Stig Brodersen  8:07  

So, whenever I see something about Mohnish, I don’t have the same connection as you, so I had to watch him on YouTube.

William Green 8:15  

It was pretty good, right? 

Stig Brodersen  8:17  

I always get the impression that he is very authentic like he’ll be saying, “I really like to take a nap every day.” So he has this couch where you can take a nap, and he’s saying, “I don’t think I have the same brilliant mind as a lot of other billionaires, so I would just copy what they do.” 

I mean, to me, the most powerful thing about Mohnish is that he’s so authentic about what he can and can’t do. Do you agree with that?

William Green  8:46  

That’s a very perceptive observation on your part, I think part of the strength of Mohnish and also of Guy Spier, who’s very, very close to money, so they, you know, there’s a sort of mind meld going on there. They’ve discussed a lot of these ideas–part of the strength comes from the fact that they’re true to who they are. And I think it seems kind of paradoxical, right? 

This idea that you’re cloning and copying other people’s ideas, and yet you’re having to be true to who you are. And it’s a nuance but it’s an important nuance to understand that at some very deep level, Mohnish believes that you need to be correctly aligned within yourself. He believes, you know, if you’re a sociopath, you need to be true to your inner sociopath, which Guy disagrees with. Guy’s kind of appalled by that idea. 

But Mohnish said to me that he wasn’t a great CEO. He didn’t really like to nurture young talent and when he was running a tech company, as he has a brilliant mind, and he could do it very well, but it didn’t really play to his strengths; whereas being a hedge fund manager, he’s the consummate game player. He has no emotion. He is totally brilliant at the sort of mathematical probabilistic side of it. So figuring out how to be true to who you are, how to play to your own strengths, I think is absolutely central to the brilliance of someone like Mohnish. 

Preston Pysh  8:53  

So it sounds to me like his new holding company that he’s getting ready to start. He’s probably not going to be the CEO of it, he’ll probably just be the investment officer or something. Is he going to outsource or is he going to hire somebody to fill that role since he doesn’t enjoy that piece of it? 

William Green 10:33  

I think it’s an interesting question. I think a big part of what you do in running a business like that, which will clearly be replicating what Buffett has done with Berkshire is you’re allocating capital. I think Mohnish is extraordinarily well-suited to that. But I think he’s trying to stretch. He’s not comfortable just doing what he’s always done. 

And so, he realizes that there’s this tremendous strength in having an insurance business because as Buffett figured out, you get the float right–you get the premiums from your insurance customers, but you don’t have to pay out for quite a while on their claims until you get to invest that money. So, it gives you a tremendous structural advantage because he’s a great game player. He’s stacking the deck in his favor by having captive capital investors who can’t bail out at the worst possible moment. And by having this ability to invest the float. 

I think that trumps the fact that he’s not someone who loves nurturing 22-year old employees who are going through emotional crises. I think the bigger picture is that it plays tremendously to his strengths. So, Guy is very intrigued by the possibility that Mohnish could turn out sort of to be the bastard of our generation. I’m not sure anyone can turn out to be the Buffet of our generation, but I think Mohnish really stands out as an extraordinary middle-aged investor. 

I guess he is about 50 now. Bill Ackman stands as someone who’s very extraordinary. The book is sort of full of these very great, older investors. Some who invest are 60s, 70s, 80s and 90s, and then, Irving Kahn at 108. But I think there’s this new generation of people like Ackman and Mohnish who are also pretty remarkable.

Preston Pysh  12:32  

So I got a question that wasn’t on the questions that we planned on asking and I’ve been studying Ray Dalio a lot and I know that he wasn’t in your book, but I’m curious to know your thoughts on Ray because whenever I look at somebody that could potentially replace Buffett, as far as being an investing genius for the years to come in the next 10 to 20 years, I think Ray Dalio could potentially be one of those guys. 

I find it very interesting that Dalio is a macro guy, and he’s also a hedge fund manager so he didn’t take the same model that Buffett had, but yet his returns are just phenomenal. So I was curious if you knew anything about Ray Dalio or just from being in this circle of people?

