[Music] Peniche thank you so much for for being here as always I think this is your eighth or ninth year speaking to our class we're incredibly grateful and we can't wait to get started so with with that it's a pleasure to be here and I'm surprised every year I actually get invited back but you know I'll take that and just a quick show of hands from the audience how many of you have Participated in this before our this your first time if you if you attended earlier just raise your hand there I can I can
repeat all the old jokes okay and then also show of hands how many of you read that Columbia newsletter article at least the apartment pages related to graphtec could be we have a few humans who've done that which is good so sorry go ahead no they've already okay so I'd say Armand if you can maybe mute on your end And and then I'll just go through a monologue a little bit about about graphtec and then really from then on we'll we'll open up to questions and we can discuss graphtec or we can discuss whatever else
you'd like to and we can take it from there so the the graphtec discussion is not really designed to you know have you go trade the stock or buy the stock or any of that it's more in the kind of the spirit of Ben Graham because Ben Graham In his class used discuss live examples of securities and of course in his class people you should go out and you know trade those dogs but I think one of the one of the negatives of talking about you know case studies from the past is that there's a
selection bias you know I can I can pick businesses where we've had huge homeruns and keep patting myself on the back etc and so you get you get distortions which I don't think are are are you know ideal In a in a learning environment so so I pick graphtec from a point of view that it's a you know kind of current position you know the current valuation is pretty close to where where we we bought a position and a lot of the facts around the situation of current as well so in investing because we have
you know John Templeton says you know one in three times the best securities analysis will be wrong this is this is a game of probabilities and I don't know I don't Know exactly how the future will unfold for graphtec you know I have some some maybe perspectives on that but you know the the kinds of things that can affect the future trajectory of a business are a very wide range you can have general extreme outcomes I mean you know like if you take a coming like Johnson & Johnson who would have thought that talcum powder
which they have sold forever would have a issue after so many decades of sale etc so you know things things Come from left field and or you know you look at the PG&E you know the utility in Cal you know people would have bought the stop five years ago you know they were buying things that are great for grandmothers at videos to own and and that didn't go exactly that way in fact PG&E PG&E might have been a stop that our company at at some point that berkshire hathaway might have been interested in buying i
don't think They're so interested today but but so you know i think the future trajectory of businesses is hard to predict which is why we don't want own one or two of them we we want to own a few of them and and graphtec is particularly interesting because Armin's all-time favorite stock since the birth of christ is is hips co because every time I talk to him he only wanted to once to talk about hips go and and he's always been hunting for more Hips course because all he wants to do well he wants to
own about ten hips goes in his in his portfolio and then yeah you know ride off into the sunset and that's all he he aspires to do and so I said what what better than to give her wind hips go 2.0 as a gift for him being a new father and all and so graphtec and hips go have some similarities they also have some differences but just to give you a quick recap on if schoo which was in the in the Columbia newsletter you Guys read is basically at the time I think in 2003 2004
when I was looking at it the stock was in the 40s and they had about $15 a share in cash and they had projections for the next two years of cash flows or $15 a share each year for the next couple of years so they made tubular tubular steel and one of the large kind of applications of their products was in pipelines so when these kind of pipelines get got laid in you know central you That's kind of a multi-year project and they usually replace orders which steel companies like ifs go to you know have
a certainty of delivery and price and so on and so if school had this kind of confirmed orders and backlog with confirmed margins etc and so it made it pretty easy where you say okay you know the company has no debt it's got $15 a share in cash the next two years $30 a share in cash is gonna show up on the balance sheet and that's $45 I can Do the third grade math and and the stock is below 45 and so at that point the plants equipment inventory know-how customer relationships everything is for free
and I thought all those other things have some value at the end of two years maybe not insignificant value so but also it's a very cyclical business where it was entirely possible after 2 years earnings could be zero or maybe $5 or maybe negative $5 it was there was a range of things that could happen after A couple of years but I thought the risk reward scenario with ifs Co was very favorable because you would have all these kind of assets with no debt and highly likely likely that those assets had had real value in
the case of graphtec there are some similarities and there are some differences so one is that graphtec has backwards integration into the key raw material required to to make the ultra high performance electrodes which is a needle coke and And the needle coke captive plant that they have they're only the only outside of China the only four needle co producers in the world - are in the US and - are in Japan and one of them is one other one one of them of the us's is graphtec in Texas and and needle coke because graphtec
has that backward integration into needle coke they have two advantages with needle coke one is that they know what their costs are for several years because they have hedged Decant oil so they pretty much have a pretty look pretty much a lock on the production cost of needle coke and the second is they they are a low-cost producer for needle coke so for example today if you are a UHP producer you would be paying like forty five hundred to maybe fifty five hundred per tonne for needle coke and in the case of graphtec their production
cost needle coke and everything else that they need to make their electrodes is 27:54 time So while the other other producers might be at maybe let's say 6000 or 7000 per tonne graphtec is at three thousand or twenty seven hundred per tonne that's a pretty significant Delta and they have that Delta for about seventy percent of the production so if you just look at it very simply you know the company has let's say maybe around you know realistically an ability to produce maybe 180 thousand or maybe 190 thousand tons of of uhp electrodes a year
and Approximately 145 thousand of that they have this low-cost advantage maybe there's about thirty forty two hundred thousand tons where they don't have the low-cost advantage those 30 40 thousand tonnes even in today's environment where profits are good for everyone it's probably like maybe [Music] sixty to eighty million in kind of eben r-type income from that non captive tonnage the 30% and the captive tonnage Which is the hundred and forty five thousand you know that's that's God before you take out corporate overhead and everything else you're at 2750 and you're selling at close to ten
thousand so you've got close to seven thousand so it's you know kind of like north of a billion in in margins and then you can take out sixty seventy million of overhead and another sixty seventy million of capex and maybe another similar maybe 125 million for for debt So you take out about three hundred million you still have about and then you know you take our taxes you still have like six hundred million five six hundred million coming out of the captive and that five six hundred million particular service excedrin is locked for several years
and basically between you know their their cash flow than the next five years is pretty much approximately equal to the market cap and so graphic has a couple of Differences was his if school one is this advantage which they have a needle coke could extend well beyond five years so if someone were to try to bring in new capacity of needle coke there are a number of challenges so one of the challenges is that the last needle coke plant built in the world was actually the graphtec plant which was built close to 40 years ago
the know-how to build those plants and run those plants is almost non-existent pretty much I think Almost the only players who could even go there might be the existing player the second is that the time it would take from the time you said okay let's go build a plan to the time you have production coming out the other end is close to seven years and and the cost would be several hundred million dollars so it's very hard to kind of justify the capital required let's say five hundred million or something and the gestation period of
