27 April 2024

In this episode, William Green chats with Bryan Lawrence, a highly successful hedge fund manager who runs an investment firm called Oakcliff Capital. Bryan almost never gives interviews, so this is a rare opportunity to hear him speak in depth about the advantages of a concentrated value strategy, how he finds new investments, what 6 questions he asks when analyzing any stock, what he’s learned from Buffett & Munger, & how to build a happy life.

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  • What Bryan Lawrence learned from his hugely successful father.
  • What Charlie Munger taught Bryan. 
  • How Shelby Cullom Davis turned $200,000 into $800 million.
  • How Bryan has consciously built an investing edge.
  • What he learned from meeting Warren Buffett.
  • Why Bryan looks for three specific characteristics in any business.
  • How to beat the market by making infrequent bets. 
  • Why he’s obsessed with identifying where he’s wrong.
  • How he searches for new investment ideas.
  • How he structures his day.
  • How to think rationally about fossil fuels & climate change.
  • How to build a happy life & great relationships.


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

[00:00:03] William Green: Hi there. It’s a great pleasure to be back with you here on the Richer, Wiser, Happier podcast. I have a rare treat in store for you today. Our guest is Bryan Lawrence, who’s one of the smartest and most thoughtful hedge fund managers I know. Bryan runs an investment firm called Oakcliff Capital, which is based in New York City.

[00:00:21] William Green: He’s beaten the market by a wide margin over the last 20 years by investing in a concentrated portfolio of high-quality companies that he tries to buy during those infrequent moments when they’re out of favor and undervalued. It’s a classic investment strategy that’s profoundly influenced by a trio of legendary investors whom we’ll discuss in this conversation, namely Warren Buffett, Charlie Munger, and Shelby Cullom Davis who inspired Bryan by turning 200,000 into 800 million.

[00:00:54] William Green: What makes today’s episode particularly special for me is that Bryan almost never gives interviews, so this is a unique opportunity to spend a couple of hours in the company of a formidably intelligent investor who has never really opened up to this extent.

[00:01:11] William Green: In this conversation, we talk in depth about how to beat the market and why this concentrated value strategy makes so much sense. We talk about the intense drive, focus, and emotional stability that are required in order to generate superb returns. We talk about how Bryan looks for new investments, and what six specific questions he asks when analyzing any stock. We talk about what he does when a winning investment becomes richly valued.

[00:01:42] William Green: We discuss what he’s learned from many years of investing in the energy sector, which is an area where he and his father, who’s also an extremely successful investor, have made a fortune in the private equity business. We also talk about how Bryan structures his time, and how he structures his physical environment in ways that help him to think clearly and calmly, and also what books he recommends to the people he cares about most.

[00:02:09] William Green: I’ve been friends with Bryan for about a decade, and I’ve come to regard him as one of the clearest thinkers I know. As you’ll hear, he’s exceptionally rational and has a remarkable ability to cut right to the heart of a subject, whether it’s the art of investing or, for that matter, the art of friendship.

[00:02:27] William Green: If you want to achieve long term success in business, markets, and life, I think it’s well worth paying very close attention to what Bryan has figured out. I hope you enjoy our conversation. Thanks so much for joining us.

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[00:02:45] Intro: You’re listening to The Richer, Wiser, Happier Podcast, where your host, William Green, interviews the world’s greatest investors and explores how to win in markets and life.

[00:03:05] William Green: Alright. Hi folks. It’s such a pleasure to be here with my friend, Bryan Lawrence, who runs a very successful investment firm called Oakcliff Capital. Bryan, it’s lovely to see you, especially after the misadventures that we had with me failing to plug my tape recorder improperly. Thanks so much for coming.

[00:03:20] Bryan Lawrence: Well, I’m delighted to be here and I’ve been looking forward to this conversation. Thanks for having me.

[00:03:25] William Green: It’s great to see you and I feel like I should share a little bit with the audience about the unusual backstory behind this interview, which is Bryan and I have been friends really for about 10 years.

[00:03:37] William Green: I think it’s 10 years since I met Bryan through Guy Spier and we’ve become increasingly good friends in recent years and also with his wife, Gillian Zoe Segal who we’ll talk about later and I sent Bryan an email at the start of 2023 saying, look, this is an open invitation. Come on the podcast anytime.

[00:03:54] William Green: And Bryan sent me back this kind of polite note saying, there is another podcast in my future, but not for a bit and then he said, when the time’s right, let’s talk. And then finally, a few months ago, he wrote to me and said, okay, it’s time. And so one of the things that you’ll notice as you look into Bryan’s life more is that He’s really done amazingly few public interviews.

[00:04:14] William Green: I mean, he did a podcast with my friend and co-host Stig Brodersen in 2022. He gave a terrific speech at Jim Grant’s conference in 2021 and otherwise, there’s nothing. And so, I wanted to ask you, Bryan, like, why? Why do you keep such a low profile and also, why, thankfully, did you relent and decide that you would undergo this this questioning from me?

[00:04:35] Bryan Lawrence: Well, it’s a good question. I think I have a desire to only do something like this. If I feel there’s stuff to say, I don’t really think the idea of doing a podcast for the sake of hearing myself talk is terrific. So the question in doing something like this is, do I have something interesting to say?

[00:04:54] Bryan Lawrence: And what I’ve grown convinced of listening to the podcasts you’ve been doing with others is that some of the subjects that you’ve been touching on are interesting things and, I’ve just grown more comfortable with the idea that you and I could have a good conversation. We’ve been having these sorts of conversations for ten years, so I thought maybe we’d try to do it in podcast form and see if it was interesting.

[00:05:12] William Green: Yeah, it’s great. Well, I’m really happy that you’re here, and I know there is an act of trust and friendship involved in doing these things, because You don’t really know where things are going. Like we have, you know that I’ve got about eight pages of questions, but you never know quite where it’s going.

[00:05:26] William Green: And so there’s an element of a leap of faith and so it’s given especially the fact that you don’t do this much I’m particularly happy to have you here. So, thank you.

[00:05:35] Bryan Lawrence: I’m terrified by the eight pages of questions.

[00:05:36] William Green: I know, I probably shouldn’t have told you that. Well, I brought it down from 15 or 14 yesterday.

[00:05:41] William Green: So, I wanted to start by asking you about your father, who’s also called Bryan Lawrence, because I think it’s impossible really to understand who you are without knowing about your father who’s been an immensely successful investor in his own right, specializing in energy at a firm called Yorktown Partners, which is a private equity firm that I believe he co-founded back around 1991, and they’ve invested about 8 billion dollars in about 122 companies or so and you worked with your father for many years, and you speak with him several times a day, and I’ve only met him one time briefly when I went to your wedding back in 2021, but I know how much he’s influenced you and I wanted to get a sense of what you’ve learned from him that’s been formative, because he’s such an impressive guy, and there’s something very distinctive about him in the sense of duty, and service, but also the sheer intensity of the guy and his work ethic. So that’s a long winded way of teeing you up to tell us about your father.

[00:06:44] Bryan Lawrence: Yeah. Well, thanks for the question. He’s an amazing guy and an inspiration to me. He started a business within a company called Dillon Reed and Investment Bank, which spun out in 1997 as Yorktown Partners, and it’s had a lot of success investing in oil and gas companies, and that success came to him as a result of a lot of work and later in life, and so he was 55 when it spun out, when it became independent and really started to make its mark, He was 55. I was 30.

[00:07:14] Bryan Lawrence: So I think an important thing for me is that the early part of my life, there was not this. And so I was fully baked when this started to happen. And the lessons that I absorbed from him, like watching him do this, the intensity of it, I think if you watch something like that happen when you’re young, I don’t really know what that’s like, but I know what it’s like watching it emerge later in my life.

[00:07:37] Bryan Lawrence: I think you basically have two choices as the child of a successful guy. You can coast because your life is easier or you can kind of step it up and try to live up to it. And I’m very much in the latter camp because I’ve seen the difference that hard work makes and I’ve seen what hard work really means.

[00:07:55] Bryan Lawrence: And I think that there’s something about his effort, which I think about a lot. He’s always showed me that the last 10 or 20 percent of effort, whether it’s time or intensity results in massive outperformance. And so it’s important to be intense all the time. It may look easy from the outside. When you see great success, you’re like, oh my gosh, it was easy for that person.

[00:08:17] Bryan Lawrence: There was a bunch of luck involved and luck certainly is involved in success, but a lot of it. is the result of intense work. The Italians have this word called sprezzatura, which is someone who makes hard work look easy. You see their easy success and you say, gosh, it must have been easy to do that. It was not.

[00:08:36] Bryan Lawrence: There’s a lot of effort that goes into it. I think that’s been a powerful lesson. I think another very powerful lesson is the value of always trying to do the right thing for your partners. To build that reputation over a career and to have a reputation for doing the right thing when no one is looking is a very powerful thing, and it results in loyalty from people, it results trust from clients, and sometimes it’s not easy to do, but he makes it an imperative, and that’s been a real example.

[00:09:04] William Green: I remember a guy many years ago telling me the story of a company, I think it was Crosstek that guy had invested in and it went kind of horribly wrong and your dad was deeply involved and I remember a guy saying to me that your dad could so easily have screwed the shareholders and instead he totally and utterly, honorably turned the company around, made everyone more than whole and so my impression for many years before I met your father, even fleetingly, at your wedding was this idea of him as somebody who was deeply aligned with his shareholders.

[00:09:38] William Green: And I see that in you as well. Like, I see this kind of obsession in you with doing the right thing and kind of be there’s a sort of Boy Scout quality to you, Bryan, which I always enjoy. When I came to stay with you and Gillian on Fire Island, I remember being really struck by it. by how involved your family was with the fire department there.

[00:09:59] William Green: Can you talk about that? Because it seems in some way very central to what your family is about that sense of responsibility and kind of civic duty. And it’s not really something that is necessarily that common in the investment business, but it’s very distinctively Laurentian.

[00:10:19] Bryan Lawrence: Yeah, well, there’s, I think there’s people can have talent and they can have drive and there’s a lot of that around. I think there’s another thing people can have, which is, I kind of think of it as almost like a fiduciary gene, like, do you want to do the right thing?

[00:10:34] Bryan Lawrence: And is that part of what you bring to the world? And I’m not knocking people who are more interested in focusing on themselves, but I like to, I like an environment where I’m with other people who were, trying to do the right thing for the people around them.

[00:10:49] Bryan Lawrence: And I think a lot of that is my father’s example. And a lot of it is this community on Fire Island where I grew up and spent summers and my children have been, and my, some of my best friends are. And that community, it’s about 130 houses in a little area. It’s 135 acres. A lot of it is swamp. And the houses are very unremarkable, wide economic range of backgrounds of the people there.

[00:11:13] Bryan Lawrence: The unifying thing is that virtually everything is run by volunteers. So if you have a tennis program, sports program for your kids, swimming, it’s the, it’s all, you might have some professional staff, but the curriculum, the hiring of the staff is all done by volunteers, and at the center of the community is the fire department, and the reason the fire department is so important is the houses are up on posts because every now and then you get an over wash, From the ocean and storms and a house up on posts made of wood that’s been there for 60 years is like a bonfire and there are repeatedly fires and there was a fire in 1983 that knocked four houses down and killed three people and I remember standing watching the fire happen and our volunteer fire company was underprepared and our fire had to be put out by companies that came from a community from the east from one of the gay communities on Fire Island, and from a community from the West, these Italian guys, and they put out our fire, and the very next day, my father joined the fire company in the neighboring Italian community. On Fire Island, you disaggregate into, we’re in the WASP community, there’s the gay community, the Italian community, the Jewish community.

[00:12:19] Bryan Lawrence: My father and a couple friends were so upset with the performance of our volunteer company, they joined in the Italian community, and I joined there too. So I was a firefighter for 38 years, first in that community, then I came back to my community, and now my son is a firefighter himself, 22 years old.

[00:12:35] Bryan Lawrence: And to watch that example be paid forward is very cool. There’s also this, I don’t know if this is relevant, but this is a thing that sort of an interesting point about firefighting. 70 percent of the firefighters in the United States are volunteers, because there’s not population density enough in 70 percent of the places where people live in the United States to afford a professional department.

[00:12:56] Bryan Lawrence: So, volunteer firefighting is very much a cultural thing in a lot of the United States, and there was a, there’s a, an interview Bill Clinton gave in the mid-90s, Bill Clinton was a political master, and he was asked, how do you, if you’re going to a town you’ve never been to before, how do you arrange for a political rally to happen?

[00:13:12] Bryan Lawrence: How do you make sure that people show up and are fed and are there to listen to what you have to say on your radio, whistle to her and he said it’s important to call the mayor because obviously people elect him, but half the people didn’t elect him. So he’s only liked by half of the people. And it’s important to talk to the, the used car dealer.

[00:13:27] Bryan Lawrence: He’s probably the richest guy in town. That’s a small town. That’s the richest guy, the guy you really want or the woman you really want. To organize your event is the chief of the local volunteer fire company, because that person has been selected by the community to get stuff done. That person can find pizza for 250 people and can organize an event.

[00:13:44] Bryan Lawrence: And if he says, or she says, let’s go do this, the people will show up. I find that really interesting. To hang out with the people in the community who are trying to make that happen, so that’s a little bit of what that has been.

[00:13:56] William Green: I also thought it was really interesting when you and I were chatting yesterday and you said to me that one of the lessons of being in the fire department is on an island, like Fire Island, is if you don’t put out your own fire, nobody else will.

[00:14:09] William Green: And you were also talking about this sense of, responsibility and always wondering are you doing the right thing in a way you’d be proud of if you saw it in a newspaper, which is a very Warren Buffett like mindset, right? Like this sense of responsibility, duty, cooperation, quite old fashioned.

