changes the person.
The person starts thinking of them at a much higher level, wanting to be a dictator,thinking that they're better than others.
This did not happen to Warren Buffett.

(58:48):
So I think that's a very difficult
thing to replicate, especially as a person gains and gains power and financial power.
So you think that that humbleness in some sense, because again, I understand the folksy appeal.

Veljko (59:02):
And I think that a lot of these characteristics, they work on one side of the balance sheet.
I get it how people like you, they lend you money at that low interest rates or your investors trust you.
And then, you automatically get slightly longer investment horizons that makes everythinga bit easier.
And yet it's still not exactly clear to me how being a nice old guy makes you a good speaker of companies.

Kate (59:31):
Well, goes back to his spending hours and hours on end, looking at 10K, looking for patterns in 10K, really understanding the business of the company down to the smallest
details.

Veljko (59:43):
Fair enough.
So it does go back to the good old principles of value investing.
He always credited Ben Graham, I'm not super familiar with their biography, but I believethat Ben Graham, Benjamin Graham and Warren Buffett a venture together early on.
So this was not just a student-professor relationship.
it went deeper than that.

Kate (01:00:05):
To summarize, I guess it's humble plus very thorough financial analysis back to fundamentals plus allowing others to participate in your game without scamming them.

Veljko (01:00:18):
Awesome.
The world is full of Warren Buffett investment quotes and investment advice.
Do you have any favorite Warren Buffett investment advice?

Kate (01:00:33):
I have a quote that I really like, but it deals with companies purchasing other companies.
I wasn't ready for this, Do you have a favorite Warren Buffett quote?

Veljko (01:00:42):
Yes, have a couple.
The problem...
you never know which ones are really Warren Buffett, I mean, you always have a problemwith the origin of some of these.
But I know that it's often quoted as saying simple rule dictates my investing, be fearfulwhen others are greedy and be greedy when others are fearful.

Kate (01:01:02):
That's a good one, yeah.

Veljko (01:01:04):
Heard that one attributed to him many times.
I've also heard him saying, price is what you pay, value is what you get.
I thought that that was, And then I think out of all of them, my favorite one, because Ithink it speaks a little bit his investment philosophy is...
It's far better to buy a wonderful company at a fair price than a fair company at awonderful price.

Kate (01:01:28):
And that's the influence of Charlie Munger on him because initially he was very much of an opinion that you really need to always find the best deal possible and looked for those
companies.
And then Charlie told him, look, even if you find the company that's reasonably priced,but it's an amazing business, that's a good buy.
So I think that's coming from their partnership together.

Veljko (01:01:51):
Well, I don't even know if that's a quote, or more of an investment rule, but never buy a business you do not understand.

Kate (01:01:59):
Yeah, that's
simple.
So the one that I'm mention is longer than all four of your quotes.
everybody brace yourselves.
And it's It's a bit convoluted with a ton of analogies, which I think is another reasonwhy I like Buffett because I love analogies.
So what he's talking about here is about a company, an acquiring firm.

(01:02:21):
purchasing another firm, a target firm.
And usually when this acquisition (this is an acquisition) happens, what acquiring firmslook for, is what we call synergies.
Meaning that together the acquiring and the target firm are going to have better revenues,bigger revenues, and lower costs.
And they can only achieve those revenue enhancements and cost reductions together.

(01:02:46):
That is a synergy.
That's what he's talking about.
Let me read the quote.
Many managers were apparently overexposed in childhood years to the story in which theimprisoned handsome prince is released from the toad's body by a kiss from the beautiful

(01:03:07):
princess.
Okay, we've all of course read the story.

Veljko (01:03:11):
Or some variations of, right?

Kate (01:03:13):
right across different cultures, Consequently, they, meaning the managers, are certain that their managerial kiss will do wonders for the profits of the target company.
We have observed many kisses, but very few miracles.
Nevertheless, many managerial princesses remain confident about the potency of theirkisses.

(01:03:37):
Even after their corporate backyards, I knee deep in unresponsive toads.
Anytime I read that quote, I just imagine a huge yard with a ton of toads in it.
And so I love that quote.
That's one of my favorites.

Veljko (01:03:51):
Ultimately, you've also chosen a quote that really digs into some of his investment philosophy.
I mean, he's saying, let's not be guilty of hubris and assuming that we can just replacecurrent management and do better.