seven years with no crystal Ball to tell you what the market looks like seven years from now so as far as we know none of the non China players helical players are planning any or have announced any capacity increases or additions so so this this tightness with needle koch may continue well past five years in fact it's five years today if someone doesn't announce a plant or it's seven years today if someone doesn't do anything for another year it's another Seven years you know it just keeps kind of rolling so that's that's actually a significant
advantage the other thing is the needle koch has another application which is an Eevee batteries and that demand is we all know skyrocketing so there could be some substitution effects that come in with Eevee batteries etc depending on the pricing but it could cause significant tightness we love to see so bottom line is I think you know the the the the bet I made is that we've Got a very prudent capital allocator an owner of graphtec in Brookfield and Brookfield understands share buybacks very well they understand capital allocation really well they own 80 percent of
the stock and three of their guys are sitting on the board and so I would I would expect that the cash flow that comes out of out of graphtec in the next few years we'll have some very efficient usage you know probably most likely a large Portion is going to get returned to shareholders because they don't have any other need for the cash unless they go go to something interesting so so it looks it looks like a kind of you know kind of heads I win tails I don't lose much it's the downside is quite
well-protected the upside is kind of hard to gauge we don't know what the upside is but I think if you can make bets like that Where you've covered the floor you know like Buffett says rule number one don't lose money rule number two don't forget rule number one I mean if you can make bets where your downside is covered that's much of the battle and so it's not a it's not a stock tip I think it was just given really kind of as a contemporary example of a class of investments that doesn't fit the typical
mold of of typical you know ideally what we want is long term compounders you Know that's what we always want we want these businesses which have huge runways which have a flywheel that is hard to penetrate and just got like decades of growth ahead I mean if I take an example of a company like Costco for for example you know they just they just opened up in China they opened their first store in China and the store got mobbed you know they couldn't let that there were long lines they just maximize capacity of people trying
to get in and what Could what could the size of Costco's China business be in 20 years you know it could be a pretty large number you know it could also be a pretty small number we don't know I mean you know there are there are uncertainties in business but if they can make China work it could go off there their footprint in the US and you know how many countries can Costco you know roll out that model I mean they're only in a handful of countries Today so if you look at a business like
Costco or a business like Amazon you know you can see that there are possibilities of these compounders running for a while and I think Armen that mentioned that Jim Senegal is coming to BC I think to see you guys what a treat you know I think you should press him to tell you about the competitive advantages and the motive of Costco because that's that's a fascinating discussion so anyway those Were some of my thoughts on on graphtec and we can now take the discussion in any direction you would like to take it and if you
could just introduce yourself and then ask your question that'd be great thank you manish thank you that was great and you know we're really excited to explore the point you raised on quality compounders maybe we can start with that a little bit and before we move into Q&A how do you think about Connecting price to the quality compounder and your willingness to pay for that type of business relative to the graph decks of the world yeah and I think that that's an area where someone like me is it a big disadvantage and actually repeatedly makes
a lot of mistakes because I'm I'm a cheapskate at the core and you know like like one time charlie munger told me that you know Costco and Walmart had talked about merging a long time ago Both were much smaller businesses then and they couldn't they couldn't come to terms on price you know on kinda what would be kind of a fair kind of ratio to combine and so on and the two walked away and Charlie said to me that it really did not matter what the what the deal was that wouldn't have mattered much in
the end the pie would have been so much larger and and so what he was saying is that if these two forces had come together two great cultures had Come together you know they they compete pretty ferociously in the marketplace and both have extremely unique cultures and it is it is very likely you would not have had another another entity rise up to challenge them just like the situation today that this if once you get past Costco and Walmart you don't have another entity which has that level of culture and execution on that on in
that in that space so basically both and especially Walmart might have might have Made a lot more money in the absence of a Costco or if Costco was part of Walmart and and not having to have Sam's Club and Costco would also have an advantage but so I think someone like me has a disadvantage because the unwillingness to pay up is a is a huge disraeli like I think I'm thinking about this even for Costco you know if I if I look at the stock it won't look cheap but if you you know think creatively
about where this Company could be in 20 years it could look very cheap you know it could be very cheap and under that scenario but of course the thing is that you're making assumptions about about the growth and and you know the the competitive advantage and the culture being intact and all those sorts of sorts of things so someone like me is still trying to learn to pay up and it's probably worth paying up for the for the great businesses especially the ones That have these huge runways ahead but I think that where I am
with my biases I'm stuck with the businesses that hopefully are great but they get cheap every once in a while and then someone like me get pounced on the bandwagon and and then the second thing I've got to learn which also is difficult for someone like me is if I buy something at four times earnings and it's a compounder and I wake up after a few years and it's a thirty times earnings you know someone Like me is going to be looking to sell that and that may probably be the wrong thing to do and
so there are two lessons that I have yet to learn well the lesson to pay up and the lesson to hold on but you guys are young without my biases so maybe you'll get there as you think about this evolution and your willingness to potentially pay up for great businesses how do you think about your the numbers that you're willing to pay for you know as you go out a few Years because you've owned Maotai for example and you have owned some of these great businesses in the past what is the number that you're comfortable
with as you begin to to explore that piece of yourself well yeah like I think multi is a very good example you know it's the most valued liquor company in the world you know I think I bought our position less than 150 RMB per share maybe about four or five years ago it's now at about 1,200 RMB per share so it's Gone up about 8 X well-done mounish but you know the problem that you know Mohnish has is that before it hit a thousand a share I was completely out and I think probably my average
selling price of multi I think if I look back maybe like between 800 and 900 on average maybe somewhere around there and so yeah we captured you know we captured a five six x over five six years which is pretty good but you know Multi multi is a business I can't think of any Business with a deeper or stronger more than mountain on the planet I mean I'd say if you look at Costco as with multi I mean Costco has to really execute really well every day every day when you go in and shop at
Costco you have to be blown away to keep coming back mouth eyes are not in that situation they've got this thousand year old brand and and and you know it's it's it's got mystique it's got uniqueness it's got a lot of things about premium in people's minds And it's got this brand that is entrenched in the minds of north of a billion people that's an extremely powerful mode so so yeah you know I'm Mohnish Pabrai and I'm an alcoholic and you know I should have never ever sold multi but here we are in our a
meeting you know making the confessions right so you know when I see you at the next meeting you know from now how do you think that mounish would have evolved from his learnings from multi And how do you push yourself in this this general direction of quality compounders you know I don't mean to press you on this it's just it's such an interesting dichotomy between the pursuit of the p/e of one's and the quality compounders and I just think there's so much learning that happens in which you've done publicly and and very anxiously scared with
us so and I think it's just so important it's a similar transition to Buffett and Munger and and How you're thinking about that is is is very important I think over the fullness of time yeah I know I agree I think that in in many ways I would say guy is lightyears ahead of me on this you know I just I'll just give you an example the thing is that if you if you look at the the investment and fiat-chrysler which which guy cloned for me you know I was his unpaid analyst on on fiat-chrysler