[00:14:29] Bryan Lawrence: Well, I’m, I can be pretty self-focused, self-interested.

[00:14:32] Bryan Lawrence: I, I like to pick stocks and compound capital. I mean, I’m not, I’m a capitalist, but I think that to spend time in a place like that and to have your children spend time in a place like that, have your children become friends of children of your best friends, all of whom are steeped in that kind of value system.

[00:14:49] Bryan Lawrence: Where the houses cost a tenth of the houses in the Hamptons, and it’s not about the money, like, if you’re living in a community where the most expensive house is a status symbol, that’s a certain type of community. If you live in a community where Your ability to organize the maintenance of a 500, 000 firetruck that the community has taken out the donation over the past 10 years, if your social currency is your ability to organize something effectively, I kind of like that community better.

[00:15:16] Bryan Lawrence: That’s a community of get it done, regardless of background and It’s so interesting to me as a journalist, my role is usually like traditionally to be the non-joiner on the outside making facetious comments and it’s just a different role in life, right? Like we’re journalists. I think we’re just not joiners.

[00:15:36] Bryan Lawrence: We’re perennial outsiders looking at what’s going on and judging it. So I think maybe that’s one reason why I’m so struck by the fact that you’re actually in the trenches doing it.

[00:15:47] Bryan Lawrence: I guess. I mean, it’s just maybe it’s a quirk. I really enjoy it. And some of my oldest friendships are there and I think it’s a really good value system.

[00:15:57] William Green: One of your oldest friends, obviously from growing up in Fire Island is the famous investor, Chris Davis, who we’ve had on the podcast recently. And I think it’s fair to say it’s probably your best friend and who’s also now a director of Berkshire and is a fascinating guy. And Chris, I remember you telling me gave you a copy of Charlie Munger’s lecture on the psychology of human misjudgment relatively early.

[00:16:20] William Green: I think this may have been around 1998, 2000, that sort of thing. You’ve told me that changed your life, that the scales fell from your eyes when you saw that. Why did that have such a profound impact on you at such a formative stage in your life?

[00:16:37] Bryan Lawrence: Yes, well, Chris and I joke about this a bunch, like my father had started as an investment banker and it was pretty obvious to me that Being an investment banker was an interesting thing to do as I came out of business school in 1993.

[00:16:52] Bryan Lawrence: And I very much admired this guy, Felix Rodin, who had developed a very interesting professional career, financially successful, but also was important in the affairs of New York City, saved it from bankruptcy in the late seventies. I admired a career like that, like a broad, intellectually stimulating, financially rewarding career.

[00:17:09] Bryan Lawrence: So that’s what I had chosen to do. And there was no real success by my father to cause me to do something different. However, my father was giving me these letters of Warren Buffett, you should read this and, I was dismissing it because, sons and fathers sometimes, the, they don’t necessarily speak clearly, they may speak lovingly, but they don’t, they don’t do exactly what the other one tells them to do.

[00:17:28] Bryan Lawrence: And so, Chris Davis in 1998, I think I’d been a banker for five years, maybe six years, 1999, he hands me this recording of Charlie Munger giving a speech about the psychology of human misjudgment. And my first reaction was, this guy, Munger, just seems to be a pretty, there’s a lot of chutzpah challenging, academic psychologists, with no academic background of his own.

[00:17:51] Bryan Lawrence: And I listened to it and I’m like, wow, this guy makes more sense about this area of human behavior than anyone I’ve ever heard talk about this. And it just kind of led to a reassessment of a bunch of stuff. And ultimately, I left Lazard in 2004 to set up Oakcliff, and it was just a seminal moment for me.

[00:18:12] Bryan Lawrence: There’s some other reasons I left Lazard, but that, Chris giving me that really set me on a different path. The reason Chris and I joke about this is each of us has a list of books that we want our children to read. And our children don’t necessarily read them because, of course, it’s their fathers suggesting them.

[00:18:27] Bryan Lawrence: So, we’ve tried various things. We’ve tried bribery. Read this book and I will pay you for a book report. But maybe the best thing to do is to get a friend to suggest the book. That a friend is more impactful than a father is an interesting idea.

[00:18:39] Bryan Lawrence: To, he certainly is impactful. I tried to pay both of my kids to read, undo It by Dean Norish, which I read and I had a sense, I was working on a book that was related to health and longevity that I was helping to ghost write.

[00:18:52] Bryan Lawrence: And I read that book and I had a sense of, oh, this guy’s explaining stuff in the way that if you were reading securities analysis by, ben Graham, like the scales sort of fall from your eyes because you could suddenly see all of these mechanisms by which our body was being affected in all of these different ways and I think I offered each of my children 150 to read it, and neither of them read it, and neither of them had any money either.

[00:19:16] Bryan Lawrence: There you go. You should have given the 150 to a friend. Had them keep 50 and give a hundred. I don’t even forget the money. Just suggest it to a friend and have them suggest it.

[00:19:26] William Green: It’s a very interesting problem, but then once in a while, I’ll sort of, I’ll look over and there’ll be reading a book that I love. But yeah, I’m not sure it’s ever because I’ve suggested it. So yeah, what else is on that list of books that the 20 or so books that you want your kids to read by the time they become real adults, fully fledged adults?

[00:19:47] Bryan Lawrence: Well, I think it’s in the spirit of what Chris did for me. It’s this idea that you can very quickly come up the curve and a discipline, it, there’s chutzpah there, but I think there’s also truth. I believe with a good book and maybe some reflection, maybe some other, you can get yourself to maybe 70 or 80 percent domain knowledge in, let’s say, biology or psychology or physics or the history of India.

[00:20:10] Bryan Lawrence: I mean, that last 20 or 30 percent might take you 10 years of a PhD to achieve, but how do you equip your children with these different models. So, there’s a book called Influenced by a guy named Robert Cialdini, which I think is a masterclass in how marketing is used by people to try to influence people and you need to read that in order to understand how you are being influenced and you need to read that in order to understand how maybe for something that you love and is worth Making happen.

[00:20:39] Bryan Lawrence: You can influence other people to make it happen. I think that’s an amazing book. I think Poor Charlie’s Almanac, is a compilation of Munger’s writings and speeches is amazing. There’s a book by a guy named Alain de Boton, called The Constellations of Philosophy, which I think is a terrific, philosophy can be very inaccessible.

[00:20:59] Bryan Lawrence: It’s a terrific introduction to how, I think it’s six philosophers he goes through, and he tells you how that philosopher is relative to your life, and I just think that’s an amazing thing, just to drill down on that’s an amazing thing. This is why philosophy can be useful to you.

[00:21:12] William Green: Yeah, I liked that book. He also wrote a beautiful book many years earlier, that I think may have been his first really successful book, called How Proust Can Change Your Life, which is a lovely book.

[00:21:23] Bryan Lawrence: That’s an amazing one too. And that’s what I remember from that book is how to suffer successfully. That’s a very interesting concept as well.

[00:21:31] Bryan Lawrence: So there’s a bunch of, there’s a very beautiful book called difficult conversations about how to have a difficult conversation with someone. I just, I don’t know. There’s a list. I can send it to you after the podcast.

[00:21:40] William Green: Yeah, that would be great. And when you look back and you think about the impact that Charlie had on you, the things that you’ve actually done differently, because In a way, a lot of what he was about was, as I said in my book, not just achieving financial victory, but the manner of the victory how you treated people what impact did he have on you in terms of the way you decided that you wanted to do business and operate in the world and also avoid stupidity, which is obviously one of the great lessons from Charlie.

[00:22:09] Bryan Lawrence: Yep. I think it, Charlie has, Charlie is a fascinating and an inspiration to so many because you were, a lot of us are looking for meaning, right? It’s a world where some of the old meaning that people might have found in religion is gone or weaker. And Charlie really is a bit like a modern day philosopher.

[00:22:32] Bryan Lawrence: How do you live a good life? And of course, everyone focuses on it because of the commercial success that he had. But really what’s at the heart of what he’s saying is simple ideas clearly stated, cutting through the complexity of life. And there are some simple ideas about how to conduct business.

[00:22:49] Bryan Lawrence: Like, be the kind of person who is trusted, like, your trust and your reputation are within your control, right? Your innate talent is not Your height is not, where you were born is not, but whether or not you, when you say you’re going to do something. You get it done is within your control.

[00:23:07] Bryan Lawrence: Reliability is entirely within your control. Whether or not you save a lot of money is within your control. And it’s actually a piece of advice I got from Felix Rodin, during my time at Lazard. I mean, this feels like something Charlie should have said, like, always be saving money, because a couple things will happen.

[00:23:24] Bryan Lawrence: First one is, you’ll save a lot of money, right? The second thing is, if you’re saving as much of your income as you can, then by definition you’re not doing what you’re doing for the money. Because you’re not doing it for the fancy house or the big vacation. You actually intrinsically enjoy what you do.

[00:23:42] Bryan Lawrence: It’s a test. Do you enjoy what you do? It’s not, you’re not in it for the money. You’re saving the money that you’re making. And then the third thing is, as the money piles up, you develop autonomy, and autonomy allows you to be even more of the person you want to be. And that feedback loop is quite extraordinary.

[00:23:58] William Green: And Roatan himself really embodied it. I remember interviewing him many years ago because I interviewed him about a guy called Albert Hettinger, who was a great role model for Bill Ruane, who is a legendary investor now long gone. And Roatan was interesting because obviously he was this immensely successful investment banker, probably the most important person at the time.

[00:24:18] William Green: Lazard Frez in his time and yet then had the power and independence and autonomy to go off and help prevent New York going bankrupt around 1975. And so he really embodied that, right? Like he had the power and the independence of mind just to be able to say no, I’m going to do this really interesting and really important thing. So I, I think… [Crosstalk]

[00:24:38] Bryan Lawrence: The story has kind of grown in the telling, but he was probably 6 percent of Lazard’s profits is what he was. He owned 6 percent of Lazard’s partnership, but he was probably 30 percent of the revenues. And so Andre Meyer, who was running the firm said to him, you can’t, take two years off from the firm to go fix New York city.

[00:24:56] Bryan Lawrence: He said, well, I think I can actually, the math says I can. And then of course, it was not like saving New York City was bad for business when he came back, right? So yeah, that’s a very interesting thing. But Charlie, it’s also the best way to be successful is to not take undue risk. Don’t do stupid things, conduct your business so that.

[00:25:19] Bryan Lawrence: Wait until the opportunity is obvious. Drain the risk out of the opportunity. So that’s really informed how Oakcliff has been run. We’re going to do well, but we are going to, how do you make Oakcliff into the kind of place where, when the financial crisis comes, as it does all the time, there’s, whether it’s a financial crisis or a pandemic or whatever else is coming to us, it actually gets stronger in the crisis. So that, that’s another thing that, you know. That’s another Munger lesson.

[00:25:43] William Green: So let’s get to Oakcliff in a second. I want to fill in people on the chronology here, right? So you got a kind of mediocre secondary education at Yale where you got a bachelor’s in history and economics.

[00:25:54] William Green: Then you went to Cambridge to get a master’s degree in England. We tried to civilize you and then you went to Harvard Business School. and graduated in 1993. So it’s about as polished a resume as you could have. And so then you went to Lazard for about 11 years. And Lazard, for people who don’t know, was this kind of legendary Auguste firm that had been founded in 1848.

[00:26:16] William Green: So I’m wondering when you came out of that and you decided leaving Lazard in 2004 and set up your own firm, Oakcliff. Were there skills that you’d learned in investment banking and also in private equity where you’d done work with your father that have helped you as a stock picker?

[00:26:35] Bryan Lawrence: Yes, there were a lot of things about investment banking that are not useful to being a stock picker, but there are some things about that particular type of investment banking, which was the merger and acquisition business that were, and I think maybe a story will kind of illustrate the difference.

[00:26:51] Bryan Lawrence: I was made a partner in January of 2001, and Michel David, the senior partner at the time, said it was the worst day of the rest of my life because all of my partners would now consider me to be a competitor. And I had to generate my own business. That was a fun first day. And so I was thinking about, how I could come up with ideas.

[00:27:07] Bryan Lawrence: It would be relevant to people to maybe hire me to do merger and acquisition business. And in November of 2001, reading 10K, reading different financial information, 10Qs and other things for amazon. com, I noticed that the stock was down, I think at like $6 and the bonds, there were $2 billion worth of bonds that Jeff Bezos had sold to finance expansion into Europe, and they were trading at 40 cents on a dollar.

[00:27:35] Bryan Lawrence: So the bonds were saying that the company was worth $800 million. But there was 800 million in cash on the balance sheet. So what the bonds were saying was that the value of Amazon’s business, November 2001 was zero. And I think the firm had been, Amazon had been around for, we had been founded in maybe 1994, 1995.

[00:27:52] Bryan Lawrence: So, this Amazon’s, people know what amazon. com is and the bonds are saying it’s worth zero. That was interesting. So why are the bonds worth zero? So, trained, I’ve done a bunch of financial analysis. Bonds are worth zero because. Credit analysts led by a guy named Ravi Surya, who was a guy at Lehman Brothers very smart, had properly pointed out that if you’re a retailer with a negative operating margin and negative working capital facing Christmas, you’re going to go bankrupt.

[00:28:17] Bryan Lawrence: Like the, never in the history of retailing had a retailer ever survived Christmas with negative operating profit, negative working capital. The suppliers would pull their support, then it would collapse after Christmas. Okay, why did it have negative operating margin? It had a U. S. book music video business that was profitable, and it had a European business that was unprofitable.

