Rising Star: Ben Watsa's Views on India, Fairfax & Beyond

Transcript

Books mentioned:

You Can Be a Stock Market Genius (Even if You're Not Too Smart!) by Joel Greenblatt
The Checklist Manifesto by Atul Gawande
The Daily Stoic by Ryan Holiday
Atomic Habits by James Clear
Think And Grow Rich by Napoleon Hill
The Almanack Of Naval Ravikant by Eric Jorgenson
The Psychology of Money by Morgan Housel
Joys Of Compounding by Gautam Baid
The Money Masters by John Train
The Intelligent Investor by Benjamin Graham

Key Points:

• [11:37] Mr. Watsa’s childhood experiences that shaped his interest in investing and finance

• [28:46] How Mr. Watsa’s professional strategies and philosophies have evolved over time

• [32:47] How Mr. Watsa’s name for his business, Marval, came about

• [36:23] Mr. Watsa's successful investments and failures and the key lessons he learned from them

• [44:30] Why Mr. Watsa like using quotes in his investment letters

• [45:27] Mr. Watsa’s investment activities and the different dynamics between the Indian and US markets

• [54:48] Achievements Mr. Watsa has made that he is proud of

• [58:13] What it was like for Mr. Watsa when COVID hit and the strategies he leveraged to grow his Funds

• [01:03:33] What is keeping Mr. Watsa up at night as a fund manager and investor

• [01:07:06] Mr. Watsa’s leadership style preference: decentralized collaborations and why it works

• [01:13:13] Why family control is an asset for a company and how Mr. Watsa is preparing the next generation for leadership

• [01:22:41] Mr. Watsa’s interests and hobbies that he does in his spare time and what he has learned

• [01:25:27] Reading as a superpower and how Mr. Watsa cultivates the reading skill in his children

• [01:29:28] Stoicism and how it applies to value investing right now

TRANSCRIPT BEGINS:

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Hi, and welcome to the investing the Templeton Way podcast.

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I'm your host, Lauren Templeton,

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and you're not going to want to miss today's episode

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with my friend and business associate, Mr. Ben Watsa.

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Ben is the president and founder of Marval Capital Limited.

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Prior to Marvel, Mr. Watsa was a partner and portfolio manager

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at Lissom Investment Management Inc. for a very decade,

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and spent five years in New York as an investment banker

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in the Financial Institution's Group

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at Banc of America's Securities,

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and at Cochran Caronia Waller.

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Mr. Watsa serves as director of Fairfax Financial Holdings

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Limited and Fairfax India Holdings Corporation.

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He also serves on the advisory board of Impression Ventures,

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and holds the position of director emeritus

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for his work and contributions as a director

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and the vice chair of the Investment Committee

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for the Rideau Hall Foundation.

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Mr. Watsa was recognized as a top 50 under 50,

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Indo-Canadian leader, and is also a member

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of the Young Presidents Organization,

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and a member of the Toronto Club's membership committee.

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Now it is worth noting in this episode

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that both Ben and I serve as directors

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on the boards of Fairfax Financial Holdings Limited

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and Fairfax India Holdings Corp.

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I serve in the capacity of independent director,

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and Ben is a non-independent director.

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Ben Watsa is the son of Prem Watsa,

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chairman and CEO of Fairfax Financial Holdings Limited,

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and chairman and founder of Fairfax India Holdings Corp.

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While the focus of this episode

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will be on Ben's successful career

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as an investment manager,

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it will be difficult to avoid entirely

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the topic of Fairfax.

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And Ben will, I think, obviously,

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have been heavily influenced by his father,

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legendary investor and CEO of Fairfax Prem Watsa.

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It is important to note that the opinions, insights,

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and information shared during the podcast

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may be influenced by our affiliations

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with these organizations.

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As directors of Fairfax Financial Holdings Limited

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and Fairfax India Holdings Corp,

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both Ben and I have personal interest

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and investments that are related to the companies

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discussed on this podcast.

