Transcript of Grant Williams in Conversation with Anthony Deden | Full Real Vision Interview. Video at https://www.youtube.com/watch?v=a4_U6bS-cU4

1. For me, the best part of my Real Vision journey has been the chance to
refine my own investment
00:12
framework through a series of conversations with brilliant investors in
every corner of
00:16
the globe.
00:18
In this series, I want to continue my education by digging deeper into the
lives and careers
00:22
of my guests to try and learn how they think.
00:26
I want to understand the experiences that have shaped them, the
failures they bounced
00:29
back from, and the lessons that those failures have taught them.
00:32
And I want to break down their success to find out what sets them apart.
00:37
I'm not looking for trade ideas or guesses about an unknowable future,
but rather knowledge,
00:41
accumulated over the course of careers to try and make me a better
investor.
00:46
And I want to share those conversations with you.
00:54
Several years ago, I was introduced to my guest today by mutual friends
who'd entrusted
01:06
a significant portion of their savings to.
01:09
This man, they told me, invest in a way which is not only unlike the
methods employed by
01:14
99% of money managers today, but also with an integrity and a
methodology which is a
01:19
throwback to a time which is sadly almost vanished.
01:22
In the intervening period, as I've gotten to know my guest better, I spent
a considerable

2. 01:28
amount of time trying to persuade him to sit down with me and share
both his experience
01:32
and his investment philosophy with the Real Vision audience.
01:35
Sadly, each of my invitations has been met with a very polite, but very
firm, no thank
01:41
you.
01:42
This was no surprise to me.
01:44
My guest has never before been interviewed, either in writing or on
camera, and for good
01:49
reason.
01:50
He's a private man who prefers to spend his time reading and thinking,
who invests far
01:54
from the spotlight, and with no care for either mainstream opinion or
consensus strategies.
01:59
A year ago, I finally got to meet my guest, and I spent an evening I will
never forget
02:04
listening to him talk about how he sees the world and how he thinks
about the discipline
02:08
of investing.
02:09
That meeting made me more determined than ever to try and persuade
him to break his
02:13
silence and give others the chance to learn from him as I had done.
02:16
Now, three years after I first approached him, he's very graciously
agreed to talk to
02:21
me in front of the Real Vision cameras.
02:22

3. And so I'm excited to be traveling to the Swiss Alps to discover how his
framework has
02:26
evolved over the years and see how he looks at the process of investing
that which he
02:31
considers permanent, irreplaceable capital.
02:34
So please join me for a conversation with Tony Deden.
02:39
There are going to people that watch this who know you, and they're
probably sitting
02:43
there thinking, why the hell is Tony Deden doing it?
02:45
And then they're going to people that don't know who, after this
conversation, are going
02:49
to go, why the hell do I not know Tony Deden?
02:51
So I know this is the first time you've done one of these and I really
appreciate the fact
02:55
that you've agreed to do it, because there's so many things I want to talk
to you about.
03:01
As I love to do, particularly given the lack of visibility that you have, is to
give people
03:07
a sense of your background, because it's an interesting one.
03:11
It's a varied one, and it's taken you all over the world.
03:14
So perhaps we could start just by talking a little bit about you and your
life and your
03:19
background.
03:20
How much time do you have?
03:21
We have all the time in the world.
03:23
So you left Greece at an early age?

4. 03:25
Yes, when I was a young boy.
03:27
And I lived in America for nearly 30 years, first in California and then for
many years
03:34
in Houston.
03:37
And I think I became, as American, as one could possibly ever become,
even though for
03:45
all these years, I never really felt quite at home there.
03:50
Not that I feel at home anywhere else.
03:52
But then I was married there.
03:56
I had a family, and I had a wonderful time in the United States.
03:59
I've met some of the greatest people I've ever known in America, and I
learned a great
04:05
deal.
04:06
And many years ago, I moved back here to Europe and I've lived in
Switzerland now for many
04:12
years.
04:14
I have traveled a lot, mostly to learn and to observe, but I have not
traveled as much
04:20
you have, for example.
04:22
I wouldn't wish that on you, anyway.
04:23
I think you've got the balance about right.
04:26
There's nothing extraordinary about my background.
04:29
I found myself in this work quite by accident.
04:34

5. Back in 1985, when I was asked to help a family with their investment
affairs, passing of
04:42
a husband, or other situations, and one family became two and then
three, et cetera.
04:51
So I found myself being an investment counselor without having the
preparation or the background,
04:58
or I've never worked for a financial institution or bank.
05:02
I had to learn a great deal by the sheer desire to do the right thing.
05:12
So my background is not as extraordinary as you make it sound.
05:17
I think you, perhaps, flattered me a bit with your introduction.
05:20
But when you are an investment counselor to a family, and in essence,
you are asked to
05:29
provide guidance for the entire wherewithal this family has, you come to
the inevitable
05:37
observation, to start with that, this is all the wealth this family possesses
and no one
05:43
is ever going to give them any more.
05:45
Yeah.
05:46
And there's a sense of irreplaceability to this capital.
05:50
So you have to start respecting it, respect the fact that it is really
irreplaceable.
05:56
It represents a lifetime's worth of savings.
06:03
That is, that you must avoid the kind of error that would put this family
out of business.
06:09
And you also learn fairly early on, something that takes men far longer to
do-- that is,
06:17

6. it's easier to actually make money than to keep it.
06:22
Not merely on account of external issues, such as inflation, taxation.
06:26
But also internal things, error, imprudence, and other such factors.
06:36
It is a kind of different world than the fund manager has, where a fund
manager, in essence,
06:40
has a undefined, unlimited amount of capital at his disposal, and if he
loses part of that,
06:48
he can get others by changing his policy and his investment objectives
to something more
06:55
desirable at the time.
06:57
I find it fascinating, the fact that the idea of family offices has grown so
much in the
07:03
last 20 years.
07:05
When I was younger, yes, truly there were some very wealthy families
that managed their
07:10
own affairs, but it was very rare.
07:14
And I often thought about the reasons that contributed to this, and I
cannot help but
07:22
say that perhaps one of the reasons is that the investment management
industry and the
07:27
banking industry have failed in their obligation and ability to protect and
preserve the savings
07:37
of those who have accumulated some.
07:41
So what was it about you back then that led this first family to come to
you and say,
07:50
please help us manage this wealth?
07:52

7. Well, there was a fellow.
07:53
He's passed, he's long gone now, who was like a mentor to me.
07:59
At the time, I must have been '30s or something like that, and he was in
his '70s.
08:06
And he liked the way I thought.
08:09
I was on the board of finance company, and I was very curious about
matters of money.
08:15
But I was always more interested in what could go wrong that what could
go right.
08:20
Right.
08:21
And I always thought that what could go wrong was not necessarily of a
quantitative nature,
08:27
like the stock market or the bond market, but the kind of decisions that
one makes and
08:34
the impact of those decisions, both in the long and short-term, on the
whole.
08:43
So he is the one who originally made introductions to one of two
families, and he's the one who
08:49
sort of pushed me to pursue this.
08:53
How did you begin to form the framework that helped you invest,
because I know that's changed
09:00
and morphed over the years?
09:02
But how did you begin to think of this?
09:05
What was your first perspective on it?
09:07
Well, initially, I did not know much.
09:11
I erred on the side of inaction.

8. 09:17
But then I made some friends, particularly with some large firms that I
knew at the time,
09:22
and I learned about this idea of-- prevalent among investment
management firms-- about
09:31
seeking to understand the investment objectives of their clients, and risk
parameters, so
09:38
to speak, and designing some kind of a portfolio that is suitable to their
needs.
09:46
At the time, it sounded really wonderful to me, because it was very
structured and it
09:50
made a lot of sense.
09:52
I've since figured out that it's nonsense.
09:57
I had one or two friends among a Swiss bank in New York and I went to
them for help.
10:08
I figured out how securities traded, how they do this, how banks settle
securities, and
10:15
delivery against payment, and this sort of thing.
10:18
And then I came across this idea of value investing, the Graham-Dodd
and Warren Buffett
10:22
type of things, that every American comes across from time to time.
10:28
I really was not aware of anything other than-- and I began reading some
of these great investors
10:36
and others.
10:38
I was fascinated with the idea of value, as defined by such value
practitioners, only
10:46
because it made sense, theoretically.
10:50

9. But it was a different world, and then came the crash of 2000, 1987, if
you remember,
10:56
which did not really affect me a great deal because I had no exposure to
the equities
11:02
market.
11:03
But then it created opportunities to invest, to deploy capital in 1988.
11:08
And then you have these great opportunities.
11:11
I had the great opportunity to find and to meet firms at their genesis of
what later
11:18
became the technology issue.
11:22
But the problem is that I always knew I was operating in a vacuum of
sorts, without really
11:28
guidance as to the fundamentals of things.
11:30
I always wondered what was the nature of money.
11:33
We measured our wealth in terms of money, but I couldn't figure out
what money was in
11:40
itself.
11:41
I had questions about really fundamental things about the nature of
interest rates.
11:49
And then I discovered economics in the Austrian tradition and the
classical liberal tradition,
11:56
and I began reading.
12:00
And it changed my perspective a great deal, not in that economics
makes you a different,
12:08
better investor, but it gives you a light with which to see the furniture in
the middle
12:14

10. of a room in the dark.
12:15
Right.
12:16
That's more or less.
12:17
Right.
12:18
I borrowed this from James Grant.
12:21
So I became concerned with the nature of risk, the nature of value for
what it was.
12:30
I became aware that the quantification that was largely embedded in the
financial sector
12:35
was not really necessary.
12:38
And I felt that the only way to protect this capital-- and I had these kind
of portfolios
12:43
that were standard back those days.
12:46
They used to call them a balanced portfolio, if you remember.
12:52
And I had defined their work around this idea of capital preservation,
back in those days
12:59
when capital preservation meant the austerity of a bank trust
department.
13:06
You are a fiduciary and you do things from fear of failure rather than
cognizance of
13:15
this is the right thing to do.
13:17
But the idea of owning bonds and recapitalizing the income and having a
first class collection
13:23
of equities, for example, and then taking part of this what remains and
making some
13:33

11. meaningful speculations and things that matter, overall gave you a
tremendous advantage.
13:41
And so the results were wonderful, but I didn't really understand quite
why.
13:46
I felt, also, that this idea of organizing an investment portfolio around
these so-called
13:55
unique special needs of each individual family was intellectually not quite
consistent with
14:03
reality.
14:04
Because in essence, there's no need to shape an investment portfolio
around a particular
14:12
person's idea of risk, because people's idea of risk is not necessarily
real.
14:16
Risk, to most people, is the uncertainty of the unknown, the prices are
going to break
14:23
down, or something like that.
14:26
To me, the risk was the idea of losing their capital permanently with no
ability to ever
14:31
recover.
14:36
So I went to the 10, 12 families I had at the time and I said, I've changed
my view
14:41
about investment management.
14:43
And henceforth, I'm going to have one investment policy that I think is
appropriate to all,
14:50
and that is protecting and enhancing and deploying this capital
permanently.
14:54
But the only issue is the time preference.
14:58

12. You have to have horizon.
14:59
You have to have a purpose to this capital long-term.
15:06
And they all said, OK.
15:08
So we scrapped the old investment management agreements and then
set up new ones.
15:19
I think that was a necessary growth and a change, because as you learn
more things,
15:25
you become able to acquire understanding of what it is you have, what it
is you face,
15:34
better than you had before.
15:36
What did that change in strategy do to your portfolios?
15:40
Did you find it completely changed the composition of them?
15:44
Or did you kind of tinker around the edges, but really, it just gradually
evolved over
15:50
time?
15:51
Was there a sudden, OK, now we've changed the mandate, the portfolio
has to change considerably.
15:56
Well, starting at about 1996, '97 or so, I never saw these as a portfolio in
the sense
16:11
that the word is used today.
16:13
I saw this as a collection of assets in the form of securities having a
purpose, each
16:20
of the components having a subpurpose of it own.
16:24
And when you start seeing it this way, you become completely
uninterested in what others
16:29
think about matters.