[00:28:37] Bryan Lawrence: You could shut the European business and be left with a profitable U. S. business. It was obvious. You could just read it in the financial statements. Why was there negative working capital? They were turning their inventories 18 times. If Jeff Bezos wanted to sell a copy of War and Peace, he needed like one copy a day.

[00:28:52] Bryan Lawrence: And Len Reggio running Barnes Noble needed one in every one of his 750 stores. So and you got when you bought your book at Amazon, the credit card company paid you that day, paid Amazon that day. So there was no accounts receivable and very high accounts payable because you didn’t pay your book suppliers for a long time.

[00:29:11] Bryan Lawrence: Negative working capital for a company that’s growing is not a sign of weakness. It’s the reason Michael Bloomberg is so rich. You pay for your Bloomberg subscription in advance. Negative working capital meant that Jeff Bezos was being lent money by his suppliers. And so I took this idea to Barry Diller, right?

[00:29:28] Bryan Lawrence: And Barry Diller thought this was the best idea he’d been brought in like five years. And he hired us to buy a controlling position in Amazon’s bonds. A third of Amazon’s bonds. And it was like one of the most exciting moments of my young investment banking career. And it was going to be an enormous fee, very high profile transaction and then he called up and he said, I’ve reconsidered it.

[00:29:50] Bryan Lawrence: I can’t do it because it’s I’m the, I operate a public company. It’ll be publicly disclosed. It’d be too complicated for what I’m trying to do. And he was right. But anyway, I tried to get Walmart to do it. I tried to get Francois Pinot to do it. No one would do it. And so I went to the general counsel of Lazard and I said, could I please buy these bonds personally?

[00:30:08] Bryan Lawrence: Cause I, I’ve done all this work. I just want to take a big chunk of my net worth and buy these bonds. And the general counsel of Lazard said, under no circumstances can you buy the bonds. That would be a conflict, because if one of the clients, prospective clients you’ve talked to about this, comes back and says that they want to do it, it’ll be a conflict.

[00:30:26] Bryan Lawrence: I said, in what world is doing what I’m advising a client to possibly do, a conflict, A, and B, the Lazard that, that Andre Meyer built in the 50s and 60s would be buying a ton of the bonds because that’s what we used to do. Anyway, they wouldn’t let me buy them. Like a year later, the bonds have gone to par, the stock has started its march from 6 to 3, 000, and I learned that the buyers of the bonds at 40 cents were Warren Buffett and Bill Miller.

[00:30:54] Bryan Lawrence: And then the firm Lazard is taken over by a guy named Bruce Wasserstein, very talented banker, and he comes in and he sees that I’ve had this interaction with Barry Diller. And he says, go call on Barry Diller once every six weeks with a new idea and get another assignment from him. And I say to Bruce Wasserstein, I don’t have an idea every six weeks.

[00:31:15] Bryan Lawrence: I’m just not going to have an idea like that and there’s some back and forth. And I have a lot of respect for Lazard, it’s an amazing place, but the frequency of an idea that good and a client willing to do it is too infrequent. And so the idea of setting up Oakcliff as a place to do infrequent ideas, it’s a different application of a similar skill set.

[00:31:38] Bryan Lawrence: Different mentality. Don’t talk to clients just to talk to clients. Talk to clients when you have something to say. And in this case, the clients now are people who trusted us with money and, my own money and my family’s money.

[00:31:49] William Green: I want to talk about Oakcliff in detail and about it as a kind of laboratory for what I would call the power of concentrated value investing because really, it’s a beautiful experiment in concentrated value investing and it started just to set the scene.

[00:32:06] William Green: It started, I think you launched in June 2004, so a little a little less than 20 years ago, started with 6 million in family money. Now, I think it’s about 270 million in assets under management. And one of the great influences on you was Chris Davis’s grandfather, shall we call him Davis? who died back in 1995 and was a famous investor who a lot of our listeners won’t know much about.

[00:32:33] William Green: Can you talk about Shelby Cullom Davis and how in some ways he inspired Oakcliff? Because in a way he w he was the opposite of the problem that you had at Lazard where you couldn’t put your money where your mouth was like, like Shelby. Shelby Carlton Davis was somebody who really invested his own money in his own ideas. So tell us who he was and why he inspired you.

[00:32:56] Bryan Lawrence: Yeah. Shelby, very smart man. He academically, PHD, he ended up somehow an insurance inspector for New York State in the 1940s. and spending time studying the various reports that insurance companies would file with New York State and other jurisdictions.

[00:33:15] Bryan Lawrence: Insurance companies to this day are regulated by the states. So they file financial statements with the SEC, but they file regulatory reports with the with the states in which they provide insurance. And by looking closely at the state regulatory reports, he had an edge understanding insurance companies. Very smart.

[00:33:32] Bryan Lawrence: He found different things to invest in his whole life, but the early edge and a persistent edge was insurance companies. And with 200, 000 of his wife’s family’s money in 1947, he started investing. And he had a brokerage firm, shall we call them Davis Co, which, bought and sold securities.

[00:33:50] Bryan Lawrence: I think he had a seat on the New York Stock Exchange. So that provided a little bit of income for him, but the 200, 000 He never took other people’s money, and he just invested it in a concentrated set of ideas, largely from his understanding of the insurance business, and that 200, 000 by the time of his death, 48 years later, was 800 million, which is a 4,000 to 1 return, about 19 percent compounded, and that example really spoke to me.

[00:34:18] Bryan Lawrence: There was a related example. My grandmother, my father’s mother and her mother, my great grandmother, they grew up in the depression. My great grandfather died, mother and her three daughters, one of whom was my grandmother were left kind of in a sort of a tough financial position. So they, they got jobs, real estate brokers, whatever, but they also picked stocks and with just their own money.

[00:34:39] Bryan Lawrence: They didn’t have an edge as the insurance inspector, what they had was common sense, and the common sense was like this, find products you understand, Kellogg’s cereal, Hershey’s chocolate. AT&T, the phone company. So, you understand what the product is, get the annual report. You don’t really understand what’s in the back because you haven’t trained as a banker or gone to business school or anything fancy like that.

[00:34:59] Bryan Lawrence: But in the front there’s a letter from a CEO. Does the letter from the CEO make sense? Does this guy speak in jargon, or is he speaking clearly? A and B. Are they paying a dividend that always goes up? Because, whatever the company, is doing, if it’s always sending you more money each year, it can’t be that bad.

[00:35:14] Bryan Lawrence: And then just continuously reinvest the dividends. And so when my grandmother died in 1995, I think, she had, like 5 million worth of stock. And the cost basis on most of the shares was less than the current dividend payment for the shares. Right. That’s a very powerful example. And to the end of her life, if there were a window that was rotting out in her house, she’d be complaining about paying 800 for this window.

[00:35:41] Bryan Lawrence: But she had this amazing stock portfolio. So the Shelby example, the example of my grandmother, the power of Investing with a systematic, disciplined, thoughtful way really spoke to me.

[00:35:55] William Green: Yeah, there are a series of beautiful lessons, really, for you, I think in, shall we call him Davis story? Like, the fact that a snowball, if you keep the snowball rolling for 48 years, as he did, without catastrophe.

[00:36:08] William Green: It’s just overwhelming. The fact that he had a competitive advantage, as you said, because he was focusing on an area where he knew more than other people is a, another critical lesson. And then… [Crosstalk]

[00:36:20] Bryan Lawrence: There’s one lesson about Shelby that I was not eager to emulate. And you can see it in this book, Davis Dynasty, which, you know it talks about Shelby and then his son who was also named Shelby Davis, and then Chris and his siblings. Shelby Sr. really liked margin. So he was, 50 percent levered the whole time. And so the normal volatility that concentrated stock investing brings to you, which we can talk about later, we might get to that subject, was accentuated by the margin.

[00:36:48] Bryan Lawrence: And so his returns, that 4,000 to one unlevered, would have been less, but the return the swings were just unbelievable. I mean, it, I think there was one point in 73, 74, he might’ve been down 80%. And that for me, the psychology of that is fascinating. I don’t, I met Shelby when I was young, I was too young to ask him these questions.

[00:37:09] Bryan Lawrence: I would have loved if I had the ability, I would want to talk to him about what that felt like. I like to be the guy when everything is coming down, who has, who has an unlevered balance sheet. who has cash to deploy, who’s bought put options. I like to build resilience like that. Shelby enjoyed levering his life in a way which I don’t think I would be comfortable doing.

[00:37:29] William Green: I think his story also gets at a really central conflict in the investment business, which is you can be incredibly smart as a stock picker, but if you don’t have control over the capital in your fund, you’re really vulnerable because people can bail out at the worst possible time, which obviously has happened with people like Bill Miller over the years, who’s brilliant.

[00:37:52] William Green: And Bruce Berkowitz is another guest, both of them guests on the podcast, because It’s so uncomfortable for people to have that kind of volatility and so this is a big subject that I want to talk to you about this, which actually is something that you talked about in the very good speech that you, you gave to grants conference a couple of years ago that I think you were talking about the two great challenges for an investor.

[00:38:17] William Green: So on the one hand you’ve got to make great returns and on the other hand, you’ve got to deliver those returns to the shareholder. And so, Shelby Carlton Davis had the advantage that he didn’t have a shareholder who could bail out on him at the worst possible time. But, so, so, let’s talk about this structural issue, because it’s hugely important, right? You need to find a good approach to investing. But then you actually need to be able to stick with it. And that’s one of the things that obviously Shelby Senior managed to do.

[00:38:47] Bryan Lawrence: Yes. So, it’s very important to understand what your edge is. Like, if you don’t know what your edge is, you don’t have an edge and so, what are our potential sources of edge at Oakcliff? Like, I think there are three. There’s analytical, kind of informational and structural, right? Analytical, are we better at analyzing? Are we smarter at analyzing companies than other investors? I think we’re smart. I mean, I think there are smarter investors.

[00:39:13] Bryan Lawrence: There’s lots of smart people out there trying to do what we do. So I don’t think we have very much of an analytical edge. informational. We own 15 stocks. That’s a lot fewer than a mutual fund guy who owns 150 stocks. So we are, and we know this from our conversations with CEOs, when we sit with a CEO, having done three months of work on his company and really focused on it, and we ask him questions, we are better informed than most other investors.

[00:39:38] Bryan Lawrence: Our objective is to be the most informed and that, that gives us something of an edge, but our main edge is structural. And we have opened up Oakcliff to other people, to clients, in order to have a pool of assets that allows us to spread the cost of research across a greater pool, but what we’ve done is we’ve been very careful as we’ve done that, to be clear, this is a long term game.

[00:40:05] Bryan Lawrence: And I am sure that has diminished how much money we’ve raised. I mean, we’ve raised a total of 85 million and we’ve distributed 82 million. The net capital raised by Oakcliff is 3 million over its 20 year history. And we’re sitting on 270 million. So this is not a fundraising operation, but what we do with our clients is we say, this is a long term game.

[00:40:27] Bryan Lawrence: You need to put this in a place that’s in your own psychology that says long term, and this should not be a huge amount of your net worth. It’s a big amount of our net worth, but it’s our work, and we’re comfortable with it, but for yourself, it shouldn’t be a big piece of your net worth, and you have to we, half of the money that has been raised by us is locked up for three years.

[00:40:49] Bryan Lawrence: And we ask that every new client lock up at least a quarter of their capital for three years. You could have six percent of it back each year, a thing that, that Buffett used to do in the mid-fifties with his early partnerships. You could give him some money and take out six percent each year to, to live on, but put this in a place that is long term.

[00:41:08] Bryan Lawrence: And what we’re trying to do with that is, as we go through a downturn, we want to have a client base that expects it, is not upset by it, and possibly gives us more money in response to that downturn being an opportunity, and it’s been very intentional, and I think it’s a big source of advantage for us.

[00:41:29] William Green: Going back to the origins of Oakcliff, in a way it also grew not only out of the influence of Shelby Colm Davis, but also the influence of Buffett, who you had an important meeting with back in 2004 what was the big insight that came out of that meeting that really shaped Oakcliff? your sense of what the opportunity was for an active stock picker like you.

[00:41:56] Bryan Lawrence: Yep. Yeah, it was 04. I found myself in a room with him and it was a meeting, I think, organized by Alice Schroeder for stock pickers with Buffett. And there were maybe 15 or 20 of us in that room and he was telling us about what stock picking was like and the questions we were asking him kind of all boiled down to how do we become like you, but faster?

[00:42:24] Bryan Lawrence: And he said, well, unfortunately that’s not going to happen. It’s a long game, but two pieces of good news. He said as long as you believe in American capitalism, you should expect. progress, the general ups, upturn. As long as you don’t do stupid things, you should do well as the market grows in general, as the economy grows in general, but the real tailwind for you is that the average share price of a stock goes up and down by 80 percent in a year.

[00:42:51] Bryan Lawrence: And I remember thinking to myself, that’s just insane. I, he’s, I get him on the first point, but on the second point he’s lost his marbles. So I went back to New York and got out of electronic version of Value Line and started crunching the numbers. There were. I think it might have been 4, 500 public companies, publicly traded companies back.

[00:43:09] Bryan Lawrence: I think we’re down to 3, 800 now. The numbers are still the same. If you take 52 week high divided by 52 week low, subtract one for every one of the, let’s say 4, 000 publicly traded companies in the United States. And so it’s a percentage by which the 52 week high has exceeded the 52 week low. Each year and you crunch these numbers, you go back 20, 25 years, you find that in a calm year, which is basically every two or three years, I’m sorry, two or three years out of every four is a calm year.