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This may create conflicts of interest or biases

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in the viewpoints expressed.

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We have a financial stake in the success

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in the performance of Fairfax Financial

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and Fairfax India Holdings Corp.

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And I would invite you to please remember that

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as you listen to the podcast.

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But again, the focus of this podcast

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will be on Ben's investment career

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and his portfolio management style.

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Thank you for joining us today

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and I hope you enjoy this conversation with Ben Watsa.

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Hi, my name is Lauren Templeton

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and you are listening to Investing the Templeton Way.

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This podcast is for anyone interested

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in learning more about investing.

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In this podcast, I will be interviewing

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some of the greatest minds from the investment community

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and exploring topics ranging from international markets

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to behavioral finance.

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To learn more, please visit us

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at investingthetempletonway.com.

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The information presented in this podcast

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or available on the website is not intended as

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and shall not be construed as financial advice.

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This podcast is produced for entertainment value.

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Investing is inherently risky

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and I encourage you to seek financial advice

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from a professional who is aware of the facts

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and circumstances of your individual situation.

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Thanks for listening.

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Welcome to the investing the Templeton Way podcast.

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I'm very excited to have today's guest

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and welcome today's guest Ben Watsa.

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Welcome Ben.

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Thank you so much, Lauren, for asking me to do this podcast.

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I really appreciate the opportunity.

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I actually haven't done any podcasts in the past

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and I look through the caliber of guests

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that you've had on and it's very humbling to be asked

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to be here today.

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I listen to some of your, to your previous episodes

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and you admire what you've put together

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and this archive of material will really

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broaden the value community and grow the family,

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so to speak.

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So I'm thrilled to be a part of it and humbled to be asked.

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And...

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Well, thank you so much.

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It's a lot of fun to produce these episodes.

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I think I get more out of them than anybody else.

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I'm getting to talk to really smart investment managers,

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authors, academics.

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It's a treat and it challenges me every time.

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Oh, it's great.

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And you know, I thought before we start off the questioning,

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I just wanted to bring up a couple stories on Sir John.

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Yeah, I'd love to hear that.

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This is the appropriate place to do it.

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And he has such a deep connection with us.

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So I wanted to...

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I thought it'd be nice to have some color and some background

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on how we're connected.

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And so I was just talking to my dad about

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Who is the CEO Fairfax and he wrote Sir John a letter in 1978

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and Sir John invited him to meet him in Lyford Cay.

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And he met him annually for many years

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and they developed a great mutual respect for each other.

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Particularly, my...

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Sir John,

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getting to really respect my dad

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or the time my dad already had that respect

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because he'd been following Sir John's career.

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And one aspect is over those over a decade of meeting with him,

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Hamblin Watsa is our investment counselor at Fairfax

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and that's where all the insurance float is managed, as you well know.

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And but at the time, it was a separate entity.

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It wasn't fully owned by Fairfax

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and it managed outside capital.

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So, about a billion dollars of pension funds

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and foundations and that kind of thing.

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And you know,

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the investment team, my dad, were worried

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there would be a conflict of interest of having Hamblin Watsa

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manage outside capital.

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So they wanted it to be a wholly owned subsidiary of Fairfax.

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And to do that deal,

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they wanted the shareholders’ approval

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to see that it was a fair deal.

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And Sir John had become one of our largest shareholders actually.

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And so, my dad went to Sir John and said,

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"This is what we're thinking.

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We want you to look at the deal

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and if you approve of it, then we'll go forward."

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And Sir John approved of the deal

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and thought it was fair on both sides,

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particularly on Fairfax's side

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because he was a Fairfax shareholder

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and had the deal done.

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So that's just one of the connections.

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- I love that story.

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Well, I know that John Templeton held your father

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in very high regard.

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And I love it.

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I'll share with our listeners

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that your father commissioned a bust of John Templeton,

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which is in the Fairfax boardroom.