William Green  13:10  

I think Dalio is a fascinating man. I actually haven’t interviewed Dalio but I’ve read a great deal about him, as you have. And he’s clearly fascinating. I mean, a real iconoclast as well, you know. This whole idea that he has of radical truthfulness– that people in his office have to tell each other the truth. They have to be direct. They can’t talk behind one another’s backs. I think if you talk behind people’s backs, it’s three strikes and you’re out. You’re literally fired. It’s something like that. I mean, it sounds kind of like a crazy, cult-like place where they record your conversations and everything, but I think, actually, at some level, he’s dealing with the same ideas that people like Monish are dealing with–that you want total truthfulness. 

I think he’s also fascinating in this idea that he tests his hypotheses by getting other people to challenge his ideas. And so there’s this sense that you don’t really want to be an investor who just says, I know best. You need people to come in and say, “This is why you’re wrong.” And I think that it’s a fascinating aspect of value investing– to simultaneously have this tremendous self-confidence to go against the crowd, but also to be humble enough and open enough to think, “What if I’m wrong?” 

I think Dalio embodies Bill Nygren. He told me a fascinating thing that he’d learned from Michael Steinhardt, who he was friendly with, who also is another great hedge fund manager, who’s totally different from the type of money managers we’re talking about. Steinhardt had amazing returns by trading. You can turn over his whole portfolio in a couple of weeks as I understand it, but Steinhardt also had this idea that Nygren learned from him–that you needed to do devil’s advocate reviews. 

And so, there was this idea of devil’s advocate reviews where you got the biggest bear and the biggest bull on a particular stock to come in and have lunch with you and Nygren adopted this from Steinhardt and anytime he’s about to buy a stock, he has someone on staff literally doing a devil’s advocate review saying, “Here’s why you’re dumb, here’s what can go wrong.” So I think Dalio and a lot of these others embody that very powerful idea.

Preston Pysh  15:26  

I love that.

Stig Brodersen  15:28  

I love that too. William, I can’t help but compare Dalio and Mohnish also because this is something Preston has really been digging into because the thing about Dalio is that he has this culture in his company that has a lot of people around him that can tell him when he’s wrong. But it’s a much larger setup than someone like Mohnish, for instance. He basically doesn’t have a setup, well, he has a secretary but he doesn’t have a team analyst a–

William Green 15:55  

A part-time Secretary, I think. He has two or three part-time secretaries.

Stig Brodersen  15:59  

Yeah, he’s been asked this. And again, I don’t have your connections or it’s not like my good friend, Hemachandra has sat next to him at the annual meeting this year. I have to watch him on YouTube. But one of the things he did say on YouTube was that he did want a team around him. 

I mean, he tried that and that didn’t work because there was too much noise, it’s really hard to say no to someone who says, this is the analysis he has spent three months working on he would say, I don’t think so. I don’t feel it–a lack of better words. So do you think it’s *inaudible* having the best setup or again to think it turns back to who we are as a person? What fits you?

William Green  16:42  

Yeah, I think it’s a very profound and important point you you need to find a setup that’s true to who you are. So, if I’m investing, I didn’t think even though I’m quite contrarian, and I’m quite good at buying stocks when other people are panicking, I don’t think I really have the patience to spend all my time doing spreadsheets. I just don’t want to do all the number related stuff. So I need to be self aware enough to say, that’s never going to be my strength, but I need to invest with someone like Guy or Mohnish who can do that stuff for me. And I think for each of us as an investor, knowing yourself is incredibly important. And so Mohnish has these sort of anti-social tendencies where he tells the truth, he doesn’t catch anything and soft words. I mean, he’s a very charming, very likable guy, so I smile, as I talk about Mohnish because I like him very much. He’s very larger than life character. But he’s rude and brash in a kind of very enjoyable, entertaining way. And he’s not necessarily a team player. He’s a brilliant game player, who can sit there quietly in his room, in his office in Irvine. It’s not in a fancy building, it’s in an industrial park. He doesn’t need to impress anyone with how rich he is or how fancy it is. He’s created his own setup, where he’s detached from the world. He’s detached from Wall Street, and he’s thinking very clearly. 

Guy Spier has done the same thing. He figured out that when he was in New York, it messed with his head, because he was friends with people like Bill Ackman, who were managing billions of dollars and becoming multi-billionaires. And there were all of these marketers around who were saying, “I think you should really be running a $5 billion fund.” And it’s very, very hard to be true to who you are. And so, Guy figured out, he needed to go to Zurich, and be very quiet; very detached. 