I'm still waiting to get paid on that from him and the check hasn't shown up Yet but anyway the thing is that you know the aquamarine fund which guy runs you know let's say I think at the time maybe it was 200 million in assets and I was trying trying to get guy to make a 10% bet on fiat-chrysler you know so he did agreed to make the bet but he he stopped at 2 million shares and so you know he was buying it about $5 a share so it was about a 10 million dollar
investment that he made And so it was a 5% bad 10 million dollars and what he has done with that bet and what I have done with that bad are somewhat different so for example in we both made the bed in 2012 in in his case he bought 2 million shares in in my case I bought almost 12 million shares even though I wasn't running six times the capital he was running I made a full 10% bet on that and today after like seven and a half years he has not touched that position it's still
sitting At two million shares but another thing that happened with him over this period is they spun out Ferrari and for every 10 shares a Fiat Chrysler you owned you got a share a Ferrari and if there is a moat that compares to multi you know not quite there but I would say Ferraris Mort is up there you know it's one of the most recognized brands in the world and in a 70 plus year history they have never placed an ad they've never spent a dollar on Advertising which is remarkable but anyway so he got
gifted 200,000 shares of Ferrari which are now you know I don't know 165 dollars a share or so so I don't know that's like 33 million okay so he made a 10 million dollar investment the Ferrari position is worth about 33 million and the Fiat position which is after the spin-out they have a dividend so let's say it's about eighteen or nineteen dollars a share It's almost 4x so you're you're looking at a like a seventy million valuation of Fiat Chrysler and Ferrari combined on the ten million dollar bed that I did all the work
on no check has shown up yet and guy is right now at a we pass now retreat trying to learn what Buddha meant by the meaning of life hopefully he will understand that he owes Mohnish big time but but anyway so what I'm saying is that you know Fiat Chrysler is is not is not a compounder in the Traditional traditional sense of the word it could be a compounder if you can put on somewhat different glasses and look at it because it does have a good capital allocator it does have great governance it had great
management a lot of different things that are very good about it but ferrari is clearly a compounder and and and it was it was obvious to me the ferrari the compound o but you know a lot of the ferrari shares I got in fact when the spin-out happened the ferrari shares worried about $45 a share 45 or $50 a share and in moments in in militias you know moments of brilliance I thought $50 a share the full price for Ferrari it's fully priced you know it's three times more than three times that price so I
I sold some Ferrari at 50 60 100 120 etc I think I ended up making about 100 million dollars in Ferrari but but you know if if I had Been as smartest guy the 70 million would be you know about 3.3 times would be about 220 million just in Ferraris talk and it'll be over 150 million just in gains on Ferrari right so you you look at multi and you know I look at it from the sidelines with the occasional tear in my eye and I look at Ferrari and with more than an occasional tear
in my eye and but you know we live and learn so as these as these things keep happening Mounish is getting slightly getting slightly more educated at each time and but but you know I'll give you an example I mean I don't wanna really talk about this much but you know recently we we bought micron and I do think actually micron is a compound or people don't actually understand the business and so I I'm thinking that you know God must really love mounish because you know he gives mounish multi and then Mohnish is too dumb
to keep it then he gives Mounish Ferrari and he's again too dumb to keep it and then he says okay I'm gonna try again it gives me multi and this time I win I'm gonna try I'm gonna really try to hold on even when it gets to four or five times the current value we will try to hold on and we will see where we can go with that but yeah I know it's it's hard what can I say you know these are very very tough thing is they're very hard things for me holding Ferrari
$865 share is a very Hard thing for mounish and holding multi 1200 RMB is a very hard thing for more yeah no that was that was really interesting manage thanks for thanks for that but but you know Arvind keep bringing it up you know maybe it'll sink in a little bit yeah I know a commitment biases can be really powerful so I I think that's that's really interesting maybe we can open it up for questions I don't know if anyone has any questions on this topic if they do I welcome it Yeah how do you
evaluate a company with so many and there's so many things on the pricing like cyclicality there's tiny implications and trying to get us semiconductors so it it's hard to look at a five-year future beyond I'd say for this company so I'm just kind of what your possibly like that there's so many different things out in here yeah so I'm going to duck all micron questions I shouldn't have even brought it up but I'm gonna I'm gonna duck the micron Questions maybe for a few years hopefully at some point I hope we can talk about it
but I don't want you know like I said I I think generally I I always say that when we don't really want to talk about portfolio for the yes we already opened up the box a little bit with graphtec but I think my interest was because Armand is so eager about IPSCO know now he's so eager the compounders that if SCO's just been discarded like He's not interested in its go no more that's interesting yeah I'm out I know I am I happy once I love to be here what so I think you be a
ones long with the PEO ones man the fear ones very sad now what we really want to do when I when I grow up when I grow up I want to buy maokai at a PE of one right and keep it when it's a tepee of 100 right that is relieved and when their egos 250 to 1 or 70 to 1 and the earnings have grown 20 or 30 X and you Know I'm about to go to my grave it's still there in the portfolio I don't know whether I can get there in this lifetime
but I will try there's always the next lifetime but if the if the is the gentleman who had the micron question if he has another question so he didn't doesn't lose his his I'm happy to take another question it was everything we had and everything that impressive what a job is head so you know how could you psyche I know you Spoke I could get back on this be quickly but it's just it's hard honey make a bet it's not really missing much in the mana crisis but it could be risking a lot of network
Arvind can you just repeat that divided and get all of it so I'll repeat the question and if I ma please correct me so I think he's trying to better understand heads I win tails I don't lose much and how you come up with bats in that sort of line of thinking well I mean I think that the Heads I win tails I don't lose much comes up well I mean I think you ideally want that in every investment you know you downside I think it's fundamental I think this core to any investment in some
cases like if scoped it's very obvious that you have downside protection I also felt when we were making the Fiat Chrysler bet that we had a lot of downside protection because at the time they had they pretty much got all of Chrysler for Free which included Jeep and Ram and everything the I read the UAW contract the new UAW contract in 2009 when when they were in bankruptcy and that's better than Shakespeare you know and and it's you know the funny thing is that every time every five years the UAW I just digress for a
second but every five years a UAW you know renegotiate contracts with the big three and you know it's kind of you know it's a battle they they threaten to Strike we just had the longest strike in 40 years almost 50 years the GM in 2009 the auto task force which was part of the Treasury Department in in DC they they went to Detroit like three of them for day to kind of look at the different plants and meet some of the leaders and they had a there a meeting with the UAW leadership and that meeting
started at four o'clock and their plane was gonna leave at five o'clock so they told the UAW leadership that listen we've got a New contract for you and here's the new contract and this is where you sign this contract and the the leadership at u-w said you know you don't understand how things work in Detroit you give us this contract we will review it it might take a few weeks and then we'll get back to you and it's highly unlikely large portions of it would be acceptable to us and that's how we work things so
the tea Radner who was part of the task force told the union Leadership he said look my plane leaves at five o'clock if by 4:45 I don't have a signed contract then tomorrow I shut down all the lights in the city of Detroit I don't particularly care whether we ever make another car or not so that contract was signed in 20 minutes and and that's the contract I read and it was beautiful and so the only time when when that contract was done that way so Detroit went from being One of the worst places on