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So, I see it every quarter when I go in.

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It always touches me to see it.

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And then there's also another copy of it,

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which sits in the Templeton library in Sewanee, Tennessee.

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So that's a really neat thing as well.

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But I know they met annually at Lyford Cay

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and maintained a deep friendship over the years.

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So that's really special.

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- Well, and there's one other one where Sir John had told my dad

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that Fairfax was amongst the best disclosures

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of any company he had ever read about or seen.

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And I know, I listened to your podcast

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with your husband, Scott.

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And he, when he was talking about Sir John,

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he said that Sir John described himself

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as a business analyst.

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I think I got that right and an analyst of businesses.

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And so, for him to say that meant a lot.

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And when we were getting attacked by the shorts,

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like from the, so Fairfax was shorted heavily,

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there was a bear raid going on between 2003 to 2006.

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And Sir, you know, my dad had asked Sir John,

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can we use that quote in one of the articles

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that we were, that he had coming out about the company

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because there was a lot of questioning

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of whether we had proper disclosures and that kind of thing

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from what the short sellers were putting out there.

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And Sir John allowed us to use his quote.

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So, he's always been just a guiding light for my dad

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and I had a deep connection with Fairfax.

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So again, this is why this,

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just being on this podcast with you here

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is a special moment for me.

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So, thank you very much.

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- Oh, that's wonderful.

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And I should also tell guests

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there's a podcast that I was on with Guy Spier

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and Guy asked me, how did you get to be on the board of Fairfax?

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And maybe worth telling that story as well.

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So, Sir John did not introduce me to your father.

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But I had learned after the passing of John Templeton

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that he had this friendship with Prem Watsa

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and I was very curious to meet CEO of Fairfax.

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My husband and I had started accumulating shares of Fairfax

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and I wrote to your father and asked if we could come to Toronto

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and meet with him and my husband, my father, my mother,

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my first-born child who was probably two years old,

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we all flew to Toronto, rent a car, we went to meet your dad.

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I can remember meeting with him in the office, dad, Scott, and I,

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then we drove to Niagara Falls.

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And then we started attending all the AGMs.

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Dad used to come with me when he was able to attend

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and accumulating more and more shares over the years

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and becoming more engaged with Fairfax.

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So that's really my Fairfax story.

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But it is special that history with John Templeton

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and Prem Watsa is, I know it's special to Prem

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and it would have been special to John too.

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So, it's extra special to have you today.

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So, let's put the focus back on you.

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- No.

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Then could you start by sharing some of your early influences

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and experiences from your childhood

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that have shaped your interest in investing and finance?

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- Yeah, you know, I was fortunate.

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And before I go into sort of stock markets,

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I experienced my own tulip bubble before getting into investing.

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I loved collecting sports cards.

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So particularly baseball cards and hockey cards.

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And so, when I was growing up, I was born in '78,

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the trading card bubble, there was a big one

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between '87 and '95.

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I was collecting cards from, above the time I was five,

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from '83 till about '92.

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And I, my allowance used to be a quarter a week

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when I was first growing up

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and we lived across the street in a small-town Newmarket.

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And I mean, we lived in a small-town, Newmarket

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and across the street was a Beckers

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and which is a convenience store.

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And so, I'd go there and buy a pack of cards every week

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and collect them.

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And anyways, as it got more popular,

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there was a magazine called Beckett

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and you could go to the convenience store

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and you could look through a few pages

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and look at the prices every month of your cards.

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And the better a player did and as the man went up,

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the price would increase.

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And you know, there was no internet back then.

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So that was the only way to kind of find out

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the value of what you were collecting.

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And you know, I would have debates with my dad

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on the merits of the value of collecting baseball cards.

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Obviously, he didn't think there was a lot of worth to them

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and he turned out to be right.

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They weren't worthless, but they're not worth a lot.