Guy, his wandering mind where his mind is sort of all over the place because, you know, he’s got a brilliant, brilliant intellect, but his mind is all over the place. And so, he figured out, I need to create an environment where my mind can be like a calm pond where I can really think. 

I think for each of us as investors, you really have to think about your environment very, very carefully. And that includes, who you work with, who you hang out with, how you set up your office. We would have this discussion, Guy and I often about, whether you should have your Bloomberg Terminal *inaudible*–whether your Bloomberg helps you or not or having this fire hose of information coming at you can be a tremendous benefit to some investors, who need to trade every three seconds or whatever. 

But for someone like Mohnish, who’s investing for five years in a stock that’s beaten down and he’s hoping to quadruple, quintuple his money. Why does he care what’s happening in the next 10 seconds? And so I think, figuring out who you are and what works for you is a very profoundly important aspect of investing.

Preston Pysh  19:58  

So William we’re big fans of Joel Greenblatt as well and I know you’ve talked about him a little bit earlier, but I’m really curious to know if he has something new–what’s really got his attention these days whenever you were interviewing him? For people out there, Joel Greenblatt has this magic formula. He’s written two books. Two fantastic books about a more systematic way to invest like Warren Buffett, but I’m really curious to know what his interest is more recently.

William Green  20:28  

Joel is a really fascinating character because this goes back to the point that Ben Graham was making but you need to be fully focused to be a great investor. Joel is kind of an aberration in that he has this tremendous mind that goes in multiple different directions. And so if you look at Joel’s career, he’s had three or four different ways of investing over the years. He started off as a focused investor, very concentrated portfolio. 

Later, he came out with this magic formula which grew out of a–I think it was something like a $35 million research project that he and his partner funded, where they were trying to figure out how do you systematize the way that we’ve been investing all these years at Gotham capital, which is his hedge fund firm. 

He came up with a couple of various simple measures, such as high return on capital that sort of encapsulated what Buffett does and what Ben Graham did. So then he writes a book that sells more than 300,000 copies. He has written multiple books. He is a superb writer. He’s been a philanthropist in a really interesting way, so he’s been an absolutely fundamental kind of driving force in the charter school movement in New York. And he’s done all of these different things. 

So he, at the same time, has been a professor at Columbia Business School, for something like 19 years, where I don’t think he gets paid. I think he does it just because he likes to feel that he’s passing on his knowledge to the next generation. 

And so, he starts his class basically by saying, “this is not about the money, and if all it’s going to be is about the money, you’re going to have kind of a meaningless life so you need to share the proceeds of what you make”. So he’s a very, very multifaceted individual. 

The thing that I think is really fascinating at least to me, is the kind of common denominator in his approach to all these different things, whether it’s education, philanthropy, investing, writing. He’s trying to figure out how you beat the system in a kind of replicable way. So this idea that there are ways of doing things better if you use your mind to solve the puzzle and so he started off, as we mentioned before in Wharton, where his professors insisted that markets were efficient. 

So then, he spent much of his life figuring out–now, if I invest the way Buffett and Graham talk about, then I can prove that the market’s not efficient. So that’s one way in which he beat the system. 

Then, he creates this new set of funds in 2012 that I was mentioning before with the 300 long, 300 short stocks, where it’s again a way of removing emotion from the process, so that you systematize your investments, so that your shareholders are less likely to sabotage themselves by becoming very emotional. 

He’s done a similar thing with education. He funded these charter schools that educate very underprivileged kids in difficult areas of New York City and he was trying to figure out how, once again you beat the system by providing a tremendous education to these kids with limited resources. 

And so, I would say that in all of these areas of his life, he’s looking for these replicable, systematic approaches to winning the game. So I think he’s a really fascinating case. He’s got this kind of relentless curiosity and intelligence to him. And it was interesting to me when he came into our meeting. I was reading a book and because he was a little bit late, he immediately asked me, “So, what is the book? What’s it about? What do you learn from it?” 

I could tell, a lot of the great investors were sort of inside their own heads. They would talk and he was very, very engaged with me. It’s like he’s trying to figure out, what can I learn from this? There’s a kind of hungriness to his intellect, which I think is part of his brilliance.