the planet to build a tower to just after that contract got signed to being the best place on the planet to build a car it became more competitive in fact the Koreans have told me that they'd rather manufacture in Detroit than in Busan in Korea it's a lot cheaper so anyway the the thing is that peared actually had a bunch of competitive advantages at that time that were not visible like like the you know read unusual UAW contracts and So on and so I mean I think the thing is that we really want to focus
on minimizing the downside I think that when we look at businesses and that is one of the things that becomes hard for me when I look at a business like Amazon which is such an incredible business with such incredible leadership and management just incredible moats around their business the downside is where I stumble you know I mean when you look at great brands you Know the the value is intangible it's not it's not like if schoo you can look at the balance look at contracts and you can look at you know guaranteed cash flows coming
in it's a lot harder so there you have to have a leap of faith on the on the value of the brands and the moat and such so that's that's what makes it harder but but the thing about investing is that even if so someone like Warren Buffett has a Swiss Army knife kind of approach To investing he's had so much experience in so many different scenarios and asset classes and such that he can he can make it happen so that Berkshires continues to build value in a variety of different structures so you know Occidental
is buying something they do a ten billion dollar financing 8% coupon with a bunch of orange you know I mean it's like that what they did in 2009 so those are those are tremendous deals and so but if you're an investor for most of us when We start out and even through most of our lives we may never develop a Swiss Army knife we may only have one or two or three tricks in our bag and even if you have just one trick in your bag that is more than enough to become extremely wealthy so
you do not need you know I always give the example of Charlie Munger's friend John John area you know who's a billionaire and he's a real estate developer and all his real estate ventures have been within five miles of The Stanford campus I mean his comp he's never gone outside real estate he's not gone out outside of Northern California and not even outside of just the core area around Stanford and so his his circle of competence is just extremely tiny just probably the tiniest circle you can think off but that did not stop him from
becoming one of the wealthiest people on the planet so you don't need to So probably 99.999% of great investments are outside the competence of John Arriaga he's you know if anything is not in real estate he's gonna take a pass if anything is not even just in that particular geography of real estate he's gonna take a pass and even in that geography he's been very disciplined where when the market got extremely bearish and vacancies went high even bought a whole bunch of stuff and when things were cresting that's when he Would you know at at
very low cap rates basically get rid of a lot of stuff and so on and he just played that game just perfectly so so I think that the key is you know stay within your circle of competence do not have Nate envy for your neighbor your idiot neighbor who's making money hand over fist without having any brains envy is really bad but having envy of that type is very detrimental to your financial health and and be patient so you know just sticking To Circular competence and being very patient two of those strongest skills that you
can bring to bear you don't even need a high IQ just need you can give away IQ points and get more patients genes and get more stick to circle of competence genes and that's that's the Holy Grail so my question my name is Andrew my question has to do with kind of career and investing in balance do you believe that you can have a career that you're Very passionate in and still have the time to be a successful investor looking for Pease of one and doing all the necessary research and digging that that requires yeah
so you're I guess what your implicit in your question is that your career is not an investing career correct that your job is in some other area right yeah sure yeah yeah I mean I I mean that's how I started out I mean I I was running my IT company and I was Probably spending 15 20 hours a week on investments and it was fine I mean I think that the key is that you know how much passion do you have for it you know I have a I have a former college roommate who's a
he's a radiation oncologist and and he's an extremely good investor who done really well to the point that even though he makes like a million dollars a year as an oncologist it Dwarfs it's dwarfed by the the wealth He's built on the investing side because he's done so well on the investing side so at this point I always tell him that you know hey you know he's an oncology or Harvey he says yeah mounish it's been a hobby for a long time you know and and and and so definitely I think that in fact in
some ways it could be an advantage to be a part-time investor because the key is the you know if you have if you become like guy Spier basically comatose as far as trading Those generally that'll be good for your financial health and and so if you were a part-time guy and you just said listen I I just want to focus on maybe finding on average one investment a year or you know couple of investments every couple of years I think that's more than enough you don't need many investments to do to do well and so
absolutely I think the the important thing is that you have to have a passion for you have to have a drive for it I mean It's something that needs to really excite you and and if that is the case anything you are generally passionate about you will generally do well so no problem and again you know the thing is that you can be like Johnny Vega you know you can find a particular niche that appeals to you and just hone in on that and so you don't need to know everything about everything I think in
areas that can be more than enough yeah yeah what do you know the name of the Company you read about Bed Bath and Beyond oh yeah actually actually Bed Bath and Beyond is a business I never invested in and I think I actually used it as an example of of a company not to invest in I have to go back and look at the but I've never made a member I hate retail you know and so it keeps me out of out of trouble too but but I would say this that mistakes are very much
part of the game and you Know like for example one of my mistakes which went 2-0 we have had a few zeros so one of the zeros was company named horse head Holdings it's coming in Pittsburgh which which was a zinc processor and and they went bankrupt went 2-0 etc it was a significant loss because we had quite a gain for a while and then it went the other way and I wrote about horse head probably more than I should have in my letters to investors and in the annual meetings I Had I spent a
lot of time explaining to my investors about horse head and I think in one particular letter I went on and on about you know the mistake and so on and there's been only one time in my life when Charlie Munger has called me you know and I remember I was I was at Kennedy Airport and I was at the JetBlue terminal and I was about to take a flight back to LA and the phone rings and Charlie's assistant is on the line saying mr. Munger would like to talk to You okay so I said oh
[ __ ] what'd I do wrong you know I I think they were they were boarding but I said okay well let's find a quiet place to talk to Charlie so i i i I told her I told her yeah you know that's great so anyway he came on the line and he said to me that he read my letter and he said you know Manas you want to learn from your mistakes but you don't want to learn too much and you have to move on and you have to move on quickly And he is
his concern it was nearly I think I was I was really touched because his concern was you know whether my mind will be messed with you know and actually you know if you if you I think recently there was a letter written by a Thebes Wedgwood Partners where these guys had been very long-term holders of Berkshire Hathaway and they wrote a letter in which they gave a long list of reasons of why they've unloaded their books opposition how many of you have Seen that letter okay so anyway you can you can just go to God
google and say Wedgwood Partners Berkshire Hathaway and God Google will pop up that letter for you and it will show you all the different things that they they said in that letter that Warren has done wrong so they were saying look we've had this massive bull market in the last ten years and you bought IBM and that didn't work well and you bought Precision Castparts And that didn't work well and you've all Lubrizol and that didn't work well and then you bought Apple but you didn't buy enough and then you should have bought Microsoft and
for whatever reason I mean Michael Harvey Warren has said he can't buy it because of his friendship with with Bill Gates but you know you know Bill so well and know Microsoft so well and that's not so well it's not in the portfolio and you guys knew that Google was great because the founders came to You on and on the guy listed a whole bunch of mistakes of Warren Buffett right and and actually if you look at the if you look at the well sure and I'm pointed this out in the Columbia interview that if