[00:43:41] Bryan Lawrence: Average stock in the S&P goes up and down by 40 percent in the Russell 2000, smaller companies goes up and down by 60 percent and in a crisis here, like you have a pandemic or a financial crisis or an invasion of Ukraine or something, things go up and down by 100 or 150%. So Buffett by picking 80 percent was picking this average number.

[00:43:59] Bryan Lawrence: And it’s extraordinary, big companies like, I think in the Grant’s talk, I was talking about Google. I mean, Google should, Google in the last year has traded between the low 90s and 150. Google, okay, how many people use Google? It’s more than a billion users of each one of seven of its services.

[00:44:16] Bryan Lawrence: How many people cover Google? For an investor, one of you, how many people understand Google? Basically, if you’re a sentient being on Earth with a smartphone, you know what Google is. And yet, the value of its stock is varied. By 70%, 65 70 percent the last 52 weeks that’s like an extraordinary if you’ve done the work to understand the business and the crisis of confidence comes in it, it gives a very rich opportunity because what you can do during the month or so that it’s having that crisis of confidence, trans time in the middle of which sells, replacement parts for aircraft in March and April of 2020 as air travel came to an end.

[00:44:52] Bryan Lawrence: You could quickly do work to see that it could survive for three years with no air travel. And so the stock went from, I don’t know, 600 to 200. You could buy a lot of transom, and now the stock is 1, 100. That’s what we do.

[00:45:07] William Green: It’s, this is so important and I kind of want to pause and have people who are listening kind of dwell on this because it’s such a, it’s such a fundamentally different game than most people are playing and I, this is something that I wrote about in my book when I was interviewing your friend Joe Greenblatt and also in writing about Charlie Munger, that in a sense, Munger expressed it so beautifully and so eloquently in his image of the spear fisherman, that basically what you should be doing as an investor is standing by the side of a stream with a spear and then once in a while a fat juicy salmon will swim by and you spear it and then you might go back to doing absolutely nothing.

[00:45:46] William Green: In terms of purchasing for the next six months or more and so the whole game really becomes one of waiting very patiently for these rare, infrequent, extraordinary, mispriced opportunities that then you seize with what Charlie would call gumption and that, that’s something that I think fundamentally most people build.

[00:46:09] William Green: Don’t understand. Even most professional money managers are playing a very different game than that. Can you just sort of riff on that idea? cause I think it’s, I, this is almost like a different philosophy. It’s like a. It’s like trying to explain to people who think the world is flat that the world is round because once you get that this is a really beautiful approach, there is a sense in which the scales kind of fall from your eyes.

[00:46:33] Bryan Lawrence: Yeah, I think the first thing I’ll say is it’s not really waiting by the stream. It’s working like heck back to that point about sprezzatura, like there’s an enormous amount of work that’s going into it. Trying to understand these businesses, the businesses you own, and then the businesses you wish you owned.

[00:46:49] Bryan Lawrence: To be prepared, because you might have to make a decision on a Tuesday. And you won’t have done the work. So there’s a lot of work going into it. And then the second piece is, yeah, mothers tell daughters, it’s just as easy to fall in love with a rich man. Like, you want to study the businesses that are good businesses.

[00:47:06] Bryan Lawrence: So this is a, there are different flavors of this, but our flavor is we don’t want to study a business and be involved with the business unless it’s just a, there’s like three things we want to do. A natural monopoly. We want a rational duopoly. We want a low cost operator. And why do we want those things?

[00:47:20] Bryan Lawrence: We want those things because they have durable cash flows, if something is a good business, because of one of those 3 characteristics, you have a lot of confidence that when you forecast its cash flows out into the future, you, they’ll turn out within some band of uncertainty that’s not that wide.

[00:47:37] Bryan Lawrence: That’s what you’ve got and whatever disturbance is causing it to be valued more cheaply by the market if you can turn your research attention to whether or not that is a temporary thing. Are those Amazon bonds? Trading businesses is worth the zero. Because negative working capital is a bad thing or a good thing.

[00:47:58] Bryan Lawrence: Like, that’s really what that was. And so, are you looking at a good business that’s undergoing a temporary crisis of confidence and those, there’s also corporate actions. Things can get spun off and they’re misunderstood because the new owner doesn’t understand what he’s been given. A new CEO can come in and change the strategy.

[00:48:17] Bryan Lawrence: There can be some new business opportunity that is underappreciated. temporary setback. And what’s interesting to me is that there are not that many good ideas. And so necessarily this requires a concentrated portfolio because I don’t have an idea like this every six weeks. You may see us do nothing for a year.

[00:48:39] Bryan Lawrence: Another thing is that this investment practice, although this is what really, if you look at the Forbes 400 and you look at who’s done well picking stocks, this is basically what people do. It’s practiced by so few people. I mean, the estimate. that I saw, at a ValueX conference. You and I have attended those in Switzerland.

[00:48:58] Bryan Lawrence: I talked about it in the talk for Jim Grant. Maybe 1 percent of the equity market is managed this way. At the time I looked at the statistics, it was an 80 trillion equity market. All of the markets in the world, U.S., China, Europe, and 800 billion was managed in a way that looked like this, concentrated positions that were held for a long period of time, with conviction.

[00:49:18] Bryan Lawrence: 800 billion out of 80 trillion and of the 800 billion, 40 percent was Berkshire Hathaway. So yeah, it’s interesting that this idea, which it can make you a lot of money, but it’s not practiced by a lot of people. Why? I think one reason is that if you make mistakes, it really shows you can’t just hide in the average.

[00:49:38] Bryan Lawrence: And two, it requires a mindset that some people may not like studying businesses as much as they like raising money, or some people may not like the volatility that they deliver for themselves. Some people may want to do it faster or more differently. There are lots of ways to make money. This is the one that always just made the most sense to me.

[00:49:57] Bryan Lawrence: I really like studying businesses. I like trying to understand what’s happening in the world, and I like placing infrequent bets, investing in infrequent ideas.

[00:50:07] William Green: Yeah, it makes tremendous sense to me temperamentally, it’s, I mean, I’m not capable of doing it because I’m not obsessive enough or interested enough, but I’ve outsourced my money to people who do it this way.

[00:50:17] William Green: So temperamentally, I’m totally aligned with you on this. And it’s interesting that it’s this is this approach of very concentrated value investing. is what we’ve seen to work from people like Buffett and Munger, Joel Greenblatt, Bill Miller, and yet, as you’ve pointed out in your excellent annual reports, which I’ve been reading over the last couple of days going back, I think all the way to 2004, you point out that one of the big challenges that makes this so difficult to execute the investors end up, the shareholders tend to lose faith in their fund managers during these inevitable periods of underperformance.

[00:50:55] William Green: And in one of your letters, you pointed out that Berkshire Hathaway itself has seen these 3 periods when it lost half of its value. So. Back in, I think 73 to 75, and then 98 to 2000, and then again in 2008 to 2009. And then you also pointed out that even Berkshire underperformed the s and p about a third of the years, over nearly six decades.

[00:51:15] William Green: And so I was looking through your returns over the last 20 years, and if I counted correctly, I think you had underperformed the s and p eight out of 20 years, and yet you’ve outperformed the s and p by a decent margin. More, more than a hundred percentage points over those 20 years. Can you talk about this fundamental challenge to take advantage of the beauty of this approach of concentrated value investing?

[00:51:40] William Green: You need to be able to handle what I remember Joe Greenblatt describing to me as the pain of underperformance, that there are these periods of underperformance where you can look like a fool and it’s psychologically incredibly painful.

[00:51:54] Bryan Lawrence: Yeah. Well, there’s clearly something out there. There’s a firm called Dalbar, which does interesting studies of mutual fund flows and a lot of people focus on this fact that active managers tend to underperform the index.

[00:52:07] Bryan Lawrence: And that’s an argument given for investing in index funds. And we can come back to that in a bit. That’s, that is a very logical choice for most people. Just invest in the index fund and forget it. Just let the index do it. But Dalbar has done this work which shows that the average mutual fund investor who’s picked an active manager, that active manager on average underperforms the market by, let’s say, 1% a year, which is almost their fees.

[00:52:31] Bryan Lawrence: They underperform by the amount of their fees, and then unfortunately, because the clients add money to the mutual fund, that’s done well right after it’s done well, and then take money out of the mutual fund that has done poorly. The clients returns underperform, the active manager’s returns by four percentage points.

[00:52:54] Bryan Lawrence: And so clients on average, according to DALBAR, and they’re looking at statistically significant amounts of fund flows. I think it’s like dispositive, it’s very hard to argue with their methodology of their data. The clients are underperforming their active managers by four percentage points is a ruinous estimate result ruinous. I mean, four percentage points of underperformance over a 30 year investment horizon leading to someone’s retirement is a nest egg that is 70%, 70 percent less. And so to see something so systemic and so empirically obvious indicates some sort of a thing in human psychology that is a real thing.

[00:53:35] Bryan Lawrence: And a conclusion from that is It really is better for most people to be in an index fund and not cash out. Keep your money in, like just have the psychologically, that’s my allocation to equity. Just keep it there. Don’t cash out at the bottom cause you can cause real damage to yourself.

[00:53:54] Bryan Lawrence: Don’t add frenetically as it’s rising. You just have a measured annual approach. I think that’s better. That’s the right, right approach for most people. If you want to try to beat the market. Which we’ve done for 20 years. That’s a, that, that’s a labor intense, temperamentally challenging thing to do, which can be done, but not everyone can do it.

[00:54:17] Bryan Lawrence: And there’s this study or it was a debate in 1984, super investors of Graham and Doddsville, Warren Buffet himself debating a guy named Michael Jensen. And Michael Jensen actually ended up being a professor of mine at Harvard Business School in this small world, and Jensen was arguing that markets are efficient and that Buffett’s success in 1984, he’d been managing Berkshire Hathaway, I think full time at that point, for 15 years, and he had the Buffett partnership track record before that, he’d obviously widely outperformed the market, and Jensen was saying, your outperformance is statistically just An anomaly, you’re just, you can be explained by this many.

[00:54:57] Bryan Lawrence: Sigmas enough, enough lucky monkeys flipping coins will result in a Warren Buffett and Buffett. Buffett’s response was, well, actually there are eight other investment firms, all of whom studied with Ben Graham, all of whom kind of knew each other loosely, but owned different stocks. And here are their track records.

[00:55:14] Bryan Lawrence: All of them outperformed the market. So, there’s at least eight other lucky monkeys and he has some beautiful math about how the probability of the lucky monkeys actually being all lucky is like, it. It’s, you’d need like. I don’t know how many alternative universes for that to be true, but a point that falls out of that, which he comments on, is that every single one of the managers underperformed about a third of the time, when measured annually, and Berkshire Hathaway itself I went back and I looked for this 19 of the last 54 years.

[00:55:45] Bryan Lawrence: He’s been managing it 54 years with full time. Warren has Berkshire Hathaway stock has underperformed the S& P 19 of those 54 years or 35 percent of the time. And you just imagine yourself it’s 1975 over the prior two years, Berkshire Hathaway stock has fallen by half and the market is flat.

[00:56:03] Bryan Lawrence: Do you sell your Berkshire Hathaway stock? If you had, that would have been a very bad decision. It’s 1999. Berkshire Hathaway stock is up slightly, but 40 percentage points less than the S& P. Do you sell your Berkshire Hathaway stock? That would have been a very bad decision in 1999. So there seems to be something about this process that results in these periods of underperformance that means this is really not for everybody. And I don’t know if that’s answering your question, but that’s [Crosstalk]

[00:56:34] William Green: Yeah, and it gets at such a profoundly important issue because this can last for years, right? No I remember you and I were texting about it when you were reading my book and you were reading the chapter where I was talking about Jean Marie Eviard, because Eviard, there was a point where he said to me, look after a few years, you start to wonder, Am I just not getting it?

[00:56:54] William Green: Like the paradigm has changed and maybe I’m just, so, so it’s really easy after a period where you’ve done incredibly well as a contrarian, concentrated value investor to look back and say, well, this makes so much sense, but when you’re in the thick of it, and I have a lot of friends who do this right professionally, and so, and I think, like childbirth, they forget how painful it was and when you’re in the thick of it, when you’re actually going through that period, it’s kind of agony, because you have a lot of your shareholders bailing out often if you’re, if you don’t have a structural advantage.

[00:57:28] William Green: I mean, you have a structural advantage that’s similar to Guy Spears advantage, which is a lot of the money is your family money, so you’re less vulnerable to people bailing out. But you start to wonder, if other people who are making tons of money investing in stupid stuff have figured out something that you haven’t figured out.

[00:57:46] William Green: So it’s kind of embarrassing and fear of missing out kicks in. I mean, it’s just, it’s torture. And so I wanted to ask you, About the emotional, psychological side of this, because when we talked about this yesterday, you mentioned to me, look, I’m way less emotional than most people. Can you talk about the wiring that you actually need to be able to handle the pain of this?

[00:58:09] Bryan Lawrence: Yeah, I think that I’m pretty, I think in a, I think I found really what I want to do like analyzing businesses, trying to understand the world, developing conviction, looking for places where the conventional wisdom is wrong. I just, I love living in that world and I enjoy this. And so when.

[00:58:32] Bryan Lawrence: When something starts to go against us, we bought something and it’s down. That’s I really enjoy that. That’s really distinguishing between a mistake and an opportunity is where you make a lot of the money doing this. And I just really enjoy that. And I think a lot of people don’t, I think that they don’t like confronting their own mistakes.

[00:58:53] Bryan Lawrence: I’m really struck, the apparently Charles Darwin had this saying that, the human mind is like the human egg, like once. Once impregnated with an idea, it’s impervious to new ideas. Like, I really value disconfirming evidence. Like, I welcome, one of my favorite things to do is to talk to a short seller.