Preston Pysh  24:38  

It’s really interesting that the way that you describe that because one of the things that Charlie Munger says whenever he’s talking about Buffett is that Buffett is a total learning machine. And he says that that’s his greatest, you know, quality–that’s the thing that has made him–his essence. 

You’re really kind of describing the exact same thing as the way you were describing this with Joel Greenblatt, where he’s trying to find a complex problem, whether it’s education or investing or whatever it is. He finds these complex problems. He tries to figure out how he can re-engineer some type of process that makes it more efficient. 

And then not only does he figure that out, but then he shares it with all these people and I think that’s the part of it that I like the most–he’s teaching the students for free. He’s putting all this stuff. I know he has an online forum and community. I mean, it’s just totally amazing. It’s awesome.

William Green  25:30  

I think for a lot of these guys, they’re not ultimately motivated by the money and I think they start off very motivated by the money you know–they think well, it’ll give me tremendous independence and maybe they want the toys and baubles that you get from money and the prestige and stuff. Then, I think gradually, for a lot of them, the money becomes uninteresting. 

I think for someone like Greenblatt, it’s really about solving the puzzle. That’s the thrill. It is “How do I use my brain to figure out a better way to do this?” I would say that for him, part of the pleasure of being a great investor is proving his professors at Wharton wrong again and again. It’s like not only did he do it with the concentrated portfolio hedge fund that he ran early in his career, but that he’s done it about three other times, and he even came up with a better way of indexing. 

And so, there’s a kind of restless brilliance to his intellect that I think you see with Charlie Munger, where Munger will not only give away money to Stanford, but he’ll say, “No, I want to design the dorms as well,” where he’ll not only get catamaran, but he’ll say, “I’m going to design the catamaran.” 

I think some of these guys are very narrow, and some of them are intellectually kind of voracious, and the ones that interest me most are the ones who are intellectually voracious. Munger has an incredible mind. I think Bill Miller has a really wonderful mind. Miller is a great investor, but Miller’s background is nothing like the sort of narrow background that a lot of these investors have. A lot of them have had MBAs and went to Columbia, Harvard, Stanford and Yale. 

So, Miller was studying philosophy at Johns Hopkins University, and then went into military intelligence. And he is a total learning machine. He’s applied lessons from the Santa Fe Institute, chaos theory–all of these different things. One of the reasons why I find him such a riveting character is that his brain is so alive. He’s constantly learning. 

It was fascinating to me that when we were talking about the financial crisis, where he really got hit badly and was really going through the wringer.  I was asking him, “How did you deal with it emotionally?” And what he was reading during the financial crisis was Carnatic Epictetus, a book Vice Admiral Stockdale had written about being tortured as a POW during the Vietnam War. 

And so, for Miller, there’s the sense in which philosophy is very much alive, and it’s something that you use to inform the way you invest to help you handle adversity, but also really to teach you how to analyze difficult situations. 

He was always obsessed with people like Bekenstein and William James Smith. It was one of the reasons why he made a fortune off of Amazon because he was fascinated by this idea of how people misperceived reality, which is something he’d learned from William James, who is a psychology professor at Harvard and from Bekenstein. So I think these people, as Munger would put it, who have multiple mental models, can have a tremendous advantage.

Stig Brodersen  28:55  

So reading the book, all of these 33 different characters have very different personal traits but still another one had this philanthropic trait, especially Mason Hawkins. He was someone that really impressed me. Could you tell me about your interview with him and specifically about the alright culture he’s talking about and his fund.

William Green  29:19  

Mason Hawkins is really interesting because he had a meeting early in his career with Sir John Templeton, who became a friend and mentor to him. Templeton emphasized to Mason that if you’re really just doing this for yourself, it’s a pretty limited usefulness. If the goal, basically is to buy yourself fancy planes and stuff like that, are you really having much of a life or making much of a contribution? And Mason Hawkins took this very much to heart, and he made philanthropy and this idea of sharing wealth part of the corporate DNA of his firm, which is Southeast Asset Management. 

And one of the things that was intriguing to me was when he was talking about who he hired to Southeast Asset Management. He said that one of the six or main criteria is that the people should be generous. And he said, unless you’re willing to share your excess wealth, it’s unlikely that you’re actually going to be that successful as an investor because he said at a certain point, your passion is going to wane. Your discipline, your drive is probably going to wane. 