13. 16:33
The idea of having x percent in industrials and y percent here, and
overweighting these
16:37
and underweighting that.
16:39
It's just complete madness.
16:40
It doesn't make any sense, any more than a car manufacturer thinks that
he has to have
16:46
x percent of an automobile in glass or y percentage in steel, and et
cetera.
16:51
It makes no sense.
16:53
So every company has a purpose.
16:56
It did change things somewhat because it allowed me to focus on what I
thought was value in
17:05
the sense of irreplaceability.
17:11
So you take a replaceable capital and deploy it to irreplaceability assets.
17:18
But bonds remains still the hard core of the thing.
17:22
The thing with bonds is that I had two kinds of bonds that I invested in,
governments and
17:28
junk.
17:29
Right.
17:30
I never quite bought in the corporate world.
17:34
Junk in the sense that it was not rated.
17:37
Yeah.Back in those days, in order to rate a bond, you had to pay money
to the rating
17:41
agency, and many small issuers would do that.
17:46

14. So oftentimes you found issues that had $200 or $300 million in
outstanding debt, unrated.
17:53
And because of that, it sold.
17:55
Oftentimes, it changed hands.
17:57
Extremely, incredibly good yields.
17:59
Real yields, in fact.
18:00
We had real yields back then.
18:02
Yes, I remember those days.
18:04
I think our children will never know what that is.
18:06
Yeah, I think so.
18:10
But then came the period of 1995, '96, '97, where-- monetary policy has
always played
18:21
a role in financial matters, but all of a sudden the monetary policy
became the driver
18:30
and industrial activity took a backseat to financial activity.
18:33
That was the beginning, I think.
18:36
Maybe I will disagree on that about the timing, but prices of securities
were going up, independent
18:46
of economic results or economic activity.
18:50
And that's mostly in the United States, but the rest of the world followed
along with
18:56
the American policy.
18:57
At some point, prices became untethered from the reality of the situation.
19:04
And I saw this in, possibly, in 1998, and I became
19:14

15. certain that there must be an error, and the error must be either outside
or it could be
19:18
mine.
19:19
I couldn't see the fact that the world had changed.
19:20
And I went through a period of soul searching because, I felt, perhaps, I
was too old-fashioned.
19:27
I had too many rigid ideas and the world was changing.
19:31
Remember, those were the days of Mr. Greenspan, who advocated a
complete revolution in productivity,
19:37
and other such factors.
19:40
And I asked myself, perhaps I'm wrong.
19:43
Perhaps what I believe is wrong, and perhaps everyone else is right.
19:48
And now, it seems insignificant, but back then, it was an enormous
burden on me, because
19:55
if I were wrong, that means my actions, or inactions, would have an
effect on other people's
20:02
savings.
20:04
So I had to do something about it.
20:09
What you do in this case is sort of like when you get lost on the road and
you don't know
20:14
where you are.
20:16
You might have a map.
20:18
The map doesn't help you unless you know where you are.
20:20
Right.
20:22
Right?

16. 20:23
So you have to retrace your steps in some way and go back to the very
basics and try
20:29
to rethink the basic assumptions of what is real and what is not.
20:43
Most of us, when we are younger, we want to believe the authorities.
20:46
We want to believe the rating agencies.
20:48
We want to trust government statistics, or authorities of all sorts.
20:53
And it happens as you grow older, particularly in a setting like this, where
you become convinced
21:00
that they all lie, and everything is phony and everything is false.
21:05
And I mean everything.
21:08
Yeah.
21:09
Everything.
21:10
So you go back and retrace your steps.
21:14
And I did that, and I did that with some friends and I rediscovered the
fact that I was right.
21:21
The whole economic system-- financial system, rather, not economic--
as we knew it, it was
21:25
false.
21:26
That gave me a great deal of courage to acquire the kinds of things at
the time that no one
21:33
wanted, and realize a lot of gains that were gained in the previous 15
years.
21:41
Yeah.
21:42
And what people didn't want at the time was oil.
21:45

17. It was copper, coal, gold, silver, and German government bonds.
21:53
Right, yes.
21:56
So by the time the system came to a crashing halt in 2001, '02, '03,
whatever it was, it
22:04
became obvious that my sentiment about the relative value of this
financial crisis was
22:13
correct.
22:14
But then it started a new era, where we re-inflated the system somehow.
22:20
And so all I'm saying to you is that we have gone, in my own brief
lifetime so far-- 30
22:27
years of practice-- we have gone from booms to bust to booms and
busts.
22:34
Now, if you are merely in front of a Bloomberg machine and you think
that you can anticipate
22:40
these matters and you can anticipate interest rates and foreign
exchange rates, you're deluding
22:47
yourself, because no one really knows when the next boom or bust will
take place or where.
22:51
But the problem comes in not trying to impress your customers, but
trying to protect what
22:58
you have spent years accumulating.
23:00
How do you do that?
23:04
That has always been difficult throughout the ages, but it has become
phenomenally more
23:09
difficult, nearly impossible, if you practice within the framework that you
have been used
23:20
to all these years.

18. 23:21
Think about that.
23:22
No, I agree.
23:24
When you went through the soul searching period, back in the the late
'90s.
23:29
And you went away, and you sat down for a weekend, and you really
went through every
23:33
assumption that you made and stress tested it.
23:36
First of all, to come out of that sure that you're right and everybody else
is wrong,
23:45
that takes a lot of character, a lot of selfconfidence, and a lot of real
belief, real belief, that
23:53
you came out knowing that.
23:54
And you acted accordingly.
23:55
You, essentially, sold everything in your portfolios.
23:59
I mean, that's taking action after a lot of soul searching.
24:04
Few people would have the courage to do that.
24:06
Your investors, your customers, obviously, they put their trust in you.
24:15
And here you are coming back to them saying, OK, everything I've been
doing has to change.
24:22
How did they react to that?
24:25
You've built up a very strong bond relationship with these people by
doing the right thing
24:30
over so many years.
24:32
Do you find that making such a drastic change causes some of them to
say, Tony's lost the

19. 24:40
plot?
24:41
Or do people, having seen your track record and seen your performance
say, wow, this is
24:45
serious?
24:46
Well, first of all, it is their capital and they have a right to find someone
else to
24:51
help them.
24:53
I have no monopoly on ideas.
24:54
I think one or two perhaps did.
24:59
But I think I have always been eager to communicate this framework, the
foundation of the principles,
25:09
or the framework that motivates actions.
25:12
In 1999, I worked very hard to produce and make a speech to our clients
at the time.
25:22
And I wanted to show that the seeming prosperity that existed-- because
if you go back and
25:30
look at, everything seemed to be so extraordinary at the time.
25:34
It was an illusion.
25:37
And this is very difficult to see, because-- I wrote my speech and I
borrowed from James
25:43
Grant's, the title of his book, The Trouble With Prosperity, which he
makes the same point.
25:48
You have this apparent prosperity, but unless you examine its causes,
you don't know to
25:55
what extent it is real or it's a delusion.
26:01

20. If you gave me your American Express card and go out on a buying
spree, and I can acquire
26:05
all kinds of goods, and everyone can see how wealthy I am because I'm
wearing wonderful
26:11
clothes, I'm driving a great car.
26:13
In fact, I'm adding to the GDP.
26:16
Right.
26:17
But no one quite knows that the money has been borrowed from your
credit card, right?
26:23
And to the extent that I don't have to pay it back, then it's real.
26:33
Words like integrity are thrown around like confetti these days, but I was
captivated
26:37
by Tony's framework and the clarity and the simplicity of his thinking.
26:42
Tony's a deep-thinking, principled man, trying to assemble a collection of
assets which cannot
26:46
only endure, but also withstand the pressures exerted upon them by
time and turbulence.
26:51
And it struck me that perhaps this second definition of integrity, the
notion of a soundly
26:57
constructed, durable, an unimpaired portfolio, has been lost in a world
where monthly performance
27:01
has become the holy grail, and investor's time horizons have been
compressed, in many
27:06
cases to the point of becoming a hindrance to effective money
management.
27:10
Tony's ideas around endurance and permanence, with both capital and
the assets selected
27:14

21. to represent it, fascinated me, and I wanted to dig deeper into how his
framework evolved
27:19
and how he thought about building such a collection of assets.
27:23
You have this way of investing in permanence and endurance, and
things that have been there
27:31
and will be there for a long time.
27:33
So just, if you can, describe how you think about that, and how you go
about identifying
27:40
companies and people that you would invest in.
27:42
In the beginning of the QE period, the global QE period, I became
convinced that the world,
27:50
the system, was going to destroy the nature of money itself.
27:56
I became convinced that the rules of the game had changed completely.
28:03
When the rules change, the basic framework with which you make a
decision needs to change.
28:10
I remember back those days, post-2008, 2009, '10, '11.
28:17
Back in those days, virtually every economic-- financial agent, not
economic-- wished that
28:22
things would go back to normal.
28:23
They thought that the pre-2008 was normal, which is not too error the
truth.
28:28
But when the rules of the game change, the process with which you
make decisions, the
28:37
process with which you act, the value of information, the value of inputs,
must change with it.
28:44
I think that two things change.
28:46