[00:59:10] Bryan Lawrence: Like, I when things start to go against us, like, my intensity of desire to figure it out kicks in and we’ve gone back to the beginning of Oakcliff, you know, 20 years ago. If you measure being right as the stock that we bought either we sold for more than we paid for or it’s trading now, we own it still for more than we paid for. We’ve been right 70% of the time and wrong 30%. Like we are definitely wrong 30% of the time and identifying where we’re wrong.

[00:59:39] Bryan Lawrence: That’s where we work most intensely. And I just think that’s how we’re wired. And then we’ve done the things that we’ve done structurally, choosing clients, having clients choose us for the right reasons that mean that when we’re down, we don’t get calls saying, oh my gosh, you promised us something that isn’t going to happen.

[00:59:58] Bryan Lawrence: Right? So that’s a huge advantage. We have, that we have clients who understand that what we do. And I have emotions like everybody else. I mean, I’m not inhuman, but we own 15 companies right now. They’re trading at 14 times trailing free cash flow. The S&P 500 is at 22 times.

[01:00:14] Bryan Lawrence: These are very high quality companies and just learning more about them. And the dozens of companies on the watch list that we’d like, it just the emotion drains away and you live in a world of learning more about each one continuously and I don’t know, maybe I’m just wired in a way that’s what happens.

[01:00:31] William Green: When you think of the mistakes that you’ve made, you’ve written a lot, you’ve made a point of writing in your annual reports in some depth about them. Stocks where things were controversial, things went wrong in the end. Even with things like Carvana and Valiant which you’d owned, which in some ways were very controversial. Stocks where things went sour, but you ended up kind of making money off both of them, or [Crosstalk]

[01:00:52] Bryan Lawrence: I made a lot of money on both of those.

[01:00:54] William Green: Yeah. Or be it less, less, less than you would’ve done if you sold all of it earlier, I guess. But I, in a way was more interested. In, when I looked at your portfolio and I thought, actually, it’s interesting because you owned stocks very early that turned out to be extraordinary, like, you owned things like MasterCard or Visa back in 2011 or back in 2009 when people thought American Express might go bankrupt, you had call options with a strike price of about 20 and I was looking at yesterday, I think it’s at 212 now, and you bought CarMax very early, I think back in 2004, and then sold in 2015, and I was wondering if maybe, actually, the real mistakes, in certain ways, had been harder To look at because they were less obvious because they were actually things that were kind of amazing that you didn’t hold and I was wondering how you think about that issue just when you were smart enough to find a really great business and then let it go too soon. How do you think about that fundamental problem?

[01:02:01] Bryan Lawrence: Yeah. Oh, it’s a great question. So if you pick a business, it’s a good business. It turns out to be a good business. Your analysis is right. You buy it at the right price. It’s now gone up. I guess there’s two countervailing things. One is, wow, you feel great about that decision.

[01:02:21] Bryan Lawrence: You’re happy every time you look at it in your portfolio. You tell clients about it. You tell your wife about it. That’s dangerous because just because something’s done well for you doesn’t mean it’s going to continue to do well for you. I mean, every day that you don’t sell a stock is another day you choose to buy it, right?

[01:02:40] Bryan Lawrence: So every day you keep something in your portfolio is a decision. So you have to apply the discipline to it, which is, I feel really good about it. But am I still learning about it? Like, is there something about it that the thesis is changing? Is there some new competitor? Is it success attracting some new disruptive thing?

[01:03:03] Bryan Lawrence: You have to constantly be watching for that. The other thing is that back to that share price is going up and down 80%. If you’ve bought something that is a good business, one of these things that we like, the, A rational duopoly, a low cost operator something with a lot of runway to increase cash flows to shareholders, then its intrinsic value is going to be going up and to the right, let’s say 15 or 20 percent a year.

[01:03:27] Bryan Lawrence: But its share price, if the share price is going up and down by 80 percent a year and the intrinsic value is going up and down by, going up. By sort of 20 ish, there will be times when the share price exceeds intrinsic value and these things are highly, it’s imprecise, but you do your best.

[01:03:45] Bryan Lawrence: You project cash flows forward. You say, holding this. For the next 5 years, 8 years, 10 years, will result in a return to us if the share price runs too much, that return drops. So if you develop conviction in something, you make it an 8 percent position you think it’s going to do 20 percent return for you over time, and the stock doubles.

[01:04:09] Bryan Lawrence: You no longer have an 8 percent position, you have a 16 percent position. And you no longer have a 20 percent IRR. The math of that in one year is you probably have a 12 percent IRR. So would you make a company with a 12 percent IRR into a 16 percent position or would you trim it? Right? So that’s the constant process.

[01:04:27] Bryan Lawrence: And the other thing that happens is new ideas are coming in all the time. And you’ve got something with a 10 or 12 percent IRR and a brand new thing with a 20 percent IRR. We make these decisions infrequently. We do not like to pay taxes. If you sell something that’s highly appreciated, you all, we ourselves, and virtually all of our clients are taxable.

[01:04:46] Bryan Lawrence: So these decisions are made slowly, but you do make them. Do you make mistakes? Do you sell MasterCard too early? Do you not own enough trans time the entire time you’ve owned it? You, yes, you do, but you know, that’s, we’re going to make mistakes. But if you don’t have that kind of process in place. I think you’ll make more mistakes.

[01:05:06] William Green: When you look back at your analysis of your mistakes over the years, is there anything where over the course of the 20 year evolution of Oakcliff, you’ve really changed or updated your process or the way that you invest because you see, actually, I didn’t really understand the importance of this. This is much more important than I realized, or I’m doing this wrong.

[01:05:31] Bryan Lawrence: Yeah. I think the main thing that’s changed is that when we started Oakcliff, we had part of the capital invested in more special situation kind of opportunities where there’d be something, an event or something in the capital structure that you could say, Hey, made something cheap, but the business quality was less good than, we always had good businesses, the Mastercard and the CarMaxes and the Trans dimes, but some of these things, we had a cruise line called Ambassadors International or a, we did something, which is basically the only time we ever shorted anything.

[01:06:04] Bryan Lawrence: We, we owned Porsche and shorted Volkswagen in order to isolate the piece of Porsche that, the Volkswagen didn’t own. Those sorts of special situations, the problem with them is that if you, they can look statistically interesting on a piece of paper, and you can make a lot of money doing it, but if you go into a financial crisis, the market doesn’t care what you paid for it, and if the business is brittle and breaks, your thesis breaks, and you’re not in a good place, I would much rather have You know, after 20 years, I think a lesson is if you’re in a bunch of good businesses and you hit a financial crisis, your good businesses do well.

[01:06:40] Bryan Lawrence: They may even get stronger. They buy back their own stock. They buy their competitors. They take market share. I think special situation investing is something that would, I mean, would we do it again if we saw something amazing? Maybe. We’re really interested in the good businesses that are long holds. That’s the evolution.

[01:06:58] William Green: So when I look at your portfolio now, and I don’t want to talk specifically about individual stocks, because I know you’re wary of discussing this, but as people who look at your filings can see you have a big portfolio. Big positions in things like, or at least you did at the end of last year in interactive brokers and basic fit and trans time and straw and gildan and alphabet and mag energy and guidewire and the like, so you owned at the end of the year about 14 stocks, so a lot of what you’re doing.

[01:07:27] William Green: Is this kind of mad intense research process to find another good idea that can be added to this kind of elite group of companies that have some kind of long term competitive advantage that have great durable businesses and the like. Can you talk about what that actual process is like because that’s where you’re spending much of your time like I remember you writing once in one of your annual reports you said the greatest challenge is keeping up the pace and the temperament to read 750 annual reports a year in search of very infrequent ideas. So tell us about that actual process which is where you spend much of your actual week.

[01:08:06] Bryan Lawrence: Yeah, I think I said the investor to the journalist, it looks a lot like journalism. Ha. Painful and badly paid.

[01:08:13] Bryan Lawrence: Well, I well, depends how the stock picking goes. You never know where the next idea is going to come from. And it could be you see an investor you have respect for buy something, you try to reverse engineer what they’ve done. It could be a disturbance in the force, something’s happening. The German economy is in a recession.

[01:08:32] Bryan Lawrence: What are the great businesses in Germany that you might want to look at? Or it could be you read about a new CEO someplace, but that populates like a funnel, about a hundred of those types of things drop into the funnel each year, let’s say two a week. And pretty quickly, is this, One of the high quality business.

[01:08:52] Bryan Lawrence: Is it a natural monopoly? Does it have two players who dominated who are being rational with each other? Does it have pricing power? Is there a, is this a low cost operator in the incumbents? The people it’s competing with, you have no ability to match those prices.

[01:09:05] Bryan Lawrence: And so, like Geico, you’ve got, we’re interactive brokers. You’ve got decades of growth ahead. If it’s not that, it gets thrown to the side, but we’re trying to answer six questions. Is this a business we understand? Is it a good business in the way that I just described? Is it run by a management team that thinks like shareholders, that will treat us like partners?

[01:09:27] Bryan Lawrence: Is it cheap, demonstrably relative to its expected cash flows? Is it trading in an attractive valuation with an attractive IRR, internal rate of return of owning it from here? Why is it cheap? Okay, can we identify the reason why we are right and the market is wrong? What’s the variant perception?

[01:09:44] Bryan Lawrence: That, we spend a lot of time on that. And the final one is question number six. If we’re wrong, because we can expect to be wrong at least 30 percent of the time, how much money will we lose? Right? And so those six questions Really, and let’s say about 10 of these, feels like about one every four to six weeks, call it 10 a year, we turn on the afterburners and that process is to try to become the best informed investor, like talk to competitors, customers, suppliers, ex-employees, read years of transcripts and public filings, do the same thing for the competitors, so that you put yourself in a position, ultimately, You’re going to talk to the CEO of the business and you’re going to be able to say to him, We think we understand your business.

[01:10:30] Bryan Lawrence: We think the three things most on your mind are A, B, and C. What do you think? And that’s really our happy place. When we get to that place, when we’re having that conversation, sometimes the answer is, oh, we get to that place and the share price needs to be 20 percent less. So we just say, okay, that, that was good.

[01:10:45] Bryan Lawrence: We now understand that one. Let’s focus on another one. Wait for the share price to drop, which it might never, but. And out of all of that, out of those ten things where we turn on the afterburners, we might have two decisions a year to invest into a new idea.

[01:11:01] William Green: So you’re an intensely competitive and driven guy. And you’re very focused on this task, right? I mean, it’s a fiercely focused task looking for these diamonds in the rough. Tell me how you actually structure your day. Like, I remember when I stayed with you on Fire Island, you got up early. What’s actually, I mean in some ways there is, I think in my book I described the best investors as like mental athletes, there is a sense in which you have to be a mental athlete and you have to manage your time well, you got to think about your energy levels, your fitness, and I know you play squash like four times a week and like, you think pretty carefully about this stuff, so can you talk about what you’re actually doing As a kind of mental athlete trying to equip yourself to win an extraordinarily competitive game where you’re up against really smart people.

[01:11:55] Bryan Lawrence: Well, I am pretty competitive. That’s true. And I really enjoy this. I don’t think I could do this if I didn’t. I mean, I find this to be the most intellectually stimulating and interesting thing I’ve ever found to do. And solving these puzzles is just fascinating. So it does not feel like work.

[01:12:13] Bryan Lawrence: I guess that’s the first point. It really does not feel like work. If you told me I had a year to live, I think I would, I mean, I’d spend a little bit more time with my family, but I mean, I, this is what I want to do, but I’m up at, I’m up at 5 30 in the morning. I work out. I’m at the office by 8.

[01:12:30] Bryan Lawrence: It’s a bunch of reading. It’s pretty unstructured when we’re in intense afterburner mode. There’s phone calls with different people. We want to cross check with customers, competitors, suppliers. There’s travel pretty infrequently. You can do a lot of this with this amazing zoom technology. And there are four squash games a week in addition to the kind of morning workout stuff, because I’ve got three guys, I’ve been playing squash with between two and 10 years.

[01:12:55] Bryan Lawrence: And we’re all getting older at the same rate and our objective is to play squash into our 80s. I’m 57 now and I find it’s just wonderful to have the squash club is four minutes’ walk from here. So it’s just a nice interlude in the middle of the day. And I’m home by six 30 or seven.

[01:13:13] Bryan Lawrence: I have an amazing wife who I spend time with. We have. really good friends. We have four children between us, three of mine, one of hers. It’s a second marriage for both of us. Spent a lot of time with our kids, spent a lot of time with our friends, but I’m working on the weekend too. I mean, I, it does not feel like work.

[01:13:28] Bryan Lawrence: I mean, reading another annual report or reading another book about an industry reading, more information about, some corporate leader and the choices he’s made, I find to be endlessly fascinating. So I, it may look a little intense to other people. I don’t really know any other way to do it.

[01:13:45] William Green: How are you handling distractions, Bryan? Like, like, obviously there’s an unbelievable number of opportunities to fall down rabbit holes with information coming at us the whole time, with all of these technological distractions from the many different screens. What are you actually doing to make sure that you’re using the information available to you helpfully and not self destructively?

[01:14:12] Bryan Lawrence: Well, there’s, you never know what a wormhole is. I mean, maybe the, at the bottom of the wormhole is an investment idea that doubles your money. So it’s, I guess the, it’s a constant thing every morning. How do we spend our time? Like, I write myself a note every morning. These are the 4 things I want to get done today.