And so to him, it seems absolutely integral–this idea that you’re making money not just for yourself, but so that you can do stuff philanthropically. I think that’s a really profound idea. For a lot of these guys, we look at them, and we kind of idolize them because they’re rich and they’re on the covers of Forbes and Fortune and Business Week and the like, but at the end of the day, what have they really done? Will we look at them because they were multi billionaires when they were dead? Will we admire them because they did extraordinary things philanthropically?

Preston Pysh  30:58  

I think that that’s such a strong point to really get through on this interview. I know from my own self whenever I was just researching different people that have had large financial success, you look at Rockefeller. One of his biggest things that he talks about, and he pretty much goes down in the books as being the wealthiest person of all time. 

One of his biggest things was 10% tithing. He absolutely believed that he had to give away at least 10% of whatever it was that he was making. You saw the same thing with Carnegie. In fact, between Rockefeller and Carnegie, they had this race; this philanthropic race. When you look at Buffett, you look at Dally, you look at all these guys, and they are just giving away. 

Look at Bill Gates, the foundation that he and his wife have set up is just amazing. I think all these guys are just really at the top. The guys are, really, the true professionals in this field. They are enormous givers. And I think that that’s just so important to highlight to people as they’re trying to make their own contributions in life.

William Green  31:58  

I think it’s a very profound and important idea and I would say it works on a number of levels being generous. There’s this what we were talking about before about *inaudible*,  discussing this idea of compounding goodwill. I think it works in a pragmatic way that if you’re kinder and you’re more sharing, you’re more decent, you end up with better relationships, you have a better life. 

One of the things that was fascinating to me in the book is there are certain people you look at who are just enormously rich and enormously good investors and then you sort of get bored by them initially. And then, there are people you look at who are really successful human beings, and you look at them and you think, “Wow, this is a guy I really, really admire,” and with some of them, maybe, it gets back to the point we were making before about intuition, as well as rational analysis. 

When you’re sitting with someone and you’re looking in their eyes, you can sort of see–is there a glow there? Is this person alive? How happy are they? And I would say, there were several people who seemed totally alive and totally vibrant, had this kind of glow to them. And on the whole, it tended to be the people who are more generous, more philanthropic, kinder, more focused on their families. And I’m not trying to be sort of moralistic about this, but it works. 

I mean, when you look at people like Tom Gayner or John Spears, these are very, very decent people and there’s a sort of kindness to them and without wanting to get sort of more casual, sentimental. You look in their eyes, and they feel very alive. There’s a kind of warmth to them and humility to them. 

I had this discussion with my daughter where she said to me, “Of these two guys, who’s more successful?” One of them was Mighty Whitman. And I said, “Well, Mighty Whitman came from nothing and had nothing during the 1920s. He was worried about buying a pretzel for one cent during the 1920s. He really had nothing. And now, he has all of these scholarships for underprivileged kids in really difficult neighborhoods. He does it in the past union territories. He’s done it for underprivileged African American kids. And is he more successful or less successful than somebody who’s worth $10 billion? I would argue that he probably is more successful.” 

Preston Pysh  34:30  

Yeah. You look at Tony Robbins, I think he’s a perfect example. And the thing that I really like about these people in the way that they’re giving, Tony Robbins went through this experience in his life, where he wasn’t able to even pay for a meal and there was this person that came up and paid for a meal for him. And now, he’s on this rampage where he’s feeding. And Stig, do you remember the number? How many people he feeds in a year with free meals?

Stig Brodersen  34:55  

Say, 50 million.

Preston Pysh  34:56  

Yeah, it’s like 50 million meals a year. What I really like is how these people had such a negative experience early on in their life, and it shaped them and just transformed them, and they remember that. But then, when they go back and then they use that negative experience to basically come full circle, and they just bring so much beauty into life with the way that they contribute; using Tony Robbins as an example. 

I think so many other people have similar experiences. Maybe they weren’t educated early on, and then, they found a way to contribute later on. And it’s really neat to see that come full circle with some of these different people. 

Stig Brodersen  35:37  

Yeah, so William, I was thinking about Arnold Van Den Berg, because he truly had a very, very difficult beginning. Probably also compared to a lot of the other people that you have in your book. Could you perhaps tell us about your story and your experience interviewing him?