every Berkshire acquisition were equal waited they have a very large number of mistakes I mean all they're almost all their retail investments other than portions of Nebraska Furniture Mart didn't work and there dozens of them so The thing is that if you equal read them the record isn't great but the reality is they're not equal weighted and he's been right on the big ones and so when you when you dollar rate it the record is great and so we are human and Warren Buffett is not okay and God makes a lot of mistakes and God's
first apostle also known as Charlie you know called from the heavens and said it's okay it's okay don't don't beat yourself up too much because mistakes are par for the course Even God makes them and so the thing is they're not that's why Templeton said that you can be you can have a phenomenal record even being wrong one out of three times and so in the investing business mistakes are par for the course they're gonna be plenty of mistakes and I think I really got a lot out of the Munger phone call because basically you
know we have because we are humans and we like to analyze and we like to get better you can get into a Tailspin when you're trying to learn too much from the mistakes and then there are scenarios under which we can lose money on graphtec there are scenarios under which graph that can go to zero there are many things that can happen which can destroy the thesis that doesn't mean it's a bad investment so there are businesses where you could make 10 times your money and it would not have been a prudent investment and that
business is that you would have Lost it on a lot of money and it was absolutely correct to make the investment so it's a game of probabilities and I think as long as we have you know done our homework and try to assess the probabilities correctly you cannot always tell the score by what's on the board you have to go deeper than that to tell the score and so I think mistakes are mistakes are inevitable in investing they're gonna happen I mean Even if you look at the book like you know good to great all
those companies went AWOL you know they've all counted as great businesses and they all faltered most of them faltered and that's the nature of capitalism I mean that's one of the reason that keeps me away from the compounders is because almost no businesses survive for thirty years you know if you extend that to 50 years it becomes an even smaller number and how Many businesses have been great compounders for 100 years well you know jeez I think the only one that's been around for that long and look where they're at you know and so so
when you are trying to go through these kind of long runways the history of long runways isn't that great you know I mean we don't have I can't point to 10 businesses which have done really well for a hundred years on the planet I couldn't come up with a list like that And so that tells you that there are very strong forces in capitalism with creative destruction which take the mighty down and inside so that's one of the things that kind of goes on in my head about you know what can go wrong is and
probably I'm overdosed on the mighty going down and probably to temper that back a little bit but that but that's where that is and mistakes are our friends we want to learn but don't learn too much next question Mounish how do you make you know that was just a very interesting response how do you balance learning but not learning too much how do you how do you find the right balance there from your mistakes so I think you know I I spent a lot of time thinking about what Charlie said because my phone call with
Charlie you know the phone calls with God are only two or three minutes long right God's got a few things going on and and but you know I spent a lot of time thinking About those two or three minutes and I mean I think the most important thing is it can't mess with your brain you can't you can't get it into your head you know when it takes control so what I'm saying is that mistakes are gonna happen we want to learn from them we want to keep getting better but you have to keep playing
the game and you have to keep moving on so if it's stopping you from moving on I mean you know one I can I can tell you where it Directly for example that you know since guy is not in the room we can beat up on him some you know especially since he hasn't paid yet but you know guy went long Horsehead and and it it actually I think it messed with his head because he was then very deeply involved in the bankruptcy proceedings and on the creditors committees and all of that and I kept
trying to tell him through that entire process that not worth it move on there's none of These things that just because the enormous amount of time and and actually there were no recovery so actually there was there was a total waste of time to do all of that but one thing he would point to very directly is while all that was going on while he was completely focused on Horsehead after it had gone to zero and in bankruptcy is I brought up multi to him and I tried to get through but the brain was complete
brain was completely on Horsehead and so I Kept telling him guy Maotai and he saying mal what you know and I said multi and he couldn't he could I couldn't get past right and I think he made I don't know maybe a hundred thousand dollar investment in multi or something it's a very very tiny investment you know irrelevant basically couldn't make any dent to the portfolio and in 2017 guy me and my daughter went to multi headquarters we made a field trip okay By that time it was already at about six hundred RMB so he
thought it's all over and then he had such deep regrets and of course I didn't want him to ever forget those regrets so I spent the entire trip just telling him guy do you remember all those phone calls and all those conversations that tried to talk to you I would try to shake you up and I said you are a compounder guy and I bring up on crappy businesses to you Here I am bringing you a great compounder and the Greatest of all compounders and I couldn't get through and of course that that really irritated
him because what he wants to do is he now tells me I should just bought ten percent of my funding maokai and I should just kept it till the day I die you know very simple you I know that if he had bought it unlike me he wouldn't have sold it right because his he's got superior generics on that front but but the thing is that he has Inferior genetics on seeing the diamond-in-the-rough right so so anyway that's the way life is but yeah I mean I think that learn but don't learn too much we
let you fill in the blank so part of how to figure that out wonderful other questions yeah hi Chris so my question kind of pigtails off that so it seems like you're you're a great friend to guy give it a tips on I fit in multi and I think from the article we Read up we do with graphtec you actually got the tip from someone that wrote into you and give you a tip but I'm curious about kind of the process you go through vetting some of those and then also how much to check that
you wrote to that individual was so first of all let the record reflect that I called guy not once I brought up graphtec to him on at least 10 different occasions and I tried to have very long conversations with him and I sent him that right up and many Other write ups and his total investment in graphtec currently to the best my knowledge is zero it's even less than the mouth I investment so I just want the you know for permanent prosperity austerity for the record to reflect well guys in the way past no retreat
that is graphtec positions at zero and yeah so the individual in Canada who brought it up to me has not been paid yet by me I do owe him a meal you know I do need to take him for a meal so next Time maybe I'm in Toronto I'll take him out and and we will take it from there but but yeah you know you know I am the shameless cloner and I am in desperate need of your ideas so MP at pub refunds calm please send me more mouths eyes and more hips goals and
more compounders thank you other questions this off you and yeah look the black back row got the message you know come on in the front Monisha I'm Cameron so earlier you you were kind of talking About shifting to equality compounders and then we started talking about kind of how the mighty fall so maybe kind of think do you have a process for differentiating between quality compounders and kind of undisciplined growth and how do you go about separating those yeah that's a good question so actually the thing is that you can almost take this as a
law of physics that pretty much every company in existence today will eventually be a Zero it will disappear I mean I already told you if you go to the New York Stock Exchange look at companies or last hundred years you know kind of one has survived that period and they were kicked out I think geez out of that I think the index now I mean I think the the record is is a is a hundred percent record that you can take it to the bank that business is being around 50 years from now I mean
I would say you can make a you can make a guess that mouth I may Be around fifty years from now that's a pretty pretty good bet to make but I would say if I look at a business like Costco I don't know of 50 years from now they are still cranking you know culture skinnier old you know management's change cultures fifty years is a long time in retail so I think that's that's where the difficulty comes in is and the other thing that can happen is that they can get into trouble you know like