[01:14:28] Bryan Lawrence: And I try to cross them off by the end of the day, but there is no playbook for this. It’s something new every day. It’s kind of exciting. I don’t know what will happen at the beginning of each day. I have no idea what will happen at the end. What will be important, who will come in, people visit us, people call us up, we call people, we learn things.

[01:14:44] Bryan Lawrence: I don’t know, I wish I had a good answer for you, I wish everything was perfectly planned out, but it’s not.

[01:14:48] William Green: So it’s interesting, it’s not that structured.

[01:14:51] Bryan Lawrence: At all. No.

[01:14:52] William Green: I wanted to ask you about your actual physical environment, because I was very interested when I went into your office in your home on Fire Island, and you had a bust of Lenin, a small bust.

[01:15:07] William Green: And you told me at the time that you have four offices dotted around the country and in each of them you had a bust of Lenin. And I’ve thought a lot over the years about how we structure our physical environment in ways can help us as investors or writers or anything else. Talk about why you have the bust of Lennon and why your offices are the same.

[01:15:29] Bryan Lawrence: Yeah. Well, there’s two common things in each of the places that I work. One is a bust of Lennon. The other is a nap couch. You can see the nap couch behind me. I mean if a day goes by and there’s not a 20 minute nap, that’s a failed day. I think our bodies At least my body wants to nap at about two o’clock after lunch, and to try to power through that with caffeine is unwise, so that’s one thing.

[01:15:52] Bryan Lawrence: The bust of Lennon, that reflects in December of 1988, I was studying in England. And we had a chance to go on a trip to the Soviet Union. It’s before the wall came down. And we were in Moscow in Leningrad, and on the trip to Moscow, we went to the Lenin Museum. And the Lenin Museum had all these things that Lenin had said and done, but also it had these rooms where the curators of the museum had said, well, Lennon predicted this, Lennon predicted that.

[01:16:24] Bryan Lawrence: So there was this whole thing on how Lennon predicted the rise of the proletariat, and it had happened in these countries, and Lennon predicted this scientific breakthrough, that scientific breakthrough, there was a room where it was the room of information technology, and they had a big statue of Lennon and a whole bunch of slogans of Lennon from writings, I think in like 1920, where he they cherry picked some things that he’d said to say that he’d predicted the personal computer.

[01:16:47] Bryan Lawrence: And on this Sort of stand was a, a Russian copy of an Apple II computer. Okay. And it’s 1988. So Apple II’s invest in, I think introduced in 1981 or something. This is seven years late. And it’s an, it’s a Russian Apple ii and it’s like twice the size of an American Apple ii. And it got bolts and it’s clunky and all this stuff.

[01:17:09] Bryan Lawrence: And there’s this big, it was translated for us. Lenin predicted this. And so outside on the street, they were selling these. surplus busts of linen, made of steel or something for 25 cents. So I bought one and brought it home and I’ve collected them since. I have this bust of linen on my desk to remind me of like the danger of certitude, like the danger of ideology, like that this guy was so confident and so compelling to his followers that he took his country from 1917 until 1991 on a wild ride of Insanity.

[01:17:50] Bryan Lawrence: And, if you diverge from the ideology, you got shot in the back of the neck and, how many people were subjected to famine and all in the service of an ideology, right? And so it’s just a reminder that no matter how confident I feel about something, and maybe especially because I feel confident about something, I should have a sense of doubt and duty to try to figure out whether or not there’s a differing one of you.

[01:18:12] William Green: One area where I think a lot of this this challenge of the dangers of what Charlie Munger would call heavy ideology. You see it come up a lot in the investing world when it comes to energy and this is an area where you have a particular expertise. You’ve made a lot of investments over the years in energy stocks, you’ve served on the boards of various energy companies.

[01:18:33] William Green: You spent many years working at Yorktown, which specialized in private equity investments in energy. And I think about this a lot, this question of how you actually separate the heavy ideology surrounding the energy sector and the reality. And I wonder if you could kind of help guide us through with your experience on this to explain a couple of things.

[01:18:56] William Green: So, so first, we talk a lot about the importance of shifting towards renewable energy, right? There’s clearly, unless you’re really a heavy ideological denier, there’s really, there’s clearly an important environmental issue going on here, but then there are also really important pragmatic issues involving our reliance on fossil fuels and the importance of actually using fossil fuels, to raise the standard of living in places where They also deserve to, to live well and you’ve, you used a great phrase with me when we’ve talked about this in the past where you talked about the missing money problem and I wonder if you could just unpack this and talk about how you think through this issue in a kind of non-ideological, rational, pragmatic way.

[01:19:46] Bryan Lawrence: Yes. So, my, my father’s and his partners with Yorktown, 120 investments, I’ve helped them, from 2013 till 2021, I was devoting some of my time to helping them develop a renewable energy practice because they were investing in oil and gas companies, led to help them lead investments in battery companies, wind companies, solar companies and help them recruit a new team of people. So they’ll raise the next Yorktown partnership. I, energy investing is sort of the family business. And as long as I can remember, dinners with people from the oil patch are trying to make this happen. So, I mean, I have a real hands on sense as to what happens in order to keep the lights on.

[01:20:30] Bryan Lawrence: And so, saying it and doing their different things, this is from some combination of like, talking about it, but also watching people do it and investing in it. So I guess the missing money problem, I think there is the physics, the economics and the politics. Okay. So let’s just go through this in order, right?

[01:20:48] Bryan Lawrence: So I can organize this, the physics of it, and not many people understand this. We’re so wealthy. We’ve gotten detached from where our energy comes from. A well fed adult human. Okay. Working 10 hours a day, can create like a kilowatt hour of electricity, of energy. And, a kilowatt hour of work from a well fed adult manual labor would keep a 40 watt light bulb on for 24 hours.

[01:21:15] Bryan Lawrence: That, that’s what a human being can create with their own work. And if you take gasoline, which has been called a fossil fuel, right, which is true, it comes from old animal and plant biomass that’s been compressed in the earth. It’s basically a bunch of carbon and hydrogen atoms attached to each other.

[01:21:39] Bryan Lawrence: The energy in those carbon and hydrogen bonds in a gallon of gasoline is 34 kilowatt hours. So, a gallon of gasoline has within it 34 man days of work, which is an extraordinary amount of energy. And people complain about paying 4 for a gallon of gasoline, but when you work out what you’re paying per man hour of work, you’re paying one cent.

[01:22:04] Bryan Lawrence: Okay. And moreover the kilowatt per hour per gallon, like if you say, well, let’s take lithium, which is, at the core of this new energy economy, these, batteries, which, are, will power, are powering these amazing Tesla machines. The energy density of a lithium battery is one 50th, 2 percent of that of gasoline. And gasoline, when you call it a fossil fuel, but we, as a society, we’re, 4,000 years into our civilization, have not discovered as energy dense a substance as gasoline and its cousin diesel. There isn’t another one. At room temperature, it just sits there. It’s good forever.

[01:22:42] Bryan Lawrence: The only thing that is close to, that you might, that is more energy dense is uranium and plutonium. You need a containment vessel. Like, you’re not going to see a nuclear powered car. So. If you think about the impact that this incredibly dense, you call it a fossil fuel, you could also call it a miracle fuel.

[01:22:57] Bryan Lawrence: Like the impact that gasoline and diesel and coal before them have had on our society. If you think about standard of living, Cicero, lived in the first century BC, Roman Senator, right? His quality of life was better than that of George Washington, who lived 1800 years later. Like they’re both, agricultural societies.

[01:23:19] Bryan Lawrence: Cicero had toilets that flushed. Right? Cicero’s roads were better. If you look at GDP per capita between 100 BC and, 1776 AD there’s almost no change. I mean, there are ship, there are wooden ships and compasses, but the, and gunpowder, but very little economic innovation.

[01:23:36] Bryan Lawrence: 1802, James Watt discovers the steam engine and can start to use coal to create mechanical energy. So today, we’ve gone from steam engines to internal combustion engines. When you turn on a Toyota Corolla to go get a latte at Starbucks, your 170 horsepower engine is delivering the energy of 3, 000 people.

[01:23:59] Bryan Lawrence: It’s like you’re in a chariot being pulled by 3, 000 people, right? Where Wealth in Cicero’s Day, he had a hundred slaves, okay? George Washington, we know, had a hundred slaves. Like, Wealth would be a hundred slaves. George Washington’s one of the richest people in the American colonies. Turning on your Corolla to go to get a lot to you’ve got 3000 people working for you and you’re paying them one penny an hour, right?

[01:24:21] Bryan Lawrence: So that is at the core of why, when you look at world population going from half a billion in 1776 to 8 billion now, you look at GDP per capita exploding. It’s this energy. So we are, we’re a species that’s deeply dependent on the physics of these hydrocarbons. The economics of it, like there’ve been energy transitions.

[01:24:42] Bryan Lawrence: So we, we had Cicero and George Washington your, Economic achievement was dependent on how many animals or humans you owned. Okay. Flesh, wind, that was the first, those were the first prime movers, right? Then we had coal and coal from 1802 onward. All the industrial revolution and the railroads and all of that.

[01:25:06] Bryan Lawrence: And then coal gave way to oil and gas. In 1912, the Titanic launches, it’s powered by coal. I think it’s pretty much the same year, Churchill, who’s the first sea lord of the Admiralty, is making a decision, despite all the coal in Newcastle in the UK, he’s going to have dreadnoughts be powered by oil because it’s more energy dense, more efficient.

[01:25:25] Bryan Lawrence: So he’s going to make himself dependent on the Persian Gulf, but his dreadnoughts will be as fast as the German dreadnoughts. So we move into the age of oil after World War I. Men and horses, to coal. to oil. That’s three energy transitions. Now we’re in a, another energy transition, right? This energy transition is not driven by the lower cost and higher efficiency of the new modality.

[01:25:49] Bryan Lawrence: It’s driven by the need to reduce emissions of greenhouse gas. And so far, and there are a lot of people working on this, so far, the expense of this new energy is more than the old energy. And so, here’s an example. And this, I have a very good friend, a 25 year old friend who is he’s a leading thinker at the Environmental Defense Fund working on matters of climate change.

[01:26:16] Bryan Lawrence: He’s actually, two weeks from now, he’s going to be in California. They’re launching this satellite into space, funded by Jeff Bezos, backed by Google, to monitor methane emissions all around the world. He really is doing amazing work. His name is Mark Brownstein. He calls it the missing money problem.

[01:26:31] Bryan Lawrence: If you have a solar panel, you claim that the energy produced by your solar panel is cheaper than that of natural gas, but you, the solar panel developer, don’t have to pay for the battery necessary to store the power at noon, and you don’t have to pay for the natural gas plant that is necessary for when you have like let’s say three days of cloudy skies.

[01:26:58] Bryan Lawrence: Society has to pay for those in some way. And so the missing money problem pops up in all societies so far, whether it’s California or Germany, or two examples, where your penetration of the electric grid goes above 30%. wind and solar, your cost of electricity starts to spike. So the numbers in the United States right now, 21 percent of our electric grid is powered by wind and solar.

[01:27:24] Bryan Lawrence: We have a 19 cent per kilowatt hour retail electric price. Okay. In Germany, Germany is up to 44 percent and they’re at 44 cents, 44 cents. It doesn’t sound like a lot, 44 cents versus 19 cents. If you take if you had German power prices here, if you doubled the share of our grid provided by wind and solar with battery backup, and you also have to pay for natural gas plants to sit there for the times when the sun doesn’t shine for three days at a time, you went to 44 cents German power prices.

[01:27:54] Bryan Lawrence: Every household in America would have an electric bill annually that is 3, 000 more. 3, 000. And that, who pays that is the missing money problem. 3, 000 is not a lot to some members of our society, but data from the Federal Reserve Board, 40 percent of American households can’t come up with 400 of emergency savings for a medical emergency.

[01:28:20] Bryan Lawrence: 3, 000 is a ruinous number. That doesn’t even include, that’s just your retail electric price. That’s not the cost of more expensive chicken in the refrigerator at the grocery store. So that’s the economics. This energy transition is not being driven by lower cost and higher efficiency. This is being driven by a need to a very understandable need to reduce emissions.

[01:28:41] Bryan Lawrence: So you get into the politics. Politicians understand the need to reduce emissions, but they’re operating in a system where they need to be reelected. In my experience, very much a minority of politicians, by far below 50%, don’t have the numeracy or the physics or the economics to understand what I just said about the missing money problem.

[01:29:01] Bryan Lawrence: And so, they very much understand the desire to get re-elected, and so what they do in response to popular desire to see emissions fixed, is rather than, they basically have two choices. They can put a price on carbon, which would cause society to have a real price reflected through, which would cause people to put a price on carbon emissions, therefore doing alternative behaviors, reducing those carbon emissions, or they can subsidize The guy with the solar panel or the guy with the battery, Biden’s Inflation Reduction Act offers 60 a ton for people to put CO2 in the ground and they offer a 30 percent off of the capital cost of the battery and for a politician, this is really exciting because the guy with the carbon sequestration project or the guy with the battery project is also a donor.

[01:29:55] Bryan Lawrence: So the donors give money to the politicians, these different things get subsidized. It’s not the efficient path. The efficient path would be a price on carbon that allows the missing money problem to be fixed in the most efficient way possible. And, for an energy investor, and, Oakcliff has a couple things that are energy investments.

[01:30:16] Bryan Lawrence: It’s tricky to navigate because what you need to do is you need to recognize that the politicians are operating both from a lack of numeracy and from a need to be reelected in a system where they’re going to do these things that are economically irrational. So you need to own things that, no matter what irrationality the politicians do, will prosper.