22. Not only the rules of the game change, but the expectations of people
were not commensurate
28:56
to the reality that existed.
28:58
So I felt, as perhaps others did, that the time had come for me to hang
my wings, so
29:07
to speak, and leave the game.
29:11
I would not want to participate in an environment in which I had to do
things because they were
29:15
expected rather than I thought was the right thing to do.
29:20
But the second most important thing that happened to me is that, as a
result of that, I began
29:24
thinking about, if the rules of the game have changed enough, I cannot
trust anything.
29:29
If you don't trust financial accounts, if you don't trust the ratings reports,
if you
29:33
don't trust the government, if you don't trust the press, if everyone lies to
you, literally--
29:40
sort of like going to a restaurant where everything on the menu was
poisoned, but you're hungry.
29:46
Right.
29:47
Right?
29:48
You have to do something.
29:51
And what you can do is exit the system, just exit completely.
29:59
The single thing that matter to me, if I am involved in a situation where,
honestly, I
30:02
don't know what is real from what is not, I have to start re-examining
what is real,

23. 30:07
what is really real versus what is not.
30:12
People talk about outstanding companies.
30:14
The word is used often by value investors.
30:16
The question is what is an outstanding company?
30:19
People talk about good management.
30:22
What is a good management?
30:24
No one can really define that.
30:26
People judge others and make value decisions with respect to so-called
equities on the
30:34
basis of the success of the stock price.
30:39
I began thinking about what is it that is important.
30:44
And one of the things that I felt really, even though I lived in Europe at
the time
30:48
and I had left in America, there is something extraordinary that takes
place, and that is
30:54
we in America, and I say we, are quite keen to like what is faster and
what is bigger
31:03
and what is better.
31:05
So often growth for the sake of growth overwhelms our modulation and
our actions.
31:14
We think of growth stocks.
31:15
We think of growth industries.
31:18
We even use the word to grow, to grow earnings, which is to grow the
company, et cetera.
31:25

24. But what if these measurements were wrong?
31:30
What if really what mattered is something other than bigger and better?
31:35
The second mental observation I made was that what really mattered
was not that, but the
31:42
idea of enduring, endurance, the idea of durability.
31:49
I began looking at investments we owned that had a history of 100, 150,
200 years.
31:55
And you ask yourself, how could this have survived that long?
32:01
What were the ingredients that have contributed to their permanence?
32:07
Permanence is an illusion.
32:09
There's not really a fixed, where there's no such thing as permanence in
our world,
32:14
but it's something we perhaps strive to.
32:18
And I think endurance is a better word to describe what I'm saying.
32:25
And all my life up until that point, I've been examining the idea of failure.
32:31
Failure on the part of others had been the principal expert from which I
learned what
32:41
not to do or how not to think or what to examine or not.
32:46
I began thinking of those who survived.
32:48
We have survived the test of time.
32:52
Again, as a way of a textbook, thinking of those ingredients that about
allowed them
32:58
to adapt to changes, survive wars, inflations, et cetera, the people,
histories, generations,
33:08
et cetera.

25. 33:10
And it's hard to recognize those ingredients that allows a few to survive
and endure.
33:19
Because if I'm going to protect earnings or savings that have been
earned in prior years
33:25
for the future, whether it's for future consumption or a future generation, I
have to deploy them
33:33
in a manner that is consistent with such enduring characteristics.
33:42
And so that was a monumental revelation to me, that some people have
survived and have
33:49
adapted and have grown.
33:51
But many of these companies are, of course, privately held and they
would never wish to
33:58
be listed on the stock exchange.
34:00
But others are listed, but only nominally, in the sense that they once had
an offering
34:06
some 50, 60, 100 years ago, and they still have a few shares owned by
non-family members.
34:13
And I discovered that I owned a few of these things, for reasons that
were not purposeful.
34:20
So I began focusing on what endures and what is real, independent of
the financial world
34:28
completely.
34:31
And so what did you find?
34:39
Because we do live in a financialized world, and finance for finances
sake, and investing
34:48
has become all about making money, not necessarily capital
preservation, not necessarily income.

26. 34:57
It's become, which stock is going to go up the most in the next six
months to a year,
35:02
or whatever my timeframe is?
35:04
What did you find?
35:05
When you had this monumental moment and you started looking into
these companies, what
35:10
was it that you found?
35:12
The first principle I operate from is the idea of exclusion.
35:15
I exclude whole swaths of things from my universe of things.
35:23
I think that, in the whole world, there are probably 150, 200 listed
companies that I
35:29
would even consider owning a piece of.
35:34
It's a completely different way of looking at the world.
35:36
Well, they were all in my universe already.
35:39
I think that when you start examining what it is you own-- what happens
if you're on
35:46
a ship that is going down, and you and your cabin men, you have five
minutes to get out,
35:54
to get up to the deck.
35:56
You look at your possessions that are sitting in your cabinet.
35:59
You say, what's worth taking with me?
36:01
Right.
36:02
Not very many things, is it?
36:04
And this is what I did, in essence.

27. 36:07
Now, the thing is that if you do this with respect to your own savings, it's
one thing.
36:12
But if you do this in an institutional setting, where other people are
involved, that's a
36:17
little bit more difficult.
36:18
Because not only must you deal with the idea of what is right with
respect to the capital
36:26
you are being entrusted, but you have to be concerned also with the
expectations of other
36:30
people, or the expectations of others.
36:33
And this is quite significant, because I think that one of the things that is
missing, and
36:41
one of the things that I have discovered, is that there is a substantial
distinction
36:46
between people who are investors and people who are owners of
businesses.
36:54
An owner in a business is far more interested in the survival, the first
instance, than
37:01
its necessary monetary value.
37:04
No owner of a business wakes up every morning asking himself what
he's worth.
37:09
He doesn't know what he's worth.
37:12
He's concerned with his products.
37:13
He's concerned his employees.
37:14
He's concerned with his suppliers.
37:15
She's upset with his customers.

28. 37:17
To do that, you have to have a time preference that is different from
other people.
37:23
If you only own things that are quoted, you look at the quotation machine
to give you
37:32
confidence in the fact that hey, I made a great decision yesterday, this
thing wentup.
37:37
Right.
37:38
You have a falsity in your understanding.
37:39
You're an investor.
37:40
You're in something, hoping that it will go up.
37:44
You are making decisions based on expectations of what you think other
people's expectations
37:50
are likely to be, based on their framework.
37:56
An investor is really one who generally will acquire something, hoping he
will sell it
38:01
at a higher price.
38:03
And so all of the calculations, and all of the pseudo intellectual activity
that goes
38:09
along with it, is based on this idea of price-- is this price high or low--
relevant to what
38:13
other people are going to think of it next year.
38:16
What is it likely to be next year, and why, et cetera.
38:20
Owners don't do this.
38:21
They're interested in building substance.
38:23

29. They're interested in building the productive base of the company,
they're recapitalizing
38:27
the earnings, or whatever.
38:29
So the focus on wealth creation is different from that of an investor as an
owner.
38:35
It is difficult for an investor to be an owner because you cannot have
immediate liquidity.
38:41
If you and I owned a big farm where we grow carrots, we can't sell part
of it tomorrow
38:46
because we want to finance a trip around the world.
38:50
Right.
38:51
And also, there's another element that is of significance here, and that is
that there's
38:56
a very large gap in perception and temperament between an American,
and perhaps, an English
39:06
speaking view of the world from, say, a continental European
temperament view of the world.
39:15
I'm not familiar with the Asian world at all.
39:17
I've stayed out of it.
39:18
I can't do everything.
39:20
The idea of leveraging a balance sheet to buy back your shares so your
earnings per
39:27
share go up is completely foreign where we are, for example.
39:31
It just doesn't happen, yet it is a financial tool in America.
39:44
The idea of having a fragile balance sheet for the sake of a higher gold
price doesn't
39:53

30. lend itself to the idea of ownership.
39:57
An owner is really, very concerned with his balance sheet.
40:00
Yeah.
40:01
In fact, the balance sheet is perhaps more important than his income
statement.
40:05
His ability to endure and survive is based on the strength of his balance
sheet.
40:10
And the nature of the assets on the balance sheet is not just assets, but
the nature of
40:15
the asset.
40:17
And so on account of the convenience of the English language, we
speak in general terms
40:22
about financial matters and equities, et cetera, but the framework with
which different people
40:30
in different countries make different decisions, in general, on a
generalized basis, is very,
40:35
very different.
40:40
For us, it's even more difficult because we have shareholders from some
30 countries aroundthe world.
40:47
All have perhaps different cultural and different business expectations
and framework.
40:59
But the important thing is that they are largely like-minded to what we
aim to achieve.
41:08
As I said to someone recently, it's akin to the idea of if you are a captain
of a ship,
41:18
it's nice to know that all of the passengers on board your ship are going
to that same
41:22

31. destination.
41:23
Well, that's where they wish to go and that's where you started out
going, and so they will
41:28
judge you eventually by having gotten there, rather than perhaps how
long it took, because
41:34
you avoided certain weather, or other such things.
41:37
By the same token, this like-mindedness, I have come to conclude that it
is a necessary
41:45
ingredient even in the deployment of capital.
41:52
And that is, if I am interested in acquiring a 5%, 10% of your enterprise
as a participation,
42:01
I want to be absolutely certain that the motivation that you have as an
owner and manager is similar
42:08
to that of mine.
42:09
I have an interest in you making the kind of decisions that will have an
impact on thecompany 20, 30 years from now, rather than next quarter
or next year.
42:22
So if your objectives and if your motivation is different than that of mine
and the capital
42:26
that I deploy, then at some point, I'm going to be disappointed.
42:33
So like-mindedness, whether it is in a marriage, in a business, or in any
enterprise, a principle
42:39
and important factor in doing the right thing in the right way.
42:46
Leonardo da Vinci once said that simplicity is the ultimate sophistication.
42:57
And as I listen to Tony talk about the carefully laid foundations of his
investment framework
43:02

32. and what he looks for, in terms of both assets in which he may want to
take an ownership
43:06
stake, and the families that he is the captain allows to board his
metaphorical ship, I realize
43:12
that, at the end of the day, the simplicity of how Tony invests affords him
the luxury
43:16
of being able to do so in a way that few professional managers today
can.
43:21
I do what you would do with your own capital as an owner of that capital.
43:28
Yes.
43:29
The only thing I have is that I have purposefully extracted myself and our
team and our organization
43:37
from the financial world.
43:38
That's all I've done.
43:40
So when you extract yourself from it, your vocabulary changes.
43:43
Your practice changes.
43:44
Your philosophy changes.
43:45
Everything changes.
43:46
Yeah.
43:47
You know the fellow Nicholas Taleb?
43:50
Yup.
43:51
Who wrote this famous-- he's written this, in my opinion, one of the most
extraordinary
43:56
books I've ever read called Antifragile.
44:00
Yes.