(01:04:14):
he's pointing out that companies that acquire a lot of target firms without a good returnon their investments, there's many such companies, but the CEOs, these acquiring firm CEOs
are not humble enough to recognize that what they're doing isn't working and they need tochange course.
To connect the dots for our listeners or those of our listeners who are not necessarily assteeped in financial markets, there is a segment of the private equity market that does

(01:04:40):
exactly what Buffett is saying, "I won't do," that looks for companies with bad managerswhose assets are undervalued because the managers are bad.

Kate (01:04:51):
Yes.

Veljko (01:04:52):
Buys that kind of company through what we would generally call a leverage buyout, replaces managers, and then re-lists the company.
And hopefully, now, you have achieved higher valuation.
And Warren Buffett, he is criticizing a very specific and not a small model or segment ofthe financial industry.

Kate (01:05:14):
He hasn't chosen to discipline these types of CEOs.
He instead has chosen to invest his money more with CEOs who run their business well andhelp them, be like a support system for them instead of finding these businesses that have
overconfident CEOs and then just firing them.

(01:05:35):
As you said, a lot of private equity firms have done.

Veljko (01:05:38):
I mean, it's interesting.
I never really thought about this in terms of different strategies.
If you're a private equity fund, the conservative strategy is buy good firms, get a coupleof percentage points of abnormal return every year, hopefully.
If you have a stable enough business behind it, levered it up, compounded over a largenumber of years, And that's a...

Kate (01:06:03):
probably around five to 10 years.

Veljko (01:06:04):
Well, I was more thinking of the value creation of Berkshire Hathaway that at what, five, six decades...

Kate (01:06:11):
60 years, he's been running it for 60 years.

Veljko (01:06:13):
Wow.
And that's very different from the LBO model, where you're buying a firm, you're fightingmanagers, you're throwing in your own people, you're turning it around, and you're hoping
within six months to have walked away with hopefully a much more significant percentageprofit in the short run.

(01:06:34):
You're not looking to single digits.

Kate (01:06:37):
different approaches, different approaches.

Veljko (01:06:39):
a very different buyout model, at the end of the day.

Kate (01:06:42):
I guess, you know, let's summarize....
We talked about a lot of different aspects today.
Our questions that we asked what makes Warren Buffett special, but we went about it in aroundabout way.
First, we talked about the four pillars, his four big investments, which ended up beingGeico Insurance, MidAmerican Energy, BNSF Railroads, and Apple, the only publicly traded

(01:07:03):
firms.
We also talked a bit about his current breakdowns, 2024 breakdown of publicly traded firmholdings.
with Apple still being his largest holdings there, but we talked about how there'sfinancial firms, including Bank of America, American Express, Visa, MasterCard, the job,
et cetera.
And there's Coca-Cola.

(01:07:24):
40 years, holding it for 40 years and some energy companies, Occidental Chevron.
We have talked about, Warren Buffett's performance has been great over time, but what'shelped him has also been the long time that he has been running his business, 60 years.
He hasn't always outperformed the market, especially 95s through 99.

(01:07:47):
was a period of underperformance.
He underperformed the market by close to 6 % at the time.
And the importance of having investors that continued to believe in him.
And then we just use some anecdotes and talked about his hits and his misses.
So with hits, we talked about Coca-Cola, BYD, and mid-American energy, the story of alsoWilliams came in the energy umbrella and GM was altogether the deregulation part.

(01:08:14):
of the discussion.
And then for the misses, we talked about US Air deregulation, hard to predict, Salomon,bank that went through a banking scandal, and Berkshire Hathaway itself, where Warren
called his behavior childish.
that was Berkshire Hathaway, a textile business that he knew very little about.
And then we circled back to talk about what is it that makes Warren Buffett so special andwhether that can be replicated.

Veljko (01:08:39):
You did a great summarizing it and I think you did a great job today in episode, in the subject matter where I'm a little bit more ignorant, I've learned a lot and there were
some things here I didn't expect, I think that the biggest one, the biggest overarchinglesson that I'm walking away with is this...
We always talk about how fundamental diversification is to the principle of investments.

(01:09:07):
And yet here you have somebody who embodies this idea.
you can't pigeonhole Berkshire Hathaway or Warren Buffett's investment empire into a single industry.
It spans industries.
You can't pigeonhole it into a single model.
it's reductive to describe it as a passive leverage buyout...

Kate (01:09:27):
and reinvented itself over time back to what you're saying, so hard to pinpoint.