[01:30:34] Bryan Lawrence: But you also need to own things that eventually, because I think we’ll get there, the cost of this subsidization and inefficient path will grow to be so great, That eventually a price on carbon will be imposed and you need to own something that when there’s a price on carbon, let’s say a hundred dollars a ton on all CO2 emissions, your investment will prosper.

[01:30:55] Bryan Lawrence: I’m really looking forward to that day. I think a representative democracy is actually pretty poorly placed to manage an economic problem of this nature. It’s like the biggest engineering project ever undertaken by man. and It’s our founding fathers. I think if you had described to them this problem, they would have said, oh, the system is not going to be very good at this.

[01:31:15] Bryan Lawrence: They were living in a world where taxes were 1 percent of GDP through import tariffs, and there were like six frigates, it was not like, how can you have a representative democracy rework the most complicated economic machine known to man, which is called the power grid, but that’s the missing money problem, and I’m just hoping we get to the answer.

[01:31:32] Bryan Lawrence: Soon, I just one other thing, and this is it feels a little bit like a rant. You can’t have a price on carbon until you have a legitimate substitute. Because if you put a price on carbon and you don’t have a substitute, the way that your carbon emissions will go down is less economic activity. Like, what you need is you need the Elon Musk’s of the world to create cheaper solar panels, cheaper batteries, cheaper electric vehicles.

[01:31:54] Bryan Lawrence: And then bring the price signal to push us all towards that substitute. But I think the way our politics are toxic already, like if you said to people, Guys you really can’t drive as much. You can’t, buy as much. You can’t. You have to suppress your standard of living. I don’t think, I don’t think the American people are ready for that and so the politics of it are very tricky.

[01:32:17] William Green: With your investments, you’ve clearly positioned yourself in an intelligent way so that you’ll be okay whatever happens, right? So you own a very low cost oil producer in North America. You own a company that provides heating oil and propane to hundreds of thousands of households.

[01:32:33] William Green: So you’re thinking very seriously about the practicalities of how to be a, how to be a resilient investor, even in this very fraught environment where there’s lots of ways this could go in terms of regulation and the like. But I’m wondering how you wrestle also with the ethical concerns of investing in this area because this is something I know you’re very thoughtful about and I had a discussion with Guy Spear about this a couple of weeks ago when we were all in Switzerland and Guy wrestles tremendously with the ethical questions about investing in coal, for example, where he’s like, look, it’s this incredibly juicy idea.

[01:33:07] William Green: But also, I’ve been publicly stating the fact that I want to invest in things that are really good for society. And so then I see guys sort of twisting himself up in knots being like, well, If I were to own options, that’s different. Or if it’s metallurgical coal, then it’s different. And I think there’s a tremendous tendency to rationalize our own behavior that’s good for our own finances.

[01:33:32] William Green: And I’m wondering how you wrestle with this. This question of how we should actually think through the ethics, the morality of investing in companies that probably on balance are not great for the environment, but that are necessary economically.

[01:33:50] Bryan Lawrence: Yeah, I guess, like, an overarching point and then two things about investing. I think the overarching point is that we’re so rich that most people, even very educated people, have no real idea where our energy comes from. Like there, there’s a wonderful book that’s actually on the list that I want my kids to read. It’s by Vaclav Smil. It’s called How the World Really Works.

[01:34:15] Bryan Lawrence: And he makes this beautiful point in the introduction, which is, I think it’s the last time the two educated people could meet and reliably know half of what the other person. was like 1780. The specialization of information has gotten to be the point where the glory of, large language models and then, genetic botany that, increases crop yields.

[01:34:38] Bryan Lawrence: But then, this person is a trial lawyer, and if you bring these people together at a cocktail party, they’ll talk about all sorts of interesting things they have in common. None of them will be their professional experiences. Whereas two people meeting in 1780, they will have read Plutarch, and they will have read John Locke, and they will have read, there’s like a library that you could carry around, and human knowledge has exploded.

[01:34:58] Bryan Lawrence: One consequence is, like, 1 percent of the population farms now, it used to be 70%. You could have a conversation with anyone about farming in 1780, I mean, what do you and I really know about harvesting crops? What do you really know about drilling for natural gas? If we had no fossil fuels.

[01:35:15] Bryan Lawrence: So, an interesting thought experiment. I think we would be, like, I think we’d, you and I would be dead in 10 days. 14 days? Dead. Because, here in New York City, there’s like 3 days of food in the supermarket. Like, every morning, the trucks come at 7 in the morning. I mean, they’re powered by diesel.

[01:35:33] Bryan Lawrence: The crops depend on ammonia that’s synthesized from natural gas. If a guy named Fritz Haber, I’m sorry, the Bosch process for creating ammonia in 1912, like if the way the nitrogen used to be put onto crops was, animal and human manure, which is 2 percent nitrogen by weight.

[01:35:51] Bryan Lawrence: If you don’t put nitrogen back in the soil, you’re, you can’t grow crops anymore, so you would spread. animal and human waste on the land. When was the last time any of us have done that? Then it was guano. You’d put it on boats off of the coast of Chile and ship it up here.

[01:36:06] Bryan Lawrence: Cause it was 8 percent nitrogen by weight. That’s extraordinary. And then this German comes along and he manages to synthesize it from natural gas, which comes out of oil wells. It’s 78 percent nitrogen by weight, but no one knows. that without natural gas, there would be, 80 percent of the food on the table wouldn’t be there.

[01:36:23] Bryan Lawrence: So I guess that’s the overarching thing, like a lack of understanding as to what really is sustainable. What our society really depends on is the first point. I think the second point is as we wrestle with this and deal with the missing money problem and try to figure out a way to intelligently reduce the emissions.

[01:36:43] Bryan Lawrence: You need to choose your investments to survive this interim period of different government policies. When a politician who is innumerate and maybe ignorant of these things stands up and proposes a policy, it may damage, A market or a business and you just need to be able to anticipate what they’re going to do and own something that survives through this policy of this period of, I think, muddle.

[01:37:05] Bryan Lawrence: And then that gets to the third point, which is you need to be in things that are sustainable, like truly sustainable, informed by the real need to sustain human civilization as well. And so if you imagine ultimately 100 a ton carbon price, I’ll bet you we could reduce carbon emissions. I’ll bet you if people did better insulation of their homes, it might cost just 20 a ton.

[01:37:28] Bryan Lawrence: At some point in the future, I believe will, will, there’ll be a general price on carbon and this will no longer be an ethical question of, are you doing the right thing? Are you doing the wrong thing? It’s, this is a societal price on carbon that’s lowering our overall societal emissions. And some businesses are sustainable because they are providing the goods and services that we need in order to survive as a civilization and as a species for less than that cost.

[01:37:52] Bryan Lawrence: And therefore it is a sustainable business. And so the two businesses that Oakcliff owns, I believe passed that test. So I really don’t think this is ethical. I think the ethical thing is a bit of a false argument. I think it’s really, do you own something that ultimately is going to survive this crazy missing money?

[01:38:08] Bryan Lawrence: political problem and ultimately is sustainable. And in the meantime, by the way, because a lot of these businesses are shunned, if you own a business that’s generating a lot of free cash flow that’s run by people who are buying back the stock and it’s ultimately going to be sustainable, it can be a very good investment.

[01:38:27] William Green: Yeah, I mean, look there’s clearly a lot of money that can be made in this area because of the underinvestment and the fact that it’s untouchable for certain investors. And so it’s a little bit like Howard Marks telling me many years ago when he was investing in areas like distressed debt, when people will tell you a whole category is uninvestable. It becomes an incredible investment often.

[01:38:49] Bryan Lawrence: It becomes interesting, but you have to own things. If you’re going to own them for the long term, especially, you have to own things that are not, that are creating a pie, only some of which is going to the shareholders. And you just have to define that pie as being good for the environment as well, with a rational price on carbon that society can live with.

[01:39:06] Bryan Lawrence: And I just I think that this question, is it unethical to own a coal producer? That’s sort of an interesting question. I think more relevant is. Is that coal producer, if we really had a rational climate policy, where CO2 emissions cost 100 a ton, would that coal producer still be in business? And if the answer is no, you shouldn’t own it.

[01:39:24] William Green: So at the moment as you’ve said to me in the past, we have this very inefficient patchwork of subsidies for things like solar to, to try to encourage people to behave in a way that, that’s going to be better for the environment. And I think a lot of consumers like me who are not very knowledgeable about this stuff and don’t really know what truly has an impact and what doesn’t what advice would you give us if we’re responsible citizens and we actually want to change our behavior, if we can afford to change our behavior, because obviously there are people in poorer countries who don’t have that luxury of changing their behavior very significantly.

[01:40:01] William Green: So if we’re in a position where we can, what do we do in terms of making decisions about whether to insulate our home, or buy solar panels, or By a Tesla or whatever. Like what, what’s just pushed on us because they’re really appealing subsidies, lobbyists who’ve done a really great job of making us believe that it’s the best thing to do. If you were me, what should I actually go out and practically do if I want to lessen my impact on the environment?

[01:40:28] Bryan Lawrence: Yeah. It’s a great question. I think one thing that you can do is. It’s a little dense, but there’s a pretty good summary. Get a book by a guy named David McKay called Sustainable Energy Without the Hot Air.

[01:40:41] Bryan Lawrence: He was a Cambridge professor of physics, wrote this book, distributed it for free. It’s been described by Greenpeace. And by Shell Oil is the best book on renewable energy ever and it goes through point by point like what you can do, what you tangibly can do and what the real impact is on emissions as a homeowner.

[01:40:59] Bryan Lawrence: Like, one thing that stands out is heat pumps, I mean, one thing that stands out is ride a bicycle more. I mean, but you can, these things are turned from gestures into actual measurable actions by his numbers. So, I’m an I prize numeracy of many things. That’s an amazing book to look at.

[01:41:19] Bryan Lawrence: I think another thing is, There are now, ESG as a movement is becoming much more defined, the environmental, the E and ESG, there is increasing quality of disclosure of what businesses are doing in terms of carbon intensity, the European companies are leading the way, there are now efforts underway in the United States for, U.S. companies to be required to disclose their carbon footprint, I mentioned before, my friend Mark Brownstein, Environmental Defense Fund is about to launch a satellite into space that is going to provide free data on the methane leaks everywhere in the world for everyone to see. And so, let’s just drill down on that.

[01:41:58] Bryan Lawrence: Like, if your utility is revealed by that satellite data, which I think will be available in, six months or something a year. If your utility is leaking methane, which is a terrible greenhouse gas, like 30 times as bad as carbon dioxide, become a member of your community to pressure that utility that plugs the leaks.

[01:42:17] Bryan Lawrence: I think there’s going to be more and more information to be able to say, well, this company is responsible. That company is not responsible. And there’s been a little bit of a lamentable trend where people buy credits. Like, I hereby offset my carbon emissions by buying these credits to make sure that this forest in the Amazon is reforested or something like that.

[01:42:37] Bryan Lawrence: That, some of that may be okay. I, what I really think we need is good data. So that people can see the problem and pressure from consumers. Also ultimately a pressure from taxes. That’s what I think will fix this. And I think a lot of the oil and gas industry would welcome it.

[01:42:54] William Green: And what do you think they’re engineered in terms of cars and the like, like, like as I’m weighing what to buy, like, should I be buying a Tesla?

[01:43:00] William Green: Should I be buying a hybrid car? Like, like beyond the noise and the politics of this? What would you do if you. Could afford to buy a decent car and you were trying to weigh like, what do I do beyond virtue signaling that actually will have an impact?

[01:43:18] Bryan Lawrence: I think buying an electric or hybrid car is a good thing. I think if you bought an electric car in a place that uses coal to make the electricity, I’m not sure what you’ve really done for society. So I would do some work on that. I hesitate to recommend the purchase of an electric car because it’s more expensive and you’ve got range issues.

[01:43:35] Bryan Lawrence: I own a Tesla. It’s an amazing car, but I drive a little secondhand Honda HRV because it just gets better range and I, living in New York City, it’s harder to get a Tesla charged. So I don’t know. I think the choice of an electric car is a little bit of a personal choice. If they were cheaper in five years, I think it’s going to be an easier decision, but saying it and doing it are different things. We need to see the electric cars get cheaper.

[01:43:58] William Green: Yeah, just to switch before I let you go. When we were talking yesterday, you said to me, I’ve never been this happy. And I was, when I look at a lot of the most successful investors, you’re friends with a lot of them. They’re pretty dysfunctional bunch. I mean, they have a lot of broken marriages.

[01:44:15] Bryan Lawrence: No, they’re not.

[01:44:16] William Green: They are. They have a lot of broken marriages. They have a lot of kids who don’t talk to them. And they, what have you figured out about how to actually combine being happy with your work, which obviously you love and you find intellectually incredibly stimulating, with this broader question of how actually to have, a decent family life.

[01:44:36] William Green: And can you talk a little bit about that? Because I feel like some of our listeners wonder, like, if I actually managed to be a really successful investor, am I just going to create a trail of destruction in my life? Like how you do this and be, Successful, happy, productive, functional human being who is good to your family and friends.

[01:44:55] Bryan Lawrence: Yeah, I was laughing at dinner last night with an investor who we both know. And I was teasing him about this time at a prior dinner last year. He had said to me, Bryan, I really enjoy our time together and you’re fun company and you’re smart. I feel like I learned things from you and but we’re guys and we might see each other five times a year.

[01:45:16] Bryan Lawrence: And that’s big for, male friends. I pointed across the table at his life companion, this wonderful woman he’s with and said. Five times a year with you, but I’m going to spend 360 the next 365 nights with her. So she’s two orders of magnitude more important to me than you are. And I said, are you saying we should be more intimate? So I thought that was funny. It was so mathematical.