33. 44:02
And in it, to many people, it would be a rambling thing, but it is the most
extraordinary analysis
44:10
of those factors that lead to this kind of issues that we talked about, the
ability to
44:16
survive, this robustness, or the ability to actually gain strength from a
difficult environment
44:25
in which you are, this anti-fragilitism.
44:28
Anyway, these ideas have always existed in life, have always existed in
the course of
44:34
events, have always existed in industry.
44:35
The people who do things where they don't exist is the financial.
44:43
So in order to understand them and appreciate them and embed them in
your own thinking,
44:47
you have to exit the financial world completely.
44:49
Yeah.
44:50
That ability to own something, really own it for the long-term, has been
taken away
44:56
by monthly liquidity and by how many basis points did you miss the
benchmark by what
45:03
I'm going to redeem.
45:04
That has really made most people doing what you do, as stewards of
other people's savings,
45:13
it's taken away the ability you have to own things.
45:16
It’s true.
45:18
You can't own something for a month.
45:20

34. This is really true.
45:21
That is called renting.
45:22
But earlier, I talked to you about the idea of like-mindedness, for
example.
45:27
And so I'm serious about this, in a sense that I want to own a
participation.
45:35
I don't call it a stock or equity.
45:38
I want to own a business participation in a business that is run by owners
whose motivation
45:43
is the same as mine, who are responsible to their family and to their
community and to
45:51
the capital that they employ, as much as I would have been if I owned
the same enterprise.
45:56
So instead of owning 100%, I own 2%, 3%, 4%, 5%, 10% Sure.
46:02
But the missing 78%, 89%, 90% is owned by—One or two families.
46:08
Yeah.
46:09
Who have owned it for 50, 100, 150, 200 years.
46:16
I can sleep very well at night, which I think is more important than eating
well.
46:20
Right.
46:21
You can go without food, but you can't go without sleep.
46:23
It also adds to the idea of what I said I consider important, is the
enduring value
46:31
of something.
46:33
So when you think of value simply in financial terms of price-- price
earnings, ratio, a

35. 46:40
price to book ratio-- all of these are accounting terms.
46:44
They also reflect what happened in the past.
46:48
So traditional EBITDA and price to earnings ratios, and all the things that
people fixate
46:55
on, and guidance.
46:56
You and I have spoken previously about guidance and what happens
when a company misses a guess
47:04
they made about what might happen at some point in the future.
47:07
Right.
47:08
How do you look on that sort of stuff?
47:10
Well, EBITDA is not traditional.
47:13
It existed when I was a young man.
47:15
Sure.
47:16
And the only reason EBITDA is around is on account of the ability to
finance acquisition
47:22
to the credit.
47:23
We're an all for credit creation or there wouldn't be EBITDA.
47:27
Second, the real owners do not think of the value of business as a
multiple of the cost
47:35
to generate before everything.
47:37
He says earnings before everything is so BBA.
47:43
Right.
47:44
Second, the idea of earnings, if you really quite think about it, is very
important.

36. 47:49
Earnings are very important.
47:50
A company must be profitable.
47:52
And equally as much, it has to generate cash.
47:55
Profitability cannot be related only to accounting entries.
47:58
Yup.
47:59
But even though this is the case, the idea of profitability on any one
period to another
48:04
is really a function of the oftentimes temporal events.
48:14
And so a price to earnings ratio is actually quite meaningful, somewhat,
but it's not really
48:22
so essential, in terms of value.
48:27
So we don't really pay much of any attention to that.
48:30
I do want to see a recapitalization of earnings.
48:34
So I think, to us, perhaps earnings before interest and tax is a larger-- it's
perhaps
48:45
more important, in the sense that it incorporates balance sheet
components.
48:49
But also the compounding of that earnings to book value per share is a
far more important
48:56
indicator of a company's ability to compound it, because that's really
what wealth is.
49:01
Wealth is the compounding of earnings.
49:04
And you acquire machinery and equipment to allow you greater freedom
in adding to that
49:10
pile.

37. 49:11
So you take from existing earnings and add to it.
49:13
This is really the nature of capitalism, the ability to satisfy the needs of a
customer
49:18
and create an enduring enterprise that adds value to you.
49:26
Self-interest is the foundation of all.
49:29
Yes, right.
49:32
Also, today, largely in the United States, but this is increasingly more
common here
49:39
in this continent, the emphasis is placed on the income statement, often
to the complete
49:45
exclusion of the balance sheet.
49:48
I said to you earlier, I think the balance sheet is probably more primary,
engaging this
49:58
idea of endurance.
50:00
But not on its own alone.
50:04
The components that are there must be examined, the nature of the
asset, and their economic
50:10
value in the process.
50:13
So I think that most owners of businesses do exactly the same thing
we're doing.
50:18
I don't think there's any difference.
50:19
No, but to your earlier point, you're aligned with the businesses in your
motivation.
50:25
That's crucial.
50:26

38. Now, you asked me about this nonsense about earnings estimates and
forecasts, and what
50:34
do they call them?
50:36
Forward guidance.
50:37
Forward guidance.
50:38
Yeah.
50:39
I mean, I think that every CEO that I know personally would tell you in
person that they
50:47
have no clue.
50:49
And first of all, even if they did have a clue, why would they give you
forward guidance?
50:54
There's nothing in it for them.
50:56
No, no, there's something for them, if they have the options involved.
51:00
Well, you're exactly right.
51:01
We're talking business owners here, not CEOs.
51:03
I mean, what is the purpose for having forward guidance?
51:06
The only purpose is the price of the stock.
51:10
And then therefore, the price of the stock becomes a product, so then it
becomes a game.
51:16
So the focus is not on making something, the focus is on how to make
money.
51:22
So the idea behind the business is money is made as a result of doing
something well.
51:27
I mean, that's the principle foundational aspect of it, is you do well
financially as
51:38

39. an individual because you contribute something worth-- someone else is
willing to pay what
51:44
you contribute.
51:46
So to the extent that the only objective is to make money, or to acquire
something of
51:53
a purpose, or reselling it, or what have you, you lose track of those
essential components,
51:58
of this idea of independence and endurance that I spoke to you about.
52:03
It becomes a game.
52:04
Yeah.
52:05
I have a very different view of what people have towards the idea of
diversification.
52:10
You screen because you have certain-- now computers.
52:18
When I was a young man, we didn't have computers.
52:19
And you couldn't do any of this stuff.
52:21
You had value line in America, and other such things in Europe.
52:24
In fact, I invested in companies who, in Europe, did not even want to
give you their balance
52:31
sheet accounts.
52:33
We own 28 participations.
52:38
They all have a purpose.
52:40
Some of them are more core and more permanent than others.
52:44
Others are opportunistic or temporal, or whatever.
52:50
The idea of going out to try to find more, why would I want to do that, first
of all?

40. 52:56
I once wrote a paper and I called it My Great Broom Theory.
53:03
And what I did is I went on the Bloomberg machine and I said, give me
all the companies
53:07
in the world that are listed, the principal listing.
53:13
And the computer says, 78,522, for argument's sake.
53:16
I said, OK.
53:17
Now, I said, I really don't know anything about Africa, the Middle East,
and say, South
53:28
America, and some places.
53:32
So I just wanted to reduce it to companies that are in North America,
Western Europe,
53:37
and perhaps Australia, New Zealand.
53:40
Computer's says, OK, now you've got 48,226.
53:44
OK, that's good.
53:46
And then you say, OK, now give me companies that are financially
solvent.
53:52
That means they have a right a current ratio-- at least on the current ratio
basis-- of at
53:57
least 1.
53:58
It says 20,500 something.
54:00
I said great.
54:02
Now I said to myself, I would invest in nearly anything, nearly anything,
except for businesses
54:09
that are finance related-- banks, insurance companies, mortgage
companies.

41. 54:14
They're not interesting.
54:16
Yeah.
54:17
Take out all those companies.
54:19
OK, now you've got 10,500 and something.
54:22
All right, now, I said to myself, I really want to own something in a firm
that is manageable,
54:30
or it's owned by-- so take anything away over $10 billion of market cap.
54:36
OK, and anything under, say, $100 million in market cap.
54:40
Just give me something.
54:42
8,500.
54:43
OK, now I said, give me companies who are-- this is true, you can do
that today, or some
54:49
variation thereof-- that pay a dividend of more than one penny per share,
at least one
54:54
penny.
54:55
I want some dividend, right?
54:56
Another thing.
54:58
Give me companies that have, I don't know, a debt to equity ratio of no
more than x,
55:05
another thing.
55:06
Ends up that you end up with maybe 250, 300 out of all those.
55:11
And those are in all industries.
55:13
Yeah, sure.
55:15

42. Now, the possibility of finding anything worthwhile in there, it's really
remote, I mean, at any
55:20
one point in time, right?
55:22
Yeah.
55:23
But what do you do is you learn about business.
55:26
Not about stocks, but about business.
55:29
You learn the food business, the fertilizer business, engineering.
55:34
You learn about specific endeavors, and you acquire an understanding--
a businessman who
55:39
grows, say, carrots.
55:40
I'm using this example.
55:42
Yeah.
55:43
He's completely uninterested in spending time learning about
semiconductors.
55:49
Because no matter how much he knows, he will not ever know what
could go wrong.
55:53
He knows carrots.
55:55
He knows what can go wrong in the carrot business.
55:57
He knows the components that contribute to successful carrot business.
56:02
So you can never tell me that there's a young man 25 years old,
however many degrees he
56:07
may have from Harvard, who can sit in New York and know what can go
wrong in some biotech
56:11
business in Japan or some machinery business in Spain.
56:16

43. He sees things superficially on financial information, on a superficial--
look at what
56:22
it looks like, or what it has looked like.
56:25
When you buy for the purpose of selling, you don't really need to
understand what can go
56:29
wrong.
56:30
You see everything in terms of price.
56:31
That’s very true.
56:32
So we have a relatively important stake in the business of salmon
farming, for argument's
56:39
sake.
56:40
Well, not just myself, perhaps, but we have a team that knows, more or
less, everything
56:45
there is to know about salmon farming literally everywhere in the world.
56:50
We know what can go wrong.
56:52
We know where the strengths are.
56:55
We know where the abilities, where skill is.
56:59
And not just merely from what will happen in the price of say, salmon,
today or tomorrow,
57:04
the demand or supply of it, but in terms of those ingredients that
contribute to the long-term
57:09
viability of a business.
57:11
But we also pay to understand what could go wrong.
57:14
What could go wrong is really more important than what can go right,
because over time,
57:17

44. even a marginally good business will profit, will do well.
57:22
So you really need to understand, you don't know what anything is worth
until you know
57:28
what can go wrong.
57:29
Because we value things differently because we weigh components
differently.
57:36
There's no such thing as valuation metrics based on some standardized
formula, unless
57:40
you see it in connection with other issues.
57:43
So when you extract yourself from the financial world and you say, what
is this salmon company
57:47
worth?
57:48
What if you were private?
57:49
Well, you don't have metrics there, or you can use elicit company
metrics.
57:54
But what do I pay for this?
57:55
And what do I pay in that genuine economy, not in a distorted economy
that we have today,
58:02
where the cost of money is zero.
58:04
So today, valuations of businesses have been distorted on account,
again, of these distortions
58:09
in money.
58:11
And so this is a very difficult time to have, and this is why it's so
important to have
58:20
your own subjective way of measuring and assessing value.
58:24