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Let's just say, but I do think, you know,

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if there's parents, you know,

255

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listening with young children on here,

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I think it's a good thing to encourage them to collect things

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because it is a little bit tougher

258

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to get them involved in the stock market at early age.

259

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But if there's some toy or something

260

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that starts, you know, going up in value

261

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for them to collect it at a cheap level,

262

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is good and they'll track the price and everything like that.

263

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That was a lot of fun for me.

264

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And I used to study the baseball almanac

265

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and you know, trying to figure out which players

266

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would be better and that kind of thing.

267

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It was fun.

268

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But you know, and now going back to the stock market early on,

269

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I'd say my big influence was Irwin Toy,

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which is, it was a distributor for American Toy Products

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in Canada and they had a program for children

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for stock.

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So if you bought some stocks, they wanted to engage children

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into the stock market.

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So we'd go to the annual meetings and my dad bought me

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some shares and my sisters, my two younger sisters.

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We'd go to the meeting, but what I remember, you know,

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because I was like, between seven and 10 years old,

279

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but what I really remember is at the end of the meeting,

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you got to play with the toys and test out

281

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the new toys that are going to bring you to the market.

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So that was, that was a lot of fun,

283

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but I also remember on a quarterly basis,

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we would get dividend checks.

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And you know, they'd be like 20 cents, 50 cents,

286

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whatever it was, not a ton of money,

287

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but I, at that time, you know, getting a quarter of a week allowance,

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I was like, wow, you actually get paid for this.

289

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And I kind of, I wish they still had that, right?

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Because, you know, my daughter and my son,

291

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I have a stock portfolio for them,

292

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but they don't get the physical dividends,

293

00:14:59,600 --> 00:15:00,680

they just go right in the account, right?

294

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- Yeah, I know.

295

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I know, I always remark on that the same thing.

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So, I had stock certificates in the wall

297

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of my bedroom growing up and one of the stocks for Shoney’s

298

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and one of their dividends was a free dinner.

299

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So, if you own one share at one time,

300

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that was a huge dividend, you know,

301

00:15:20,040 --> 00:15:22,200

because the stock price was so low

302

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that the meal was far exceeded one share,

303

00:15:25,360 --> 00:15:28,240

the cost of one share, but I was really liked

304

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that strawberry pie they had.

305

00:15:30,120 --> 00:15:33,000

So that was a good stock for me to own.

306

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Are your kids interested in the stock market?

307

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- Well, so they like, well, right now,

308

00:15:36,960 --> 00:15:39,760

So, they do have their stock portfolio.

309

00:15:39,760 --> 00:15:43,160

So, like, they're not things that I would necessarily own.

310

00:15:43,160 --> 00:15:44,600

They have a couple things that I would own,

311

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but it's what they're interested in.

312

00:15:45,960 --> 00:15:47,600

So, they both own Netflix.

313

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I do own Spin Master, so they have invested in that stock too,

314

00:15:53,960 --> 00:15:58,520

which has, Paw Patrol is one of the big franchises.

315

00:15:58,520 --> 00:16:01,240

They, I got involved in the pandemic with that stock,

316

00:16:01,240 --> 00:16:03,600

but then my son owns like Sega Sammy,

317

00:16:03,600 --> 00:16:05,840

so Sega, he likes Sonic the Hedgehog,

318

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he owns Nintendo stock,

319

00:16:07,760 --> 00:16:12,520

he likes Super Mario, what else?

320

00:16:12,520 --> 00:16:13,720

He bought Roblox.

321

00:16:13,720 --> 00:16:16,720

He doesn't even play Roblox, but he knows about it at school.

322

00:16:16,720 --> 00:16:19,680

So he bought that, I tried to tell him about valuation,

323

00:16:19,680 --> 00:16:22,240

but he's eight years old, so he bought that.

324

00:16:22,240 --> 00:16:25,040

My daughter has, they both own Disney.