Veljko (01:09:33):
And know, famous aversion to tech, perhaps driven by his inability or self-admitted inability.
He was saying, I don't want to invest in tech because I cannot understand the evaluations.
And for him to, at the late stage of his career, come in and...

(01:09:53):
have the largest stake of Berkshire Hathaway be in Apple, And, the largest public stake.
Oh, fair enough; if you can look at it in a dark side and question the investment principles...
we abandoning?

Kate (01:10:09):
The humble nature shows through that.

Veljko (01:10:12):
It really does.
I think that you call it humble nature.
It's that willingness to question yourself.
We didn't talk about it partially because we, I suspect, don't really know enough of thedetails, you and I.
And yet, there is also a sense that he's also surrounded himself with the right people.
People that are...

(01:10:34):
willing to question him and his philosophy; that is also a very important leadershiplesson I think here.

Kate (01:10:40):
I would say also coming back to your comment earlier that he comes from a pretty successful family.
I didn't know the details of his family life, but I guess on that background, his achievements seem even more interesting because he could have just sat there and folded
his hands and not done much, but instead he has put himself out there very publicly.

(01:11:04):
He has publicly admitted to many of his failures.
and publicly shown that he can grow and invest in tech stocks, eventually, specificallyApple here.
And I think that's actually also something that I admire.
That's an interesting trait.
Back to surrounding himself with people that are excellent.
He is passing on the reins to Greg Abel, who...

(01:11:27):
has been with him for a while, now has been a chosen successor And Warren Buffett has hisfull confidence in Greg's ability to perform and execute extremely well on investments.
I think that some of his shareholders are worried that Greg is stepping in huge shoes and carrying the Warren Buffett persona.

(01:11:49):
is an unmanageable and an impossible task because there's only one Warren Buffett.
So replicating Warren Buffett directly with all of his attributes is going to bedifficult.
But what Warren is saying about Greg is that Greg is going to provide good returns to the shareholders because he's seen Greg as a very prudent investment manager.

Veljko (01:12:13):
I think that with Greg, I'm more worried about him being too much like Warren Buffett than him being too little like in some sense.
First of all, he's picked in the image of Warren Buffett.
When you see Warren Buffett, Greg Abbott, and Charlie Munger right next to each other...
they are all going for grandpa look and attitude; and they're all calm, soft speaking, cheerfulguys.

Kate (01:12:41):
But, they will be competing very heavily now against private equity firms.
So obviously this level of competition is nothing that existed or the 70s or the 80s or even the 90s or early 2000s.
I think that now they're direct competition for their private purchases with privateequity firms.

Veljko (01:12:59):
And it's clear that this is a company that over the last 20 years, since 2005, has pretty consistently beaten markets.
And yet the degree...
the investments that they've years and years ago that still continue to grow.

Kate (01:13:15):
What I'm saying it's gonna be very difficult for them to buy a firm and take it private at attractive valuations because there's so much competition from private equity firms that
will be willing to pay up a bit more and a bit more.

Veljko (01:13:29):
Well, let's not overstate the retirement of Warren Buffett, he's still going to be chairman.

Kate (01:13:36):
Yeah.

Veljko (01:13:37):
So, you know, he's still going to be around and he's still going to ultimately set the overall tone and strategy of the company, I suspect.

Kate (01:13:44):
So, if Greg Abel is able to continue Warren Buffett's financial success, that's gonna be more than enough for shareholders.

Veljko (01:13:53):
I mean, we can really agree on that one.
The proof is in the pudding, and time will tell.
So for our listeners that are listening to our podcast in the year 2075, please jump into your time machine, hop over here.
Let us know how Berkshire Hathaway did in the post-Warren Buffett era, but especially

(01:14:18):
Let us know which stocks we should buy to survive the next couple of years.

Kate (01:14:23):
We can even go 10 years further to match Warren Buffett's 60 year rule.
So we can even stretch it to 2085 if we want to.

Veljko (01:14:31):
I was just questioning the cultural relevance of our podcast.
like, you know, in 2075...

Kate (01:14:39):
If you haven't turned off the podcast yet, thank you for joining us.
We hope you found this discussion about Warren Buffett as fun as we have.
Please send us your comments and continue to listen to us.

Veljko (01:14:50):
Please do subscribe, please do recommend us and as Kate said, please do keep sending us your questions in finance.
Cheers.

Kate (01:15:01):
Cheers.