I mean if You look at a company like Geico you know it's been around since the 1930s but it it was on its knees in the 70s you know we're gone bankrupt if the regular does one benevolent as they were and you know Buffett didn't step in and so on so so you see a lot of history where great brands get into trouble and some of them may come out the other end and some of them may not so I think that's that's the difficulty is that it's not just an unconstrained growth I Think that
it's that capitalism is extremely brutal the comparative forces that work on a business every day are very intense and and there's a very small sliver of businesses that can withstand that continuous badgering for decades I mean if you if you look at a business like MasterCard you know very dominant are they around fifty years from now I don't know whether I can make that bet you know as payment space has got a lot of competition a lot of things Going on you know people bring up American Express all the time - Buffett and Munger I
think every time they question the mode and Buffett and Munger is response has always been that they don't see issues of the mode and they have it hold and actually the numbers so far support them and in fact I was just reading recently that the Centurion card by American Express used to have a $2,500 annual fee they just bumped it up to 5,000 And it used to have a $5,000 initiation fee and they just pumped that up to 10,000 and and they increase some benefits I mean I think that's an incredible franchise you know they
they have no competition in in that space at the very top end when people are paying them 10,000 a year or 5,000 a year due to carry the card it's quite an incredible mode and and such so I mean I think that these are these are difficult you know like you know like which are Like what Charlie says why should it be easy to get rich you know why should it be easy for us to figure out which compounders will get us 20 X with very muted downside and which compound is are we gonna lose
our shirt on you know that is an extremely hard question to answer I don't have the answers you know I mean things can come out of their field and but that's what makes this fun and that's also a reason why you want to have more than one stock are there other Questions yeah in considering for your book all steel mills mr. McCall it's clear that those were distressed assets that were a significant upside potential and limited downsides it's basically got many of them for free I think something that maybe I missed is how did he
operationally turn those around like how did he realize the upside potential and ultimately that kind of problem the operators perspective and then separately as an investor how do you Kind of look at a situation like that from the outside where you relying so much on management's ability to accomplish an objective I'm sorry which which example in the book where you referring to my Tiki Ale skills or missile yeah yeah sure sure yeah I mean I think that yeah I think well Lakshmi Mittal I think you could have looked at very long history where just you
if you just looked at his trajectory of he Repeatedly bought very distressed assets and there's a there's a company there's a company now you know I talked about this if you if you look at YouTube video of mine when I spoke to Peking University I spoke about a company in India called mother-son Sumi which which basically rolls up auto parts companies so I think the metal culture and I think in to a large extent a lot of that was present in Fiat Chrysler you know in in 2012 is it was very clear to me when
I Was making that investment in 2012 that Sergio marchionini the CEO of Fiat Chrysler was an extremely unusual human being an extremely unusual manager and they had already been Harvard case studies on him before I'd invested and and and there was an eight-year history of him in the auto business from 2004 onwards I mean I think that that Fiat was losing I think more than a hundred million a month maybe 150 million a month when he came in and they you know They were upside down the capital was gone the banks were on their throats
and in that environment he got them to the promised land and then some and then orchestrated the the Chrysler deal and so on so there was a lot of historical TreadMarks we could look at if you if you study the guy and you just look at my video on mothers and sue me he's got a live eel which is very unusual in the sense that mother-son Sumi never reaches Out to a company to acquire them and they never answer the phone when a company wants to be acquired the only time they really cannot start moving
is when one of the large OEMs contacts them and says like BMW contact them and say look this company that makes rearview mirrors for the seven series is losing two million a month and we are afraid they're gonna go under and our second source doesn't have the capacity or whatever else and can you take them over And at that point what the Madison guide says is he'll tell BMW okay you know of course I'm here to service you how much are you gonna pay me to take over the business so lot of the deals they
get paid to take over the business they're not paying to buy the business and over I don't know 25 30 year period he's compounded at thirty percent a year in the stupid auto parts business so if you look at someone like you know John Sehgal at Mother's and Sue me you know I Think Peter Drucker said that culture eats strategy for breakfast so mother son has a very unusual culture of how they do things for example they've never relocated a plant to China for labor advantage if they buy a plant in Germany they keep it
there they've never injected their people into those plants they've actually fired the top guy always but then found someone young maybe even three or four levels down but thirty-five year old they put in charge Of the plant so they've just just got a number of kind of and you know they might get paid 50 million or 75 million to take over this mirror manufacturer you know which just gives them a two-year three-year run way to fix the company in three months the company's gonna stop losing money and in six months is probably gonna start making
money in about a year or 80 months they're making two to three million a month You know they've completely flipped it around so so I think that you can you know the way Buffett and Munger talked about is that they don't they don't have put any faith in projections they look at the track record and when you're looking at these investments when you look at ArcelorMittal a luxury metal or turkey or marchionini or chance angle of any of these guys you know at MasterCard we have RJ Bunga you can look at his track record at
Citibank and other Places before you know he's just an incredible executor so many times the the record is obvious I would say that you know fear Chrysler is now going through a possible merger with pujo PSA the guy who runs PSA carlos tavares is like Sergio I mean incredible record this amazing record amazing execution proven it over and over for decades so you got you've got a rock star and the odds are that rock star will make things work because he's made it work so many Times in the past and he's never failed in the
past in any major way so so I think the the key is look at the so many times we don't have enough work red mark on a manager when we can't tell we can always take a pass but plenty of times we do have trademarks and we do have a lot of history and we can look at that history you know one of the things about about Jim Collins is he he talks about level 5 leaders and you can look at those prey It's one of the traits that make a level 5 leader and you
can pretty clearly tell you know is the guy high eagle or low eagle the the best leaders are ambitious but they are not ambitious for themselves they're ambitious for the organization they want the organization to be a rock star they don't want them so for example you know before your time there was a guy named Adam Dunlap chainsaw al took over Sunbeam and whatever you know and everything blew up In spectacular manner there's a number of leaders who appear to be good but the Eagles are very high for themselves that's not a level five leader
so you can run a test on their different traits you know servant leadership is another trait and if you read film fish's book he goes into a number of traits of great leaders so I think you can look for those traits and it becomes obvious you know like Carlos Carlos Ramirez his all his suits are off the rack no custom Suits for him the guy loves to travel coach all his peers are doing private jets and when he goes visits a plant he goes gets lunch himself at a local deli some sandwich and then you
know goes in so he's he can squeeze blood out of a rock okay so for 20 years GM multiple different managers went to Europe to try to fix GM Europe they continuously lost money for 20 years and finally they paid him to take the business and in nine months they were making money so the Same unions all the same nuances of Europe he made it work and they're making I think GM Europe is making north of million dollars a year I mean billion-dollar it's it's it's a very profitable business now and GM was happy to
get rid of it for nothing so what's the difference the only difference is that Carlos came in that's it and then Carlos put his his frameworks to work and the same people same everything the business is humming Next question yeah I'm honest my name is Ron see I had a quick question I read in the Columbia interview that you had seen some interesting opportunities in Turkey and I know you said an investor should ignore the macro picture but how do you feel investing in a country where the institutions of the government are deteriorating significantly yeah