325

00:16:25,040 --> 00:16:28,200

My daughter has General Mills because she likes

326

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Aunt Annie's pasta and that thing.

327

00:16:32,080 --> 00:16:34,400

So they've kind of gone to Peter Lynch route

328

00:16:34,400 --> 00:16:37,560

of picking what their interests are.

329

00:16:37,560 --> 00:16:41,880

Probably my, and so my daughter is getting into it more.

330

00:16:41,880 --> 00:16:45,200

She also collects Squishmallows.

331

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And actually they, I think Warren Buffett owns the company, right?

332

00:16:49,200 --> 00:16:51,280

So when I told her Warren Buffett and Charlie Munger,

333

00:16:51,280 --> 00:16:54,160

they've made Squishmallows of them, she wanted them desperately,

334

00:16:54,160 --> 00:16:57,240

but we couldn't, we couldn't get her,

335

00:16:57,240 --> 00:16:58,960

I wasn't at the meeting to get her one,

336

00:16:58,960 --> 00:17:02,840

but I wrote the company because she had asked me to,

337

00:17:02,840 --> 00:17:06,520

and they said they were nice and sent some PDFs of,

338

00:17:06,520 --> 00:17:09,200

for them to color, but we, they only sold them at the meetings

339

00:17:09,200 --> 00:17:10,040

unfortunately.

340

00:17:10,040 --> 00:17:11,680

I think you actually got a pair a couple.

341

00:17:11,680 --> 00:17:12,360

I did.

342

00:17:12,360 --> 00:17:16,040

One of my proudest parenting moments was having my girls

343

00:17:16,040 --> 00:17:19,560

in a huge argument at the Berkshire Hathaway

344

00:17:19,560 --> 00:17:24,320

shareholders meeting, arguing over who got Warren Buffett

345

00:17:24,320 --> 00:17:26,240

and who got Charlie Munger.

346

00:17:26,240 --> 00:17:29,560

By the end of the day, they had totally reversed their positions.

347

00:17:29,560 --> 00:17:31,480

Like the person that wanted Charlie Munger,

348

00:17:31,480 --> 00:17:33,800

now wanted Warren Buffett, I thought they were going to kill

349

00:17:33,800 --> 00:17:37,960

each other over it, but we now are the proud owners of two.

350

00:17:37,960 --> 00:17:42,120

Giant Warren Buffett and Charlie Munger Squishmallows,

351

00:17:42,120 --> 00:17:45,520

and quite a few stuffed geckos too.

352

00:17:45,520 --> 00:17:52,480

Well, that is a really fun story about your kids,

353

00:17:52,480 --> 00:17:56,440

and I'm glad you're getting them involved in the stock market.

354

00:17:56,440 --> 00:17:59,400

Do you remember your first stock that you purchased?

355

00:17:59,400 --> 00:18:00,960

I mean, it was, it was Fairfax.

356

00:18:00,960 --> 00:18:04,760

So when I had a paper route and I was earning about

357

00:18:04,760 --> 00:18:09,760

I think $7 a week, so I would have some of it was for spending

358

00:18:09,760 --> 00:18:11,760

and some of it was for savings.

359

00:18:11,760 --> 00:18:14,760

And the savings would then go into Fairfax shares.

360

00:18:14,760 --> 00:18:15,800

Oh, I love it.

361

00:18:15,800 --> 00:18:20,080

So that was my first real stock that I had.

362

00:18:20,080 --> 00:18:21,080

That I had put to some of my--

363

00:18:21,080 --> 00:18:22,720

Yeah, I'm impressed with the paper route.

364

00:18:22,720 --> 00:18:25,240

So did you do that on foot or bicycle?

365

00:18:25,240 --> 00:18:27,560

My on foot and you get like a bag.

366

00:18:27,560 --> 00:18:31,840

It was a Toronto Star and you get a bag to carry it around.

367

00:18:31,840 --> 00:18:34,920

As I had more and more papers to deliver, I got a wagon.