William Green 35:56  

Yeah, Arnold Van Den Berg is a perfect example of what you guys would just be talking about–someone who comes from tremendously difficult circumstances and somehow transforms their life in an extraordinarily, dramatic way. 

So, Arnold Van Den Berg was born Jewish in 1939. Not a very fortuitous time to be born into a Jewish family in Europe. He was born on the same street as Anne Frank in Amsterdam. And so, for the first couple of years of his life, he was hidden. The family was terrified that the Nazis would come into the house and would hear him cry, and they’d all get killed. So at a certain point, his parents made this tremendously difficult decision and decided that they would split up. They would have him hidden away in an orphanage. 

And so, a 19-year old girl who didn’t know the family, comes in, smuggles Arnold Vandenberg out of the house across Amsterdam, takes him out of the city, and hides him in an orphanage where he spent the next years. And Arnold said to me, that one of the things he wrestled with, later in life was, “Why on earth with this girl, who didn’t even know us, risk her life to save mine?” 

And he said, it also astonished him that her father was prepared to risk his own daughter’s life to save him. And he said, it tormented him this question for many years. [It’s] like what had motivated her and [her] father? And he said that later in life, he had a psychiatrist who said to him, “Well, it’s simple.” He said, “Some people, their life is more important than their values. And for other people, their values are more important than their life, and she was one of those people.” And Arnold decided very early on that because he’d been saved by this girl, he wanted to be the sort of person who lived a kind of value-driven life. 

The drama of his story just continued. His parents, both, were taken to Auschwitz and remarkably, they survived, and they came to pick him up from the orphanage when he was six, and he told me that he couldn’t recognize them. And he said, “I didn’t care.” He said, “I was so desperate to get out of there that I would have gone with anyone.” And he said he was so frail that his father couldn’t even pick him up. His father was afraid to hold him. He was very malnourished, and he couldn’t walk at the time. He was crawling around on his hands and knees. And his parents actually thought he had brain damage because he was kind of slow and he’d been so malnourished for all those years. And they moved, I think [it was] East Los Angeles, to a pretty rough area. 

Arnold was a skinny, immigrant kid, and he’s getting beaten up and just having a terrible time. At a certain point, he starts fighting back, and he starts rope climbing, which apparently in those days was a kind of competitive gymnastic event. He becomes incredibly strong by rope climbing and has this total transformation in his life, where he realizes that by visualizing how to do something in a way that this other champion rope climber had done it, he can impersonate what they’ve done, and he can realize his own dreams through the strength of his own self belief and mirroring what they’ve done. 

And so, he begins his extraordinary transformation. At a certain point, [he] decides, “I’m going to try to become a money manager.” He said to me, “I have no innate skill as a money manager.” He’s an incredibly truthful; honest; decent bloke. If there’s something he can say that’s negative about himself like, “Nah, I’m not that smart,” or “I have no innate talent for this,” he’ll tell you. 

Literally, he takes a photograph of a well-known prominent investor in Barron’s, and he pins this photograph to his desk, I think, under the glass surface on his desk. And he starts to visualize himself being a great money manager and becomes obsessed with hypnosis, with all of these ideas of visualizing your dreams.

So his transformation from this incredible hard-luck story of a kid growing up, with really no chance of success is an extraordinary transformation. These days, he manages about $1.6 billion. He’s beaten the market over 30 or so years, and he’s just a remarkable guy. 

He talks a lot about mastering your own mind, the degree to which everything is possible if you gain control over your own consciousness. And so, there’s a practical wisdom to him that I think is very deep and fascinating. He’s also this very sharing person. 

One of the things that I loved about him is his hobby of giving people books. And since I’ve had my conversations with him, I must have about half a dozen conversations with him. He keeps sending me books. This *inaudible* guy. He said to me, “There’s nothing that makes me feel better than when I’ve given somebody something or shared something that’s changed their life.” 

And he said, “As far as I’m concerned, that’s why we’re here.” I think there are people in this book who are really remarkable moneymakers. And then, there are people in this book who are really remarkable human beings and I know it’s not mutually exclusive. You can be both, but I think, Van Den Berg is a really good example of someone who’s a truly remarkable human being.