45. And part of this method includes the value that is imputed by elements of
risk that are
58:31
unique to a particular business, a particular geographic location, and
competitive advantage
58:39
or not.
58:40
So it's simple, but it isn't easy.
58:50
As Tony so beautifully put it, when you buy for the purpose of selling,
you don't really
58:58
need to understand what can go wrong.
59:00
You see everything in terms of price.
59:04
Having a clear understanding of the kind of business you want to have
an ownership in
59:07
is fast becoming a lost art.
59:09
Today, the focus is almost exclusively on price and the ability to make a
profit on
59:13
a specific position, rather than finding an enterprise that offers a robust,
sustainable
59:18
revenue stream to an investor.
59:21
Finding such businesses requires the diligence and discipline to look in
places that most
59:25
mainstream investors shy away from, but it's the very fact that the times
of business which
59:29
meet Tony's criteria are so rare, that creates the value opportunity.
59:33
So let's talk about scarcity.
59:35
Let's get back to that, the point of scarcity and why it's so important.
59:39

46. Well, I should tell you that in 2002, we formed an investment fund, which
largely, over the
59:49
course of the next four or five years, I abandoned the private-- being an
investment counselor--
59:55
and just focused on this one fund.
59:57
And in 2010, we changed the character of this to being more akin to a
holding company.
60:04
But the issue is it became very quite important when you are dealing
with-- you're no longer
60:12
dealing with families, where every decision you made had an impact of
them directly, because
60:18
we knew who they were.
60:20
But you were dealing with a pool of capital belonging to the very same
people you had.
60:25
Whether it was an error or not, I had made this sentiment.
Whether it was an error or not, I had made this sentiment.
60:30
I was giving the sentiment out that we would look after your savings,
whatever you put
60:36
into this investment company, as if it was the only money in the world
you had.
60:44
This was a wonderful thing because it not only focused our views on
doing the right
60:50
thing for the whole, but it allowed a number of people to really keep into
this investment
60:55
company the vast bulk, and some cases, all of their financial savings or
wealth.
61:04
But this kind of policy does not lend itself to popularity, because people
want to put

47. 61:10
you in a box, and they want to put a label on you.
61:15
And an honest investment practice does not lend itself to labels.
61:24
And they want to label you according to some predefined idea of what
you are.
61:27
You are a value investor, or this, or the other.
61:31
And so it became really important in 2010, '11 or so-- I don't remember
the year-- to
61:38
create not a slogan, but a defining characteristic of the practice that
would allow someone to
61:49
focus on the essentials of it.
61:51
And we defined it by the word scarcity, and that scarcity is the most
important law in
62:05
economics, in that no one can have all that they want.
62:12
Scarcity is a natural law.
62:14
It's just part of life.
62:16
There's scarcity in material goods, in resources- - everywhere you look
at the scarcity, in
62:23
real savings, in terms of money, other than, perhaps, credit is being
created.
62:28
But there's not just scarcity only in visible, tangible resources, there's
also scarcity
62:33
and skill sets.
62:35
There's also scarcity among the kind of characteristics and character in
men that you and I would
62:42
consider to be attractive.
62:43

48. So scarcity, in all of its permutations, is an important ingredient in any
action that
62:50
deploys capital for the future.
62:55
What makes a Van Gogh painting valuable is not the canvas or the
paint, but the fact
63:02
there is only one.
63:03
By the same token, there's a second component, which we call
permanence.
63:08
I sometimes think we should have called it endurance, but nonetheless.
63:12
It's the idea of creating a framework not only within your collection of
investments,
63:21
but by extension within each investment, the nature of the investment
itself, and the people,
63:30
the participation that it represents, in the kind of policies and the kind of
practice
63:38
and the kind of purposeful behavior that is designed to endure, rather
than merely grow.
63:47
You can grow but become fragile and then die.
63:49
That's not interesting to me.
63:53
So if my mandate is to protect capital from both inflation, taxation, and
bad decisions,
64:02
then the idea of seeking to find endurance is very important.
64:08
It's really important.
64:10
And the third part was the idea of independence.
64:14
So it was scarcity permanency.
64:17

49. And independence is even of significant value as well in the sense that
much of what we
64:24
see today in our world is interdependent today.
64:29
We depend on so many external factors.
64:32
We depend on suppliers.
64:35
We depend on the light coming on when we turn on the switch.
64:41
We take it for granted that the light will come on.
64:44
We depend on the water company.
64:47
But more so, in a business sense, we depend on, perhaps, key
suppliers, that often, perhaps,
64:59
their situation is not as strong as we think it is.
65:07
We have competitive pressures that come as a result of competition that
would not have
65:11
been there had there not been credit.
65:14
So credit creation.
65:15
The debasement of money has created an environment in which there is
falsity within the competitive
65:21
arena in which companies operate.
65:23
And in order to survive, they have to, more or less, adapt to the
conditions.
65:29
So there's dependence on government for subsidies, or for tax
abatements, or other such things.
65:35
Sometimes there's dependence on one customer.
65:37
So dependence makes a system fragile.
65:44

50. So the more independent an organism is from external weaknesses, the
more likely is to
65:52
add to its endurance, or its strength.
65:54
So independence is very valuable, and is actually costly.
65:58
There's an element of freedom.
66:01
Freedom doesn't come free.
66:02
You have to work at it.
66:04
The threats to your freedom and to your liberty and to your
independence are many, and they
66:09
change from time to time and from apple to apple.
66:12
But a successful practice in which seeks to protect, preserve, and
enhance the patrimony
66:21
over many years is one that must be concerned with these three
components.
66:29
We think with words.
66:34
The ancient Greeks said that the revisiting of definitions is the beginning
of wisdom.
66:41
So today, we use words oftentimes without really thinking about their
significance.
66:47
And oftentimes, words we use today have a different modern meaning
than the word had
66:53
been used in an earlier era.
66:57
So we have to be careful about words.
66:59
I actually don't use the word wealth much at all.
67:04
I use the word savings.
67:06

51. And by that, I have a very precise meaningful for savings, that which is
left over for production
67:15
after consumption, and the accumulated results of that savings over
time.
67:23
I think that people make the error of considering anything with a bid to
have value.
67:30
Well frankly, many of the things that have a bid on, they may have
financial value but
67:35
have no economic value.
67:39
So distinguishing that which has economic value from that which is just a
claim or a
67:51
loan or promise, is just merely a beginning.
67:56
Because even that which has real economic value, oftentimes, its value
is fleeting or
68:00
is temporal.
68:03
This is why I think that, more than any other aspect of life, in investment
practice, you
68:09
and I have to be incredibly discriminating, to a point of absurdity,
actually, because
68:17
there are very few things that would fit in this very narrow and very
constrained view
68:24
of the sanctity of savings that I think is important.
68:34
You appear to be an outlier in the modern way that people think of
managing money.
68:40
But the truth is, you go back to an age before the noise, before this
cacophonous din that
68:47
surrounded money management.
68:51

52. You're a throwback.
68:52
You're a throwback to real money management as it used to be, when
people didn't have
68:56
70,000 stocks to choose from.
68:58
They had to invest their capital, they had to invest their savings, in a way
that was
69:02
restricted by the universe they were presented with.
69:05
All you've done is go back to those first principles you talked about
earlier on.
69:09
But to people watching this, you'll seem like some strange beast doing
things in a strange
69:16
way.Well, I think there are a bit others.
69:19
But there are very few.
69:20
And in fact, I think there we're few is because this kind of practice is not
really what is
69:27
wanted.
69:28
There's no demand on the part of man-- a man with money in his
pocket-- for this sort of
69:36
practice, largely on account of the fact, but not only, that man's time
preferences
69:42
changed over the years.
69:44
It's hardly anyone who works to provide for another generation.
69:49
People want to consume what they have.
69:51
They see their investments as an extension of their current account.
69:55
It isn't always true, but this debasement of money has changed.
70:05

53. It has had a moral impact on man's view of his savings or his world.
70:13
So there's really no demand for this at all, very, very nominal and
minimal.
70:23
And I say this from experience.
70:25
Sure.
70:27
But what that does is it enables you to create a practice, create an
investor base of, to
70:34
your point, like-minded people.
70:35
Because they are so few, and guys like you nowadays are so few, that
eventually you find
70:41
each other.
70:42
And that creates itself a very robust practice that gives you that time
preference, that
70:49
permanence of capital that enables you to do what you do.
70:52
The only way we would ever get permanence of capital as other holding
companies have
70:57
is by listing our shares on a stock exchange and making shareholder
liquidity subject to
71:05
exchange trading.
71:07
That allows us to fix our capital base and not our capital issue.
71:18
Now, of course, we-- shareholders-- can trade their shares with other
shareholders or the
71:26
company buys back a few from time to time.
71:30
But capital changes.
71:32
I mean, they are insignificant.
71:33

54. I mean, we have maybe 1% a year change in our capital.
71:38
Right.
71:39
It's just, by modern standards it's tiny.
71:42
I think you are looking at the wrong thing by saying I'm strange, in that
there have
71:48
been many families and others in the past, particularly in Europe--
Americans, if you
71:53
ask them about investment greats, investors, for example, they can
name Warren Buffett,
71:58
for example, which is-- here on this continent, there are many.
72:03
And most of them are completely unknown, have no interest in
promoting themselves, and they
72:09
have extraordinary records over generations in creating wealth in the
form of a family
72:17
or a listed holding company.
72:22
When you start thinking about enriching yourself from the assets of
those who are participants
72:32
in your scheme, then you are no longer an owner.
72:38
You become-- really that becomes a business in itself.
72:43
For example, our capital base is about 330 million.
72:50
If it was double, I would not make any money.
72:52
I would not see myself or any one of our team.
72:56
This is completely different from the world in which funds and others
operate, where the
73:01
size of their capital pool is directly proportional to their income.
73:06

55. And very little of it has to do with long-term results.
73:10
Because people do come and go.
73:13
No one sees annualized rates of return over 20, 25 years, because no
one hangs around
73:22
for 25 years.
73:24
Right, sure.But for each family alone on a personal basis, the results
over 20, 25 years
73:33
matter a lot.
73:35
Finance gives you the tools with which to deceive oneself, to make it
seemingly complicated
73:43
so you can razzle dazzle people and make them think somehow you
know more than they do,
73:48
where on the average, the average man who worked very hard for what
he earns probably
73:51
knows more than most investment advisers.
73:54
Yes.
73:55
No, it’s true.
73:56
Yes.
73:57
Well, this idea of industry first, finance second, has been turned on its
head.
74:02
we don't think of-- we think of industries in financial terms now rather
than think of
74:08
the industries themselves.
74:10
What is the business?
74:11
Who are the customers?
74:13