368

00:18:34,920 --> 00:18:36,400

Oh!

369

00:18:36,400 --> 00:18:39,480

And then I took around to deliver and that kind of thing

370

00:18:39,480 --> 00:18:40,440

in the neighborhood.

371

00:18:40,440 --> 00:18:44,080

Yeah, it was a good, you know, no matter the weather,

372

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you still had to deliver the paper.

373

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So, it gave you some good discipline from doing it.

374

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But they, I think what they started to do is they started to get rid

375

00:18:53,240 --> 00:18:56,920

of the kids and get adults who had cars that could deliver tons

376

00:18:56,920 --> 00:18:57,440

of papers.

377

00:18:57,440 --> 00:19:05,720

So, I was at the tail end of that. Stop, less using children

378

00:19:05,720 --> 00:19:08,520

to deliver the paper anyways.

379

00:19:08,520 --> 00:19:11,200

No childhood work, children workers.

380

00:19:11,200 --> 00:19:16,720

I love to see your daughter at the AGM stand up and ask questions.

381

00:19:16,720 --> 00:19:18,680

It's just, it just, love it.

382

00:19:18,680 --> 00:19:20,160

It makes me so happy.

383

00:19:20,160 --> 00:19:23,160

Yeah, she's, I mean, even when I told her I'm doing this,

384

00:19:23,160 --> 00:19:24,560

she made me a little card and everything.

385

00:19:24,560 --> 00:19:26,840

She's really a sweet

386

00:19:26,840 --> 00:19:27,840

little girl.

387

00:19:27,840 --> 00:19:29,960

So my son is very sweet too, but you know.

388

00:19:29,960 --> 00:19:33,040

Well, and she asked tough questions.

389

00:19:33,040 --> 00:19:36,680

She kept up on her own and I don't want to discourager from asking

390

00:19:36,680 --> 00:19:39,640

a question at the meeting and it's just, you know,

391

00:19:39,640 --> 00:19:43,000

it's great to see the passion that she wants to do it and that she

392

00:19:43,000 --> 00:19:45,000

has the courage to get up there and ask.

393

00:19:45,000 --> 00:19:46,000

That's great.

394

00:19:46,000 --> 00:19:48,000

Yeah, so proud of her.

395

00:19:48,000 --> 00:19:51,640

I know Prem is too and you are.

396

00:19:51,640 --> 00:19:53,480

What a smart young lady.

397

00:19:53,480 --> 00:19:54,480

No, thank you.

398

00:19:54,480 --> 00:20:00,040

Your father, as I think everybody knows, is a very famous and successful investor

399

00:20:00,040 --> 00:20:07,160

and businessman, well known as an investor and also CEO of Fairfax.

400

00:20:07,160 --> 00:20:11,520

How has his success influenced your career?

401

00:20:11,520 --> 00:20:14,520

And why, why didn't you join him at Fairfax, Ben?

402

00:20:14,520 --> 00:20:17,040

That's, that's a great question.

403

00:20:17,040 --> 00:20:22,760

And you know, I often think like, you know, as I get older, like I'll be 45 in a month

404

00:20:22,760 --> 00:20:25,720

and I kind of think, why am I who I am, right?

405

00:20:25,720 --> 00:20:29,520

And, and the intelligent investor, there's a quote in it that always stuck

406

00:20:29,520 --> 00:20:33,400

with me, life can only be understood backwards, but it must live,

407

00:20:33,400 --> 00:20:34,920

be lived forward.

408

00:20:34,920 --> 00:20:41,920

And, you know when you have a parent that's quite successful,

409

00:20:41,920 --> 00:20:48,400

well, first of all, parents’ appearance, role in guiding a child's values

410

00:20:48,400 --> 00:20:51,920

and understanding of the world, right?