Stig Brodersen  41:31  

William, speaking of Van Den Berg, and the thing about giving books away that they can change other people’s lives. Which book would you give away to someone that is very dear to you that could change that person’s life?

William Green 41:43  

It’s a great question. There’s one book that I read in the last year that had a big impact on me, something that had a big impact on Mohnish Pabrai, also on Guy Spear and actually also on Arnold Vandenberg, which is a book that you may or may not have read called, “Power Vs. Force: The Hidden Determinants of Human Behavior,” and it’s by this guy, David Hawkins. 

One of the ideas in it is that you just want to be totally truthful and honest. If you’re totally truthful, really at a deep level, then you resonate with people because they sense your integrity, and they can tell when you’re lying and even if they don’t really know rationally that you’re lying, they sort of [intuitively know], and they sense that there’s something misaligned about you. 

Mohnish has taken this idea very much on board. It’s very integral in everything that he does, even the way that he communicates with shareholders. Same with Guy. Guy, in his book, The Education of a Value Investor, it just wants to tell the truth. If he messed up in some way, he wants to tell the truth about it. I think that’s one reason why his book is 26,000 copies already because people want you not to lie. 

I think, so many people in the financial industry and business feel this sense that they have to market themselves and they have to put their best foot forward. And Van Den Berg called me after our interviews and said, “I need you to understand something.” He said, “My returns have not been great in the last few years and the reason they’ve not been great is because I messed up. I made these mistakes, which I’m now going to explain to you.” And he said, “You need to understand that this is not because the market is going against me. This is because I messed up.” 

There’s something incredibly powerful about somebody who’s prepared to tell you the truth in that way. And I think most people would say that that was a really dumb thing to do and that you should obscure any bad stuff about what you’ve done, but I think it resonates in a very deep way, if you behave that way.

Preston Pysh  44:00  

I totally agree with you, 1000%. I think the reason that it works so well is because it’s immediate credibility. And I think people don’t realize [how] everyone is so scared, and they’re actually being driven by their own fears of people, then judging me in a negative light or whatever it might be. 

But I think what they’re failing to look at is the positive piece to it of whenever you are truthful like that, you have immediate credence and immediate truth that I know I can trust you. Truth and trust [are] what glues our entire society together. When you trust one another, that’s what holds it all together. Amazing point.

William Green  44:41  

And I think you sense it in your relationships with people. I was reading something that Buffett said recently. It was actually an old speech of his and he said that, “In 41 years, I’ve never seen Charlie take advantage of anybody.” Think of the power of that. To be partners with someone who can say, “I never tried to take advantage of them and never lied, never took advantage.” 

That’s an astonishingly powerful thing. Now, there must have been times in the short term where if Munger and Buffett had behaved immorally, they would have profited, and yet they chose not to. And I would argue that’s one reason why 40,000 or so people go to Omaha each year. It’s not because Buffett is the greatest investor of all time, although he is, it’s because he tells the truth. 

And so I think, however, you come at this idea of telling the truth, whether it’s through Power vs. Force, this book by David Hawkins or it’s through being a student of spirituality or it’s through studying profit, it doesn’t really matter, but it’s a very very powerful idea. 

We’re all liars at some level. We all do things that we’re not proud of and conceal stuff. So, this is not to make out that any of us are totally righteous. When you see people like Buffett or Munger trying to tell the truth, it makes you want to move in that direction. I think realizing that you can become one of the richest men in the world, while being truthful and honest is a very, very powerful lesson. And that’s probably the most important lesson that we get from Buffett and Munger.

Preston Pysh  46:32  

Fantastic. Just for our audience, So William Green, as you can see, [has an] absolutely brilliant mind. The name of the book is the Great Minds of Investing. It is just an amazing book. The pictures in this book, the writing in this book–just fantastic. 

So, William, we cannot thank you enough for coming on the show. This was such a pleasure. I know that our audience is just going to eat this up and really enjoy the conversation. So, thank you so much for joining us.

William Green  46:59  

Thank you. It’s just been a real delight for me to chat with you both. Your questions are terrific and I love your show. So it’s a real privilege for me. Thanks, William. Really appreciate it.

Preston Pysh  47:10  

All right. So this is a point in the show where we take a question from a member of our audience. And this question comes from Jack Loot. He’s from South Africa and this is his question.