56. That's been turned completely on his head.
74:15
We now look at what are the earnings per share?
74:16
What are the forecasts for the next 12 months?
74:18
But this is really, truly an American observation.
74:23
I mean this-- you cannot generalize this around the world.
74:29
In America, it is generally true.
74:33
You won't find it among privately held firms.
74:35
There are some extraordinary companies, American privately held.
74:39
But in the United States generally, a listed company, their-- and I'm
being unfair perhaps
74:45
by generalizing too much-- but even with just disclaimer, a listed
company's principal business
74:52
is their stock.
74:53
Yes.
74:54
Nothing else.
74:55
What they do is an unnecessary complication to the idea of the stock
going up.
75:03
And so because that's what the customers want.
75:09
If there were owners in these firms, there would not be any disputes
about compensation.
75:13
Right.
75:15
Because an owner of a business knows very much well how to
compensate.
75:20
An owner in a business doesn't take options on its common stock.
75:25

57. He owns it.
75:27
This idea of sustainability, think about the increasing use of the word
sustainability.
75:35
The more unsustainable the system becomes, the more we talk about it.
75:39
The idea of corporate responsibility has become a very big business.
75:43
Owners don't need to be reminded to be responsible.
75:46
It is not uncommon for someone to be given somewhat of a tip of some
kind, perhaps watching
75:56
CNBC or something and say, well, this must be a great idea.
76:00
I will put a $5,000, $10,000 in this and hope it works.
76:04
And they're likely to part with the $5,000, or $10,000, or $15,000 on the
basis of a very,
76:10
very flimsy suggestion by someone, or just a hunch, or a hint.
76:17
The story is a real story about this man who often did this sort of thing.
76:21
But one day, he came to me, and he says, I need your help.
76:24
He says, there's going to be a dry-cleaning store in our neighborhood
and I have a chance
76:31
to invest money.
76:32
And I said, well, that's wonderful.
76:33
He says, well, but I've got to do some research.
76:37
So he says, I went around, found out that the nearest dry cleaners is
only 2 and 1/2
76:43
miles and they're very busy.
76:44
So there's likely to be demand for this cleaning shop.
76:47

58. I also went to industry to find out what the operating margins are for
cleaning stores
76:53
and what is the nominal labor component versus the amortization, and
equipment, and on and
77:01
on.
77:02
And so this man was a dentist, actually, he was a educated man by
nominal standard.
77:08
The moment he had an opportunity to invest in something that was not
quoted, and he didn't
77:13
really know what he would like to do, he became fascinated with the idea
of being an owner
77:17
in a dry cleaners.
77:18
But he saw the necessity of understanding those ingredients that would
otherwise contribute
77:25
to the success or failure of this investment.
77:28
Whereas on the other hand, because throwing money on a tip is the kind
of thing that allows
77:35
you, well, the next day to sell it, or buy more, et cetera.
77:39
That liquidity gives you an excuse not to want to know anything, not to
understand anything.
77:47
I think this-- for me, it was an incredibly interesting example of a
microcosm of a larger
77:57
world.
77:58
Again, I think when you look through history, and people bought into
their South Sea China,
78:05
South Sea Company in London, they brought in the Mississippi Bubble
company in Paris
78:10

59. some years ago, man has always sought to become rich without work.
78:17
I'm not interested in that.
78:18
See, I'm not interested in the man who's already rich, who's already
earned something and he
78:23
wants to keep it.
78:24
Those are different people.
78:26
Their needs are different.
78:28
Their world is different.
78:30
So if you have some money in your pocket, or some ability, and
somebody wants to become
78:35
rich, there are a million places where you can go gamble from Las
Vegas, to everywhere,
78:41
to Wall Street, to ETFs.
78:42
There's just an umpteen number of ways.
78:45
There are Bitcoins, Zipcoins.
78:47
There's just everything.
78:48
But for someone who has already acquired, that has the fruit of past
labors at hand,
78:58
the tools with which you protect wealth are different from the tools that
are needed to
79:06
create it to start with.
79:08
And so the tools are different, the framework is different, the objectives
are different,
79:13
the methods are different, the language is different.
79:17
I have a habit of revisiting decisions-- good or bad-- over the years.

60. 79:20
And I go back and I ask myself, what is it that I should have seen that I
didn't?
79:30
What was possible to see that one overlooks?
79:34
I also ask myself, what could I have seen that I didn't?
79:38
What did I see and how did I focus on this that others perhaps didn't?
79:45
The idea behind this is to be able to separate an element of luck and
happenstance from skill.
79:53
Now, of course, since then, now I'm making a lot fewer decisions than I
ever did in the
80:02
past.
80:03
You know, if I think back in those days, I would make 20 or 30
decisions-- investment
80:08
decisions, a year.
80:10
Today I'll make one, maybe two on a very busy year.
80:16
Right.
80:17
The ability, or the necessity to go back and examine decisions is
necessary because it
80:25
adds, it hones your skills in understanding.
80:29
Because what you see is-- I've come to the conclusion that-- and
perhaps we can talk
80:35
about this at some point-- that the unseen and the unmeasurable are
more important than
80:40
the other kind.
80:41
And that has come from such observations over the years.
80:47

61. Things that kill you are often times things that you cannot measure or
you cannot see,
80:52
generally with respect to people, perhaps.
80:58
Understanding not just the notion of risk itself, but the nature of, and the
possible
81:02
places from which the kinds of risks that threaten a given investment
may emerge, is
81:06
crucial, and frankly, something which is given far too little thought by the
average investor
81:11
today.
81:12
In modern times, we distill risk down to a number.
81:15
And we call it volatility, because that's easier for most people to quantify.
81:19
But in doing so, we're ignoring the very nature of risk itself.
81:23
But as Tony and I walked in the snow, our conversation turned toward
something he feels
81:27
is a vital component of any investment-- time preference.
81:32
This date farmer I met is Arab.
81:36
And he had inherited an orchard, right?
81:40
It's called an orchard?
81:41
Yes. --of roughly about 1,000 trees.
81:44
He showed me around.
81:45
And he showed me something like 100 trees that were recently planted.
81:52
And I said to him out of curiosity, I have this curiosity about, I said, how
long will
81:59
it take for this to bear fruit?

62. 82:02
And he says, well, this particular variety, it will bear fruit in about 20
years.
82:07
But that's not good enough for the market.
82:09
It may be about 40 years before we can actually sell it.
82:12
I've never heard of this.
82:15
I did not know this.
82:16
Now, there are other date trees that could produce faster.
82:19
But anyway, so I said-- so all of a sudden, it became odd.
82:23
Because I looked at all these trees that were being harvested.
82:26
And you realize that he couldn't have possibly planted them.
82:30
Yes.
82:31
He said, oh, yes, yes, yes, that was my grandfather, and my father, great
grandfather.
82:38
It was fascinating.
82:40
Why would a man do something today for which he will receive no
reward in his lifetime?
82:48
The only reason he would do this if his time preference is so low that
he's concerned about
82:54
his family's wealth a generation or two from now.
82:57
Because he receives no reward by planting a tree that will have no—
You know, in your
83:03
world, they would call it an economic loss, a loss of opportunity, or god
knows what they
83:07
would call it.
83:08

63. But he saw the world differently.
83:12
I'm in a supermarket and I see dates, I think about this story now.
83:15
And I'm sure there are other, similar kind of situations.
83:20
Everyone has heard me tell the story about Antoine Fievet, the chairman
of Bel-- Fromagerie
83:25
Bel.
83:26
And the first time I met him, something had happened in the company
that was notable.
83:34
Anyway, so I said, I want to congratulate you for something.
83:41
I don't remember what it was.
83:42
And he says, oh, Tony, you don't need to congratulate me.
83:45
I found myself in this family that several generations built this wall.
83:48
And I'm adding one or two bricks.
83:49
And I'm going to pass it on to someone else.
83:54
Think about what this man said.
83:56
I mean, I was instantly in love with this man.
83:58
It made no difference if he made cheese or made furniture.
84:03
He had a perspective of what his role was, a perspective of what his task
was, that his
84:08
mission was to protect, to preserve, and to enhance what he was
handed.
84:15
It was not the business of quickly selling it, and making money, and
doing things.
84:18
They do make a great deal of money.
84:20

64. But they do make money as a result of making great products.
84:25
So how many people in the world can I find that I can buy 2%, 3%, 4%,
5% of their business
84:30
that think like that?
84:32
Because that way I can sleep very well at night.
84:34
And I can assure you the capital that I command and is deployed is
going to be around 50 years
84:39
from now.
84:40
Correct.
84:41
And we touched on it earlier, but this comes back to people.
84:44
This is-- you can find a company that looks good, might come out of that
screening you
84:48
did when you got 78,000 companies down to 150.
84:52
It then comes down to the people.
84:54
It comes down, because let's face it, every intergenerational company, I
guess the biggest,
85:01
potential pitfall is you get that one generation where the kid comes in
and he decides he wants
85:06
a Ferrari instead of the family business.
85:08
Sure.
85:09
Absolutely.
85:10
That's an unquantifiable risk.
85:11
This is, in fact, the norm more than an exception.
85:15
You probably-- you were a fund manager as well, for a while.
85:19

65. Yes, sure.
85:20
Did you go visit and talk to people?
85:21
I mean, this is not.
85:22
Not as many as you.
85:23
And not the same kind of people as you, because these were big
companies.
85:27
Ah.
85:28
Oh, yes, you're right.
85:29
You ask them for their forward estimates.
85:31
Yes.
85:32
There you go.
85:33
There you go.
85:34
Something along those lines.
85:37
A lot of that stuff was private.
85:38
No, this has happened to me twice.
85:41
Once happened in the United States.
85:43
And the case I told you, it happened, you know, here in Europe, where
I'm visiting briefly
85:53
with the man who runs the business who is a member of a family who
owns a large stake.
86:04
And many times they are really involved in the production of things.
86:07
They are really not-- they don't drive a Rolls Royce or a series 6 BMW.
86:13
And so he says, how many shares you own of our firm?
86:18

66. I said, x.
86:20
So I don't remember what it was.
86:22
He said, by the way, what's our stock price nowadays?
86:25
Nowadays.
86:26
Yes.
86:27
Nowadays, yes.
86:29
And he was genuinely curious.
86:30
Because I mean, he could have found out.
86:33
But it didn't occur to him that it was necessary for him to know what the
current price was.
86:38
And so oftentimes you see, for example, let me just give you-- I
sometimes think about
86:43
this.
86:45
Yesterday, we have one holding in which someone sold 14 shares.
86:53
Right.
86:55
The prior closing price was 505 euro.
86:58
Yes?
86:59
Yes.
87:00
The new bid was 480, asking 540.
87:06
Ask 540, bid 480.
87:09
Somebody sold 14 shares at 540.
87:13
The last price came down 2 and 1/2%.
87:16