411

00:20:51,920 --> 00:20:55,880

You can have a big influence, obviously, in that and having my own kids,

412

00:20:55,880 --> 00:20:59,480

I see how much influence I can have, but you can shape their interests

413

00:20:59,480 --> 00:21:01,040

to some degree.

414

00:21:01,040 --> 00:21:08,040

And when a parent is very successful, the early insights into a career

415

00:21:08,040 --> 00:21:11,240

that made them successful, the parents can pass along to the child.

416

00:21:11,240 --> 00:21:16,080

So the child actually gets these insights that it would have taken,

417

00:21:16,080 --> 00:21:19,680

you know, myself, you know, a few decades, probably in a career to,

418

00:21:19,680 --> 00:21:21,640

to really understand myself.

419

00:21:21,640 --> 00:21:27,840

And so, when I look at my dad, he was introduced into value investing

420

00:21:27,840 --> 00:21:32,360

at his first job before I was born by his boss and his boss kind of gave

421

00:21:32,360 --> 00:21:35,160

him the Intelligent Investor, and said, this is the only way to invest.

422

00:21:35,160 --> 00:21:37,440

And he loved it so much.

423

00:21:37,440 --> 00:21:41,320

He named me Benjamin, after Ben Graham.

424

00:21:41,320 --> 00:21:46,920

So, I mean, that just shows how much he actually fell in love with the concept

425

00:21:46,920 --> 00:21:48,440

to name me after it, right?

426

00:21:48,440 --> 00:21:53,840

And so I grew up with, in value investing, with thinking value investing was the only way

427

00:21:53,840 --> 00:21:54,840

to invest, right?

428

00:21:54,840 --> 00:21:58,840

I equated to like a religion, you're, you're born into Christianity,

429

00:21:58,840 --> 00:22:01,280

or you're born as a Muslim or something like that.

430

00:22:01,280 --> 00:22:04,040

And you're, that's, that's your religion you follow.

431

00:22:04,040 --> 00:22:10,840

And, so, you know, his influence, and he also put the best investment

432

00:22:10,840 --> 00:22:12,200

books in front of me.

433

00:22:12,200 --> 00:22:17,480

And so, by the time I was ready to join and become a professional and

434

00:22:17,480 --> 00:22:24,280

start working full time, I already could visualize being successful in investing

435

00:22:24,280 --> 00:22:26,160

because they saw a way to do it.

436

00:22:26,160 --> 00:22:31,080

And, you know, for me, when I, when I was thinking, you know, what, what book really did

437

00:22:31,080 --> 00:22:32,080

it for me?

438

00:22:32,080 --> 00:22:37,440

I thought Money Masters was, was a, yeah, John Train, the pivotal book.

439

00:22:37,440 --> 00:22:41,840

And it's unfortunate that a publication perhaps you can find it online as a PDF

440

00:22:41,840 --> 00:22:47,400

or something, but it made me realize what, what it did for me over, over all the

441

00:22:47,400 --> 00:22:48,400

other books.

442

00:22:48,400 --> 00:22:51,120

I realized how creative the field of investing was.

443

00:22:51,120 --> 00:22:54,480

It wasn't just this one way to do it.

444

00:22:54,480 --> 00:22:56,640

Even if you're a value investor.

445

00:22:56,640 --> 00:23:04,680

And, you know, they give you profiles of Warren Buffett, Ben Graham, Phil Fisher, John, yes,

446

00:23:04,680 --> 00:23:06,960

Larry, Larry Tisch, and of course, John Templeton.

447

00:23:06,960 --> 00:23:11,560

And actually, what, you know, that, another thing that his profile stuck out to be the most

448

00:23:11,560 --> 00:23:18,340

or John's, because, well, the two examples that I love, one is that he bought $100 of stock

449

00:23:18,340 --> 00:23:21,800

in company shares trading under a dollar in value.

450

00:23:21,800 --> 00:23:26,040

So, it was 104 companies, like 10 grand, and he made four times his money in four years.

451

00:23:26,040 --> 00:23