[01:45:42] William Green: I’d be so generous to you not to out your friend. Cause I know who this multi billionaire is but [Crosstalk].

[01:45:48] Bryan Lawrence: I’m not going to do that.

[01:45:49] William Green: I’m being tactful. I’m not saying anything.

[01:45:51] Bryan Lawrence: I’m not going to do that, but I think it’s a really interesting point because the choice of a life companion is really an important decision and if you get that wrong, it’s a bad thing.

[01:46:04] Bryan Lawrence: And so I just, be very thoughtful about that. And really nurture that and do a good job with that and the difference one person can make, because this is a very interesting thing about this human condition. Like, you have these friends and they can go on for decades and they’re so important as a source of happiness, but especially for men, like, if you get that life companion, Wrong or if you choose a life companion and then your life changes dramatically.

[01:46:28] Bryan Lawrence: Just really be thoughtful about that. Having a group of friends who really treat you, like a friend is very important and it’s, you had Chris Davis on your on your podcast and he said something which he’s. He said to me in private, I’ve been thinking about this a lot, this idea of 10,000 day chunks, like, your first 10, 000 days, you’re very wide, who do you go to school with, who are you going to marry, what are you going to be, and then day 10,000 to 20,000, you’re very deep, you drive into your career, you have your spouse, you have your children, and then you pop up at day 20,000, Men, after, a pretty intense career, generally don’t have as much, as well developed friendships as maybe they should.

[01:47:09] Bryan Lawrence: They’ve spent so much time on being a good father, being a good provider, having the career they’re going to have. And you pop up at age, at day 20,000, which is like age 56 something. And it’s, you really can, especially if you’re doing what you want to be doing. Like I am not going to go be an architect.

[01:47:26] Bryan Lawrence: That’s not going to happen. Not only do I love what I’m doing, I’m not, I know exactly what I’m going to do for the next 25 years. Professionally, but I really having that breadth of friendships and, starting my 50th birthday, I just said, I really need to spend more time at this. And I’m lucky enough to have some friends who really feel the same way.

[01:47:42] Bryan Lawrence: And that’s been, that’s really enriched my life. I wonder if I’d done a little bit more of that in between day 10, but I don’t know. That’s I don’t know. And I think the final thing is if you screw up your children, Nothing else matters. And I know I’ve got a couple of examples, some of who are very close to me, who at one I’m thinking of in particular, who at the end of her life said to me, she was such a mentor to me, like all of the glittering achievement that you see me having achieved, like at the end, all that matters is, is my daughter.

[01:48:14] Bryan Lawrence: And just remember that it’s very important. Back to this point about sustainability of an investment, like if you so devote yourself to an investing track record and you neglect your life companion and your friends and especially your children, what really do you have at the end, but also how really sustainable are you for the people who have entrusted you with their money?

[01:48:34] Bryan Lawrence: Like, if you can’t bring to the office, not just a, an intense focus on what you’re doing for yourself and your clients, but like a happiness at the end of the week. To go relax with people. I don’t think you’re doing yourself a service. I don’t think you’re doing your clients a service and it may feel like that last bit of intensity, to the detriment of your marriage or your friendships or your children is in the interests of some professional furtherance. But I, I don’t think it is, you’ve got to find a balance and that sounds a little airy fairy, but it’s deeply true. Like a lot of things.

[01:49:06] William Green: You got married to Gillian Zoe Segal, who’s an old friend of mine as well, thankfully. in October 2021. And actually she sent me a photo recently where it showed that I think the first time that she spoke to you many years ago, I was in the background.

[01:49:20] William Green: So I was watching over you quietly, Bryan, and unconsciously, I was making some point to her. She looks horrified. So she looks very dazzled by your handsomeness. But Gillian, for people who don’t know, wrote a very interesting book called Getting There, which I’ve gifted to a lot of people. And she’s a photographer and she’s an entrepreneur who has a new company called Lusari, which I told Bryan, he’s not allowed to tout, but I’m allowed to touch. And I actually have my [Crosstalk].

[01:49:47] William Green: And I actually have my Lusari Goggles which she very kindly gave me, which are very handsome. You look better in them than I do, but that’s not the goggles fault. But they are elegant. But the thing I wanted to ask you is, I, Gillian, who’s close friends with Warren Buffett, among many other people, has a particular gift for relationships.

[01:50:10] William Green: Like she’s extraordinary at building and nurturing relationships. She’s as good at that as these great investors are at stock picking. And I wondered if there’s anything you’ve learned from observing her over the last few years. about actually how to build really rich relationships, rich friendships in particular.

[01:50:30] Bryan Lawrence: Yeah, I’m amazed by her. She’s a bunch of things that are like on the surface, they, I call them the obvious things about her. She’s smart and talented and beautiful and fun. And these are the things that are pretty clear very quickly when you talk to her. But there are two things about her that are less clear, but you get to know about her if you spend some time with her, the first one is deeply genuine, and you see it in the way she interacts with people, like it, it can be like the people at a restaurant, like at the table next to us, like we’re just eating out on a Wednesday night, she starts talking to them, and you can see, she just engages with people, any sort of people, and their night is better, she gets them laughing about something it, people we meet when we travel, like, if someone giving us a tour of, remember this, in Marrakesh, this guy, suddenly, his whole life story coming out of him, as he realizes who she is and what she’s interested in, and it can be important people who open up to her, because when you’re talking to Gillian, you’re talking to Gillian, like there’s no artifice she has this bracing thing called a straight talk, where if she’s upset with you, she’ll tell you exactly what she thinks, and it’s terrifying the first time, you get it, but it’s coming from a place of such empathy, and integrity, you realize it’s a gift because you know exactly where you stand.

[01:51:54] Bryan Lawrence: And I think lots of people respond to that. And that’s amazing. I think the second thing about her, which is like a double word score, is that lots of people, across these relationships. I’ve gotten to meet her friends, lots of them when they’ve gone through tough times. And tough times are inevitable.

[01:52:12] Bryan Lawrence: Like, the idea that there’s no tough times in a well lived life is just farcical. Like her entire book, Getting There, is about getting people to open up about the tough times they’ve been through. I mean, arguably the 30 people she, talks about in getting there, the, from, Warren Buffett to Michael Bloomberg to Frank Gehry to Craig Venter.

[01:52:30] Bryan Lawrence: Craig Venter sequences a human genome, tries to kill himself before doing that because he’s so despondent about his life. Like, how do you go through that tough time and then up and to the right? What you start to realize is, getting up into the right depends on getting through the tough time. And she’s been so aware of that her whole life, friend after friend, like you hear these stories, they go through a tough thing, like a tough battle with cancer or a terrible relationship thing or job loss.

[01:52:52] Bryan Lawrence: And the person they’re calling for help is Gillian. And so like, it’s I keep, I wish there were a word for like the opposite of a Fairweather friend because in the dictionary there would be Gillian’s picture next to that. definition, and that would be the caption, like that, and so if you, what’s interesting about our life is if you’re genuine and you’re there, you’re really there, and you do that over a long period of time, what compounds up, and I’m amazed by it, and I, you were at the wedding, I think I said, it’s like the people around you are a solar system, planets are all orbiting each other, And we’re all exerting a gravitational force on each other, right, and the gravitational force of Gillian’s character, I think, certainly pulling me, and I think it’s pulling others towards their better selves, right, and I, she’s quite something.

[01:53:42] William Green: Yeah, she’s a lovely, she’s a lovely person. I’ll tell you one very small thing. thing about her that I know won’t be a surprise to you, but that I, because I’m a writer, I’m always looking for like little tells about the way people behave. And one thing that’s striking to me about Gillian is that she very consciously when she’s going out for dinner with you in a restaurant or meeting, meeting you, not you, one in her, in your apartment or anyway, she makes sure that she puts the other person in the best seat where they’ll have the nicest view and I think that’s a, it’s a really interesting, little insight into good behavior, that she, she doesn’t sit in the restaurant with the beautiful view of the ocean. She makes sure that her guest who might not be there again gets to enjoy that view.

[01:54:30] Bryan Lawrence: Yes, there’s a, there’s that, there’s a kindness, there’s also an intensity, she’s from a very entrepreneurial family, like that, there’s the Lusari Goggles business is, there’s lots of ideas all the time, she has three brothers, it’s quite amazing, they all have law degrees. They’re all very supportive of each other. They’re all starting things all the time. It’s an extraordinary family.

[01:54:53] William Green: I want to ask you one final question. I remember once we were walking on the beach, I think, in Fire Island, and you said to me, I’d like to ask prospective clients in our fund, What’s the money for?

[01:55:07] William Green: Like if I’m going to make you all this money, what’s it for? And I thought that was a really interesting question. And also, it applies to you in a way, right? Cause you already won this game, right? I mean, you’re already very wealthy by anyone’s standards. You have a very wealthy family. And I mentioned this to you yesterday and you were like, yeah, but I have this loop in my head.

[01:55:28] William Green: That’s like, I got to paddle faster. I got to achieve more. And I know it’s somewhat related to the fact that your father’s been incredibly successful and you want to prove yourself and prove yourself again and again. And I wondered how you think about this issue of like, what’s the money for at this stage?

[01:55:45] Bryan Lawrence: Yeah, I mean, the question that we ask people who, who contact us, they reach out to us or we get to know them or something is we really want to know who you are and what you expect, from an investment with us. What do you, what is this? Is this something that you’re going to need next year for, the house or is this something that you’re trying to build for your family over time?

[01:56:03] Bryan Lawrence: And what we’re looking for with that question is like, is this really a piece that’s part of your long term financial plan? And also, do we know who you are? Do you know who we are? Is there a relationship here? We really want to have that relationship because we’re on this journey together and I want to know a little bit about you.

[01:56:22] Bryan Lawrence: And I think you should know a little bit about me. So that that’s where that question’s coming from. And I think, what’s the money for me? It’s always been about autonomy, back to that Felix Rodin advice, like, I want to do exactly what I want to do, and I want to do it in the right way, and I don’t want to be told to do anything that’s the wrong thing to do, and I want to do the right thing at the right time.

[01:56:42] Bryan Lawrence: So that, that autonomy to do that is very important to me. I do not want to call on a client with the wrong idea every six weeks. It doesn’t make any sense to me. I want to have, a well lived life. I really love this business. I love solving problems. And I love delivering results for people, and that’s deeply satisfying, and ultimately, the money I think it’s just as important, the making of it, for me personally, and this is a personal thing, it’s just as important to have a piece of my life that’s about giving it away, like, maybe 5 or 10 percent of time I’ve been involved in the charter school movement in New York, Gillian and I are, talking about, what other philanthropy she and I might get involved in, like, is there something that you’re involved in that’s making people’s lives better, where your money and your time make a difference?

[01:57:35] Bryan Lawrence: And I could run a control group of me, like, let’s say 100 percent of my time was in investing, that’s one universe, and 90 percent of my time is in investing, and 10 percent is in that. that, attempt to grow a network of charter schools or, Julian’s very interested in helping some of the things that are happening in Israel.

[01:57:54] Bryan Lawrence: Like we could look at the investment returns of those two worlds. I suspect the one in which 90 percent of the time is working on that nonprofit stuff actually gets better investment results because you run into more people, you think more about the world. And I, the, that’s an uncertain question.

[01:58:12] Bryan Lawrence: Those two control groups, the certain thing about it is. At the end of another 20 years of this, or 30, 40, when you look back at what you’ve compounded up, there’s financial compounding, there’s friend compounding, but boy, wouldn’t it be cool if you’d compounded some other stuff, if you’d made that community a little bit better. Wouldn’t that be great?

[01:58:34] William Green: Bryan, I think that’s a very good note to end on, and I just wanted to thank you, it’s been a real joy chatting with you, and it’s always a joy chatting with you, and I’ve really enjoyed becoming friends over the last decade, and I’m looking forward to many more conversations in the years to come.

[01:58:50] Bryan Lawrence: Well, William, you get me to talk about stuff that is very interesting. I feel like I, you’re almost like a therapist or something. And some of these things have been done with wine. This one’s been done over Zoom. We’ll see how it plays for an audience, but I’ve really enjoyed it. So thank you very much.

[01:59:03] William Green: Next time we’ll do it with wine too.

[01:59:06] Bryan Lawrence: We’ll see how that one goes.

[01:59:07] William Green: All right. Thank you so much.

[01:59:08] Bryan Lawrence: Be well.

[01:59:08] William Green: Take care.

[01:59:08] William Green: All right, folks, thanks so much for listening to this conversation with Bryan Lawrence. I do hope you enjoyed it. I’ll be back very soon with some more great guests, including a terrific conversation that I had recently with a very successful hedge fund manager named Christopher Tsai.

[01:59:27] William Green: In the meantime, I’m heading off to Omaha in a few days for Berkshire Hathaway’s annual meeting. I’m really excited to hear Warren Buffett speak and to reconnect with lots of old friends and former guests on the podcast who will be there, including people like Mohnish Pabrai, Guy Spier, François Rochon, Chris Davis and Tom Gayner.

[01:59:46] William Green: If you happen to see me in Omaha, please feel free to come up and say hi amid the maelstrom. Needless to say, I’ll also be very happy to sign a copy of my book, Richer, Wiser Happier, if you happen to have one with you. For now, you’re welcome to follow me on X @WilliamGreen72, and as always, do let me know how you’re liking the podcast. I’m always really happy to hear from you. Until next time, take good care and stay well.

[02:00:12] Outro: Thank you for listening to TIP. Make sure to follow Richer, Wiser, Happier on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts or courses, go to This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.


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