Jack Loot  47:19  

Hi Preston and Stig, thanks for the great podcast. When a company issues new shares, where exactly do the shares come from? If they split the current shares, surely that decreases the level of ownership and earnings of all the current shareholders. I don’t fully understand how and why the shareholders do this. Thanks again, Jack from South Africa.

Preston Pysh  47:39  

Hey, Jack! I love this question because I think a lot of other people have a similar question or concern. So let me first break it down for you by talking about a simple example of a company issuing more shares and why they would do that, and then we’ll talk about a stock split, which was kind of more where your question was going. 

So, let’s say that we have a small business on Main Street. Let’s say, it’s an ice cream stand. And let’s say that the ice cream stand is maybe worth like $100,000, we’ll say. The owners really don’t have much money, and so they have to raise some money and the bank does not want to give them a loan, so they have this decision that, hey, let’s go out and see if we can find some family members to help give us some money to be able to buy whatever it is that they were trying to buy or increase for their store. 

Let’s say that they have five different family members that they could go to in order to do that. And each family member is going to donate $10,000 to the business. Okay, so that’s our scenario. So they really want to raise $50,000. Their business is a $100,000 business, and they fully own that hundred-thousand-dollar business by themselves right now. 

What would happen is each of those five family members would get a cut of the business. So, what they’d have to do is they’d have to break out new shares of the business. Let’s say that there were 100 shares that they currently owned beforehand. Okay, 100. So, each person that would buy this $10,000 stake in the business, they would get 10 more additional shares, which the company, the people that own this small business would have to produce. 

In the end, you’d have now 150 shares of the business. The people that originally owned it would now only own two thirds of the business, instead of owning 100% of the business, because before there were 100 shares, and now there are 150 shares. 

So you can see how by issuing more shares of the business, the original owners, the people that previously owned 100% of the equity have diluted their ownership of that business. That’s probably the easiest way I can describe that scenario for you. So now, when you talk about a stock split, typically you’re dealing with a company that is wanting to reduce their market price in the stock exchange. 

Let’s take Apple for example, because they recently did this. They did a stock split, where they split down the number of shares that Apple used to trade at. I think at the high, maybe like $700, $800 a share. Somewhere around in there. And then after, they did a stock split. After they split all the shares up, now it only trades for about $100 on the stock exchange. 

And so, what they did is they didn’t create any more value, or they didn’t add any more money into their bank account by selling or diluting their shares. What they did is if you own one share of Apple before, now you might own five shares, but the thing is, every single person in that entire group of shareholders got that same additional share, so it wasn’t like you lost any money or gained any money. 

The only thing that happened was you, instead of having one share that represented $700, now, you had seven shares that might have represented $700. So really, no change there. That’s really the basics of stock splits and how companies use their shares and their equity of the business to raise money, and that’s really just kind of the basics of it. 

All right, Jack, so fantastic question. We really enjoy getting questions like this. So what we’re going to do is we’re going to send Jack, a free signed copy of our book, the Warren Buffett Accounting Book. And for anybody else out there, if you want to ask a question and get it played on the show like Jack, go to asktheinvestors.com. You can record your question and if it gets played on the air, you’ll get a free book from us. 

So really, that’s all we have for you this week. We really want to thank William Green for coming on the show. He just provided us [with] such a fantastic interview. His book is amazing. The name of his book is the Great Minds of Investing. You can go to amazon.com and check out his book. I highly recommend it. The people that he has in there and the way that they’re profiled is just really fantastic, and I think you’ll really enjoy it. 

So, we really appreciate everything that everyone’s doing out there for us. If you’re leaving reviews on iTunes, thank you so much. You have no idea how much that means to us. And if there’s anything that we can do for you just shoot us a message or go on to our forum, thewarrenbuffettforum.com. That’s where Stig and I hang out all the time, and we’d love to chat with you. So thank you so much, and we’ll see you guys next week. 

Outro  53:58  

Thanks for listening to The Investor’s Podcast. To listen to more shows or access to the tools discussed on the show, be sure to visit www.theinvestorspodcast.com. Submit your questions or request a guest appearance to The Investor’s Podcast by going to www.asktheinvestors.com. If your question is answered during the show, you will receive a free autographed copy of the Warren Buffett Accounting Book. 

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