67. And I calculated that for the family that owns the company that translates
to something
87:21
like 400 million euro worth of change.
87:25
Right.
87:26
Now imagine they were watching it.
87:27
It is immaterial.
87:30
For us, it was something like 600,000 of dollars or euros, or I don't know
what.
87:35
But the fact is that the more often, the more frequently you look at
something, the more
87:40
frequently you'll second guess why you own it and what else you could
own instead.
87:45
Completely.
87:46
It's important to know that you work for people that are like minded with
you.
87:52
You know?
87:53
I'm not doing this to become famous and rich.
87:57
And so if there are-- if we have 100 and say we have 117 shareholders
in the firm, I want
88:05
to make sure-- I want to know-- that at least the majority of them
understand what we do,
88:12
appreciate what we do, and then I feel confident in working for them.
88:17
I mean, I really feel a sense of pleasure in doing whatever we do for
people who—
88:25
If they were strangers, or if they were people who were going
somewhere else, or wanted something
88:28

68. else, or wanted excitement in life, I mean, we've been told many times,
why don't you
88:32
leverage the portfolio?
88:36
Borrow money.
88:37
I've never done this.
88:38
Why don't you sell something short?
88:40
I've never done this before.
88:42
I don't even know how to do it.
88:44
Why don't you buy this, or why don't you take your reserves and buy
treasury bills in, I
88:50
don't know, Zimbabwe?
88:51
The interest rate is higher.
88:53
We don't do any of these things.
88:55
If you're not happy, listen, there's so many people that would be happy
to play with your
89:00
money.
89:01
I mean, this is not a competition.
89:02
But it comes down, once again, to people.
89:07
You have to make a judgment on the investors when they come in.
89:10
They have to make an adjustment.
89:11
Thsi is so rare.
89:13
No.
89:14
But they have to make an assessment of you.
89:17

69. And then you have to make an assessment of every management that
you-- OK, you've got
89:21
28 investments.
89:22
That's 28 investments you have to evaluate.
89:23
Our shareholder turnover is much lower than our portfolio turnover.
89:28
Well, which itself is— I'm sure extremely low.
89:33
But there's a reason for that.
89:34
And it comes down to people.
89:35
It's because the people you invest in and the people who invest in you
make judgments
89:43
that turn out to be, in the most part, correct about those people.
89:47
Right.
89:48
So how do you-- as that judgment of people is such an important
component in both directions
89:54
of what you do.
89:55
It's also the hardest quantification to make successfully, because they're
people.
90:01
Who really knows?
90:02
Yes.
90:03
It's also important that, for example, in my case, I have a wonderful
team.
90:09
And I want to be able to pass on to another generation the ideas that are
most valuable.
90:14
I mean, they all have their own personality, and they have their own
temperament and all
90:24

70. that.
90:25
So you want to pass on ideas that matter.
90:29
And one of those ideas is the ability to judge other men.
90:35
And you can only do this with practice.
90:37
And you can only do this by observing things.
90:39
We have been known to make a completely reverse-- reversal-- on an
investment we hold on the
90:48
basis of a single sentence that was uttered by a CEO or CFO that
betrayed something that
90:57
I would not want to have.
90:58
So imagine you own the whole company, and your president of your
company or the financial
91:04
officer comes in, gives you a report.
91:06
And in that report, he says something that you'd want to fire him on the
spot.
91:12
Right?
91:13
Right.
91:14
And you would.
91:15
And you should.
91:16
In my case, I only own 1%.
91:20
You don't sit there and rationalize and say, well, that's not what he
meant.
91:24
And the P ratio is good, and the IBITA is good, and the prospects are
great, so we'll
91:29
hold it.

71. 91:30
No.
91:31
You get out.
91:32
I can tell you an incredible story.
91:34
I don't mind telling you the name, or actually, maybe I should.
91:39
It's a company that at one time in Brazil, it was the largest processor of
chickens in
91:43
the world.
91:44
The company was called Sadia.
91:48
And I went to visit them in Sao Paolo.
91:51
Because this company not only produced chicken for the local market,
but they also sold the
91:58
vast majority of breasts and other good components of the chicken to
markets in the Middle East,
92:04
in Russia, and elsewhere.
92:06
They generated a great deal of foreign income, foreign exchange.
92:12
They grew their own wheat to feed.
92:14
They made their own chicken feed.
92:17
They were exceptional.
92:19
And there was a second generation.
92:21
And one day I went to visit.
92:25
And we owned a stake in it.
92:27
And I visited with the CFO.
92:30
The patriarch in the family was absent.

72. 92:33
He was not there.
92:34
And it was sad because I wanted to meet him.
92:36
The CFO said, ah, he says, if we had the ability to have access to the
banking system so that
92:42
we can hedge our receivables from various countries, then we can-- this
was 2000 something--
92:53
we can make more money by being able to foresee.
92:57
Because we can foresee foreign exchange rates.
92:59
Only if we could work with an institution that would work with us in the
forward market.
93:05
And the CFO insisted on telling me, spending 15 minutes telling me
about this thing that
93:09
had nothing to do with chickens.
93:11
So I noted it.
93:14
Two years later, it was in the news, Sadia buys a 60% stake in a bank in
Brazil.
93:21
Within 30 minutes, our entire stake was sold just on that announcement
alone.
93:31
Within two years, the company was insolvent, out of business.
93:37
Look it up.
93:40
Why is it, I wonder, that stories such as that of Sadia's demise seems so
unsurprising
93:44
today and yet Tony's response to that one announcement about the
company buying a stake
93:48
in a bank catches one completely by surprise?
93:52

73. Tony's logic is simple, his action in selling his whole stake in the
company completely
93:57
justifiable.
93:59
And yet it seems like a bold move instead of a prudent, fiduciary action.
94:02
This intense focus on the people responsible for the stewardship of a
company in which
94:07
he has an investment is central to the way in which Tony identifies
potential places
94:16
in which to deploy his irreplaceable capital.
94:18
But sometimes, even with this level of attention to detail, drastic and
painful action can
94:22
be required.
94:23
How would you act if you owned the entire thing?
94:27
You walk into a business, and you meet the head of the business, or the
head of development,
94:29
or the head of anything.
94:31
Ask yourself, if I own this entire thing, would I hire this guy to run it?
94:38
Right.
94:39
Yes.
94:40
That's a great question.
94:41
Now where is the formula to tell you that?
94:42
You're absolutely right.
94:43
But you have to-- it's your knowledge.
94:44
You have to look them in the eye.
94:45

74. And if the answer is no, why would you want to own 1,000 shares?
94:49
I don't disagree.
94:50
But how do you make that judgment without going to meet the man and
talking to them.
94:56
And him, maybe on another day, you may have had a completely
different conversation with
95:02
him.
95:03
Sometimes you don't have to meet them.
95:04
Sometimes what you can do is you can look at actions over 20, 30, 40
years, 50 years
95:10
and be absolutely certain that in the right time, they made the right
decision for the
95:15
right reason in the right way.
95:17
And they've done this all their lives.
95:20
You don't need to meet them.
95:25
We have a fairly large investment in France, and I have never met--
actually, two-- I've
95:30
never met the people involved.
95:34
But I am extremely assured-- as much as I've done everything else-- that
they are the right
95:41
people doing the right thing in the right way.
95:43
I'm sure.
95:44
On the other hand, I must tell you about an unbelievable error in
judgment we made because
95:51
we bought a large stake in a company that, by all standards, had
enormous value in it.

75. 95:57
And the people who run it said all the right word.
96:06
Blah, blah.
96:08
And it was not until a year or two later that, through sleuthing, really, we
came to conclude
96:15
that what they said, and what they did, and how they acted were
completely different.
96:20
And so no matter how valuable the company was, we exited.
96:24
And it was actually quite painful, mostly do my own ego.
96:29
Of course.
96:30
Yes.
96:31
Of course.
96:32
Because I had invested a lot into understanding this.
96:37
Today, you're suffering from a culture of unaccountability.
96:42
Look how many times you've heard recently the word transparency.
96:45
Everybody says this, huh?
96:47
When I was a young man, no one really knew the word transparency.
96:51
When a company is owned by an owner, there is no need for
transparency.
96:57
Right?
96:58
Yes.
96:59
When a company is owned by someone who is responsible to the
owner, that's all we need
97:04
is a responsibility.
97:05

76. We used to have this word.
97:07
No?
97:08
Now we have manufactured all this bureaucracy to satisfy our nominal
need that things are
97:18
being reported, et cetera, et cetera.
97:20
Every fraud in the world had an audited, financial account.
97:24
Yes.
97:25
Everyone.
97:26
So that doesn't mean anything either, does it?
97:29
Nope.
97:30
No, it doesn't.
97:31
It doesn't.
97:32
This is an old business in making barrels for wines and spirits.
97:36
And the Francois family in France had controlled it for years.
97:41
But the son was a bit more ambitious.
97:43
And he saw opportunities in an industry that was being consolidated,
principally, on account
97:49
of incompetence, particularly cooperages in Scotland.
97:54
Because it may sound a simple thing making a barrel, but it actually isn't.
97:58
It takes a lot of work, and you need to know what to do with the wood,
the components.
98:05
You need to teach people how to do it.
98:06
It's really difficult.
98:07

77. But they're very traditional.
98:09
For example, this company relied mostly for most of its life on demand
for barrels in
98:15
the Bordeaux and Burgundy regions in France.
98:18
And in fact, they have, I think, all the market there for that.
98:21
But they've grown.
98:22
Now, they have operations in Australia, in California, in Scotland, in
South Africa.
98:25
Chile, I think.
98:26
I'm not on top of all those details.
98:31
But the point is that they have grown to be, really, the largest company
of its kind in
98:35
the world, even though there are only, I don't know, $250 million in size.
98:42
And this is in a business that people will consider boring.
98:46
I mean, there's nothing sexy or exciting about making barrels.
98:50
But I tell you, they will be making the same barrels 50 years from now,
and they will be
98:55
the very best at it.
98:56
And there will be 3, 4, or 5 times the size they are today.
99:01
But that's durability.
99:02
That's endurance that you talk about.
99:04
Finding these businesses that people think are boring because they
don't leverage up
99:07
the balance sheet, they don't chase growth, they don't do all these
things.