so you know the thing is I I grew up in a in India at the time when it was very Heavily socialist you know very anti entrepreneur but if you owned the coke bottle er in India you do just fine okay so I would say that in in any country in the world if you own the coke bottle ER or the Pepsi bottler probably a good business okay so if you if you own the dominant credit rating agency probably good business you know so what I'm saying is that there are businesses that transcend geography okay
and and and and and they transcend currency so for Example let's say some country has crazy inflation if you're the coke-bottle ER it doesn't matter you'll still get paid you'll get a margin you know they could use seashells for currency it would still work you know you're gonna you know so the thing is that people will be willing to trade certain amount of their labor for a cook you know that trade will happen no matter what so when we when I looked at Turkey I looked at I was mainly Interested in these what I would
call bulletproof businesses I wasn't interested in so the you know there are the good news with the internet and YouTube and everything is there are fans of mounish globally and there are fans of mounish in Turkey and the interesting thing about these fans of mounish is like the one guy who's my good buddy in Turkey he's overdosed on Graham and Buffett and Munger before I ever met him the guy's you know he's already Completely well trained you know well trained and a friend of mounish you know and offering services for free you know like like
I tell these guys listen is it ok if I visit Istanbul and can we just go meet all the companies in your portfolio and is it ok if I buy them if I like them oh yeah this been so good to be great to hang out with you ok and and I said you want to get paid oh why do you embarrass me you know and I do try to pay them but I'm usually unsuccessful So they're completely immersed in in Graham and Munger and Buffett well trained if they if a person has overdosed on
Buffett and Munger generally speaking they're high-quality human being because the peas they've generally picked up some finer skills in terms of you know what the soft human skills and they generally are going to be honest high quality people and that's what I found so I like I like my buddy in Turkey and the problem my buddy in Turkey had was that he's overdosed on Graham and he under Dorst on Fisher and so I told him listen can we they not go see the P of ones in Turkey and can we go meet the coke partners
in Turkey please you know because he was showing me PE 0.1 forget P of one he was showing me P of 0.1 I don't know you know our winds probably orgasmic at this point but I told him I don't want to see the P of point once ok please because I know that This will be hair on them that I won't be able to deal with you know so I said it's ok to play three times earnings for a coke bottle er let's go meet those guys you know and so that's what we did we've
I focus and and he's you know he's so deeply into Graham with all this PT or point one stuff and it's all great when you have that whole portfolio of those businesses but he's moving the good news with him is that he has seen the light one other thing that took me a Long time to figure out is you don't want to focus on discounted pies discounted pies are okay what you really want a growing pies because growing pies is really where the holy grail is and so I try to tell my friend and Turkey
listen please the growing pies and the great pies you know not the ones that have been stale and sitting for two days so so I think that you can go to Turkey no problem and you can go to I mean the same thing I think the same thing in in South Korea there's my buddy in South Korea completely trained in the ways of grass Buffett and Munger etc again the problem with these guys is because these are cheap markets they overdose on the cheap stuff the Turkish guy and the South Korean guy are both overdose
on Graham and so I worked on both of them and I think they have some they are happier for those lessons and of course the thing is that You know when we are sitting by the sea side next to the Bosphorus having great seafood for dinner with you know fresh grilled mediterranean sea bass coming to you you know and then we're talking about the switch from Graham to monger all of it goes down really well so it's it's awesome in fact I have a trip coming up now to South Korea in early December and you
know this would be my third trip so I I told the guy listen I know you took me to all these cheap Companies and I was trying to get you to make me see the good companies this time it is only great businesses we're not seeing any Mickey Mouse 0.1 P 0.10 P or one I'm looking at the great businesses and because the market is so cheap they are still available at great prices so that's okay next question right so Monisha on that subject as as you're looking for these great business I knew I knew
Arvind but all you want to get your attention No no it's not it's not the point one I think the the goal is really to get a great business at a great price that anomaly you know and so you know as you're thinking about that you know in these in different markets how are you balancing you know the the price well to the business quality because functionally you're you know you gave the example of buying the coke bottle or at three times earnings you know that's much better than buying At surface value a crappy discounted
business where the pie isn't growing at at one times earnings so how you know how do you are you know are you really seeing them at three times earnings I bet in those types of markets and I have not yet found a coke bottle or a dangling hunt is on okay but but I would say this that both well Turkey and South Korea are both interesting because I like South Korea better because turkey is a lot more discounted pies and South Korea is a lot more growing pies in general if I were to generalize the
two company countries I would say that just you could just look at the growth rate that you've seen in South Korea the last few decades you compare to the growth layer of Turkey it's just night and day but but when you peel the onion you know like in Turkey we have we only have one bet and it's a it's a great entrepreneur and he's got great assets and he's really smart about how he goes About his business and allocating capital and all of that so I bought the existing high at a ridiculously cheap price but
the but the issue is that the the whole pie was like forty million dollars and so you know we couldn't put a lot of money into it that pie is probably worth north of 500 million you know so I think but the other thing is that that entrepreneur he's a young guy and I think he's got decades off of compounding ahead of him as long as he Stays hungry and goes after it I think he's he's patient enough and the game will come to him so I I think he will people he will make that
pie grow but even if he doesn't we're just buying at a such a discount we still okay so we bought great assets at a great price so my only problem with turkey is I can't put a hundred million into that stupid thing I wish I could in Korea I think we are able to put a lot more Capital the pricing is not as extreme but the pies are growing and and there's some great pies and and these are I would say like Munger says you go fishing where the fish are I think Korea is this
a great market to fish it's the Cosby's done nothing for three decades things are quite cheap and and and there the governance is getting better the tables are losing power all the all the factors are moving in the favor of the investor so it's it's good Other other questions yeah so you talked earlier about John Terry again maintaining a small focus circle competency to find success there but I think we've seen some examples of how you've maybe expanded your circle of confidence to include opportunities that you know like traffic if someone sends to you you're
willing to expand your circle comments that they understand that business so I guess one how do you go about expanding your circle Confidence and feeling very confident in that new you know area for the new circle confidence and then - is it important to be like a polymath as a value investor so these kind of curious about everything and not super focused and what's their goal well I think I think you're better off so I don't think one should be consciously trying to expand one circle of competence I would say that investing is one of
the broadest disciplines because you know When you look at a graph tech you're gonna run into a whole bunch of issues which you may have never thought about and you know dig into those issues and try to figure them out whatever else so there's you know I think that as you if you are a curious mind and you're curious about how business works you know what makes a business tick then then I think that you're going to understand you know kind of you know a few things that will will lead to a good Outcome I
mean if you if you look at a business like graph tech and you just study it from the perspective of a student of business right not not from the perspective and that's how we should approach it do the business so if you look at graph tech there are several things one of the things is that before Brookfield bought them they had six plants what Brookfield did is it took six plants down to three they got rid of three plants and they honed in on a Whole bunch of manufacturing efficiencies and you know streamlined those plants
and their cost structures and all of that so they really kind of you know rolled up their sleeves and they went to work on so they're it's not a business where they're just looking at huge tailwind and just flying on those tailwind they actually went just like with Fiat Chrysler they went into the details of manufacturing to get efficiencies and even like today Graphtec had an earnings call they they have to plants to order these three plants ones in Monterey and ones in Pennsylvania Pennsylvania have been mothballed they just bring it back to life they
are kind of moving some work for Monterey to to Pennsylvania and so they've kind of it's about a two or three-year project for them to do these movements it doesn't increase capacity but it definitely takes the cost structures down and so This is the business that is doing continuous kind of blocking and tackling to improve their efficiencies and such so I think the thing is it when you when you look at these businesses don't look at them from the perspective of making an investment look at them as from the perspective of a HBS case study
you know just a case is assigned to you as part of MBA program whatever else and you're studying it I think that's the way you should look at these businesses and when Seven moons line up and it hits you between your eyelids or your eyebrows that this is a total no-brainer that's when you should act but beyond that you should just keep breeding and ingesting and as you keep reading and ingesting the circle of competence will gradually expand and and you will you will get there and I mean if anyone tells sends me anything on
us health care I never read it u.s. Pharma I never read it you know Biotech I know because those are so far away from my circle of competence that I'm never going to get there I mean I think US healthcare has so many forces there are non market forces and there are such corrupt forces I just ignore the entire sector okay because I just think that once I get past if I'm not operating in the sector with market economics then they would then they then you know it's just something doesn't appeal to me so I
don't want to look at Health insurers I don't want to look at hospitals I don't want to look at all the different participants in the US healthcare system because there's so many issues with it not market-driven that's like one-sixth of the economy right you can ignore 80% of the economy 90% of the economy still do well so some areas I just don't want to read about because I know I may learn stuff but I'm never going to go there so I can focus On areas you know even I mean I think it's worth studying the
Amazons of the world the googles of the world I think because those are so much stuff happening in the world will you know go through them if you will yeah yeah yeah I mean I'm I'm I'm looking at all the portfolio businesses you know at least quarterly because I at least look at their you know their updates and stuff and you know so one of the things about investing is that real change in Businesses happens over years it's not weeks or months you know so it's really the timelines are not longer and so you have
to really gonna have an understanding that you know it's it takes a while and the new companies that show up I mean I get I get a decent flow of write-ups from people and such and I look at them but you know a lot of them are the stocks at 13 and they think it should be at 17 you know when I see that I'm done you know because I'm saying Okay if the guy who's bullish on the company can't see at 3x or 5x on the position then what's the point you know so don't
send me stuff it's at 13 and it's what 18 please at least it's 13 and worth 50 you know someone's someone's got to pay for you know the shirt and the library and all that and the 13 to 18 just won't get me there you know we need some more meat on the bone so you know I I look at those sometimes you know they're in Industries where I just know I don't want to go there you know I mean I think that today I think I someone had sent me some natural gas play where
the most beloved bullish scenario was about a ADX return I didn't spend much time on it you know between us girls it just looked like those you know the that's a lot of that directional bet is on prices and and all of that so it was not nothing was coming up from that that made it obvious that I ought to drop everything And go all in on this so so I think you have to make judgment calls where you see something and you say okay let me spend ten minutes on it and after ten minutes
you say do I want to spend 30 minutes more on it and after 30 minutes you want to spend two more hours on it and just keep making a call at each point next question yeah thanks Chris furious so you said you're willing to you know you want to look for something that's gonna give you a three three to Five acts which are you already willing to wait generally to achieve it realize that yeah so 5x and five years is very nice even even a 5x and ten years there's no problems with that though yeah
so we can we can get those types of numbers we're in good shape are there are other questions yeah you like that stereo because I can see I can see people like you know probably read this may capital well but to me what's What's the name of the company you talked about you mentioned the company so I think what you want to look at you want to look at owner earnings okay you want to look at the cash the business generates that can be distributed to owners okay after capex and after everything so so yeah
so and if microns on your mind then at least for me you have to wait some time we can we can't discuss it today but if I'm looking at a company like Micron and this capex is not a deal-killer but I I definitely want to see what the owner earnings are after capex you know I mean just just because a business is high so I agree with you the best business of the ones that have no capex needs you know MasterCard you know or or Amazon you know these are great or Google whatever give me
the great businesses but you can you can do really well even in businesses where the capex Needs a significant I mean I mean the extreme case is I hate the auto business because the capex but even even a crappy business like autos even with I'm not into a Ferrari I'm does the mass-market autos I mean even if I take out Ferrari Fiat still gave me a Forex in seven years with all the capex and with everything else going on right so it it it wasn't it wasn't a bad investment and I think that the the
memory players they Do have high capex but they also have high own earnings other questions yeah so you definitely want to look at the owner earnings you definitely want to look at it after capex and and like I said if you if you take the stance that I I have a friend of mine in Singapore who probably wants to go unnamed the guy won't buy any business which has capex period you know he for him what is very important is the incremental widget that they put out doesn't need any capex you Know so he he
he likes the Amazons he likes the apples he likes the googly he's done really well so you can have a framework which says I don't want to look at high capex businesses and you can have a very comfortable life other questions mohnish are there any great recent reads that have that you've enjoyed I know you read very widely yeah I mean I think that one is that the book that just came out on Jim Simons You know the [Music] the cover of it the dust jacket the man calls the market yes oh I just started
reading it but the author Greg Zuckerman he's just a really good writer and he does very thorough research so you know he he wrote a bunch of good books in the past so I haven't finished it I'm probably 20-30 pages into it but it is already captivating so I think that's a good read there's another book That I just ran into recently which is called more from less it's a guy named John McAfee and he he wanders a bit I think chapter 5 in Chapter 7 has a lot of the essence of that book but
that book actually forced me to reset some thinking so actually one of the things that we don't realize and I think many of you might be too young to realize that but if you if you go back about 20 years and you think about you know all the things that we had in our life as Kind of individual devices is all gone into the iPhone so for example you know we used to buy cameras right most of us don't buy cameras anymore and we used to have like music systems and different nuances of music and
that's gone away and we used to print everything like I used to print the maps and all that and that's gone away so a lot of physical devices that we had are all basically gone basically Adams got converted into bits and a lot of atoms got converted Into bits and we are seeing a lot of efficiencies come out in terms of usage of resources so we are getting a lot of GDP growth without a proportional use of resources that we had in the past a lot of it is because of the the efficiency is not
just with the iPhone but the efficiencies that have come about in in manufacturing and in different industries and and such and so the book actually takes a just a longer term view To show you that and I think it's just a good kind of food for thought Oh Manish this is being fantastic as always thank thank you so much for for doing this as always well Armand it was a pleasure and you have a great class and some wonderful questions so thank you very much and enjoy the rest of the evening [Applause] [Music]