78. 99:11
Talking about durability and permanence, so I have to bring up the
subject of gold.
99:15
Why do you have to?
99:16
Well, because I feel like it's a permanent asset.
99:19
It's a durable asset.
99:21
Why?
99:22
Well, I'm going on 6,000 years of history.
99:26
Maybe in one day it doesn't become permanent.
99:27
Maybe one day it doesn't come durable.
99:29
All the evidence so far point to it being that way.
99:32
Why are you asking me?
99:33
You know far more about it than I do.
99:35
I'm curious to see you views on it.
99:36
Because I know you have owned gold.
99:39
I suspect you probably still own some gold.
99:41
But I'm curious as to how you think about it within the framework that
we've been discussing
99:44
today.
99:45
Because it's not a company.
99:46
It's not-- there isn't a man whose eye you can look into— It has no PE.
99:50
It has no PE.
99:52
It has no PE.
99:54

79. It has a P, but not an E. Right, right.
99:58
And the fact is that the P is in money, which, itself, we don't know what
it's worth.
100:05
Well, I have had a fairly long history with gold, starting in 1998.
100:14
I've owned gold bullion for many years.
100:23
I think at one time I saw it as being incredibly mispriced.
100:30
And I saw it as an anomaly, thinking that somehow the market has--
occasionally, the
100:39
market misprices certain assets.
100:40
So what was it that made you think it was mispriced?
100:43
I had a curiosity about gold for the right reasons for a long time.
100:48
And I used to be an owner in Franco-Nevada since 1996 or thereabouts.
100:53
But I've never owned the bullion.
100:56
And Franco was in the business of royalties.
100:59
And it was an extraordinary business managed by incredibly good
people.
101:07
But in 2001, I had a fortune to be a guest of Gold Fields in
Johannesburg.
101:16
And as part of this thing, they gave us a tour of several facilities.
101:20
And I don't really know what mine we went to.
101:22
But I know at some point the man looked at us.
101:25
And he says, do you see this field over there?
101:27
There are 10,000 people that work 2 and 1/2 miles down.
101:31

80. And I stopped for a moment to consider the logistics of providing air,
food, water, or
101:36
whatever living conditions for so many people down there.
101:39
And immediately I think of the capital that it takes to do that.
101:42
Well, I mean, this is not a small matter.
101:47
And then they took us in this shaft-- this elevator shaft-- that moves
actually quite
101:52
fast.
101:53
And they took us all the way to the bottom of this pit.
101:55
And they gave us a tour of rock faces and all that.
102:00
And I remember we have this unbelievable feeling as I was coming up
the elevator some hour
102:08
later that either the price of gold was mispriced-- it was selling at the time
at $250, somewhere,
102:13
give or take $10-- or all of this capital that had been sunk here had to be
written
102:19
off completely and forgotten.
102:22
And I thought of the idea that it was either one or the other.
102:26
There could not have been any rational solution in the middle.
102:31
Right.
102:32
It's either with nothing or a lot more than $250.
102:33
That's correct.
102:35
And I what I did is that I felt compelled that this was the time to buy it.
102:43
And I did not buy gold.
102:44

81. I bought shares in goldfields.
102:45
At the time, they were selling for $2 or something or less.
102:51
But a year or two later after the initial rebound had taken place and
goldfields were
102:58
selling at $18 or $19, I decided that I would own gold-- the physical
metal-- for different
103:05
reasons.
103:06
I would own it.
103:07
So I sold the equities.
103:11
And I bought shares in GLD, which I subsequently sold, because our
shares in GLD for me did
103:18
not represent ownership in gold.
103:21
They represented the security that perhaps reflected its price.
103:24
I wanted to own the real thing, the same way a farmer down here doesn't
own cattle futures.
103:31
He wants the real cattle.
103:34
He owns cows, yes.
103:36
So over the years, the component in gold in portfolio, of course, the price
went up from
103:45
$250 to whatever, $1,600, et cetera, back down to $1,200.
103:50
Today it represents-- gold-- about 35% of our capital.
103:56
Physical metal.
103:57
But I should tell you, I mean, I don't own it with the idea that the price will
go up.
104:04
So don't ask me where the price is going or when—No.

82. 104:06
I would never do that.
104:07
Because you're right.
104:08
It's unimportant.
104:09
I own it because had I not owned gold today, I would own treasury bills.
104:13
I would own short-term, commercial paper.
104:16
I would own cash deposits and other such things to provide me liquidity.
104:21
Because I think that, roughly, about 60-some percent of our capital is
permanently invested.
104:30
Roughly, about 40%, of which 35% is gold, is in liquid.
104:35
I wanted liquid so I can exchange it for participations, likely what we
have, in the future at some
104:41
point.
104:42
And I think any good investment operation, particularly it involves
irreplaceable capital,
104:48
must have embedded in it a source of continuity, and substance, and
reserves.
104:55
So in years ago, I would not hesitate to buy treasury bills, commercial
paper, short-term
105:02
bonds, time deposits.
105:04
But I have come to believe that virtually all of those things I've just
mentioned, they're
105:10
actually debt.
105:12
When you deposit money in the bank, the bank doesn't actually hold it in
their vault there.
105:16
It's a liability of the bank.

83. 105:20
When you buy a treasury bill, you're buying somebody's debt.
105:22
And you call it an asset.
105:23
When you're buying a bond, it's actually a debt.
105:28
You call it an asset because it's got a CUSIP number or an ISIN number
on it.
105:32
So I decided that I want my liquidity not to be somebody else's liability.
105:37
I want it to be an asset.
105:39
No.
105:40
OK.
105:41
That's interesting—So gold gives me what?
105:42
Scarcity.
105:43
It gives me permanence.
105:44
And it gives me independence from the financial system.
105:46
It gives me all those things—--all the things you're looking for— --in
these three things.
105:50
Or look at it.
105:51
Let's do a present day hypothetical.
105:53
It is hypothetical, but still, let's give it a try.
105:57
But if you decided today, what would make you exchange your gold for
something today?
106:02
I mean, I hate to say this to you today because I don't want anyone to
sort of quote me on
106:08
it.
106:09

84. But today the nominal price of gold is, in fact, cheaper than it was when I
first bought
106:13
it in 2001.
106:20
Now, if you buy it for the sake of profiting from a price rise, there's really
nothing
106:27
wrong with this.
106:28
And I'm sure there are, in fact, there are many people in your
organization who you've
106:32
talked to who know far more about it than I do.
106:39
My sentiment about gold is very simple.
106:41
It's something that I understand, something that I hold in a vault that I
can see, something
106:47
that can be sold to anybody anywhere in the world at a moment's notice,
something no one
106:51
actually owes me.
106:52
It's not a claim on anything.
106:54
It's not a promise for anything.
106:57
And there's a sense of peace that I possess by having financial strength
that even central
107:04
banks don't do.
107:05
We own three tons of gold.
107:07
And at one time it was more gold than virtually every-- most-- central
banks in the world
107:12
own.
107:13
Canada owns nothing, I think, or something.
107:15

85. : I'm willing to bet a substantial size of my assets that you don't own any
Bitcoin,
107:19
nor will you ever own any Bitcoin.
107:21
Point is, I don't know what it is.
107:22
I don't know where it is.
107:24
I don't know what it looks like.
107:25
I mean, they have these little pictures of gold coins with a B on it.
107:28
And they talk about mining it.
107:31
So they've used all the elements-- superficial elements-- of having some
sort of tangible—
107:41
I don't know what Bitcoin is.
107:42
Where do we find one?
107:43
Can I misplace it?
107:45
Do I lose it?
107:47
Where is it held?
107:50
So I don't want to own things I don't understand.
107:53
I don't care if it's going up.
107:55
It makes no difference.
107:58
From everything we talked about, I knew gold must have had a place in
Tony's portfolio.
108:02
But even I was a little taken aback at just how large a part it played.
108:06
Upon reflection, however, and given the exceedingly small universe of
companies which meet these
108:10

86. stringent investment criteria, it made more and more sense to me that
gold would be the
108:14
perfect place to keep his liquid assets.
108:17
A world away from gold, Tony's search for long-term, investable
opportunities requires
108:22
an understanding not just of an overall industry, or even individual
business, but also of the
108:27
various, component parts that come together to create that which the
world sees at face
108:32
value.
108:34
So I want to talk to you about something that is a common thread in
similar conversations
108:38
we've had.
108:39
And that's the idea of the structure of production.
108:43
Because this is something that occurs time and time again.
108:46
And I'm interested in it because today people think one step down the
line.
108:52
If an idea happens, they think, who's the beneficiary?
108:55
And once you get a sense of this structure production, and some of the
examples that
109:00
you have of companies that you've found that are 3, 4, 5, 6, 7 steps
down the production
109:05
line, just talk a little bit about that concept and how you use that to
identify companies.
109:11
I don't think that we purposefully look for such a standing.
109:22
It's just a natural outcome of perhaps valuing the idea of scarcity a bit
more than others.

87. 109:33
For example, a lot of people could-- perhaps I like to enjoy having a
whiskey.
109:45
But a lot of people do make whiskey.
109:48
A lot of people make the glass and the bottle.
109:52
But how many people make the machine that makes the bottle?
109:58
Only one.
110:00
And you end up having a view that there is scarcity and oligopoly in
certain areas that
110:12
have come as a result of some events or some reasons that are
economic positions that are
110:23
impossible to compete with for a number of reasons.
110:27
So to the extent that these economic agents are wise and they can use
their position to
110:34
do well, that idea of scarcity and technical expertise or position adds to
the enduring
110:46
value of a company.
110:49
I would not want to participate in the securities of a company that does
some commodity item,
110:58
even if it might have a large label on it, or some kind of a brand.
111:04
Because the barriers to entry are fairly low in most cases, or the general
acceptance of
111:13
such a product is subject to the seasonal whims of the public, of the
bias.
111:22
By the same token, I'm not interested in acquiring a stake in a company
that provides aircraft
111:27
transport, or train transport, or truck.

88. 111:32
Because they have no operating leverage.
111:34
They're subject to inputs and costs that are above and beyond their
control.
111:39
They are subject to government regulation.
111:43
And they don't represent the substance that I want to have.
111:48
Now, they may be fine for other people, but just not for me.
111:54
On the other hand, I mean, we spoke earlier about an investment we
have EMS, in Switzerland.
112:01
Here is a company that produces polymers.
112:06
I mean, a lot of people can probably do the same things they do.
112:10
Nonetheless, here's a chemical company that has operating margins
that are unheard of
112:15
in the chemical industry.
112:17
But only in the sense that they take this polymers-- polyamides, in this
particular
112:21
case-- to create products that solve problems that no one has ever
thought of, among the
112:28
many products, in fact, they make the little exciter that goes into every
air bag in the
112:33
world.
112:34
We're not looking for the place they are in the structure of production as
much as we're
112:40
looking for his uniqueness, this ability to have natural barriers to entry
that are based
112:46
on a number of factors that are difficult to compete with.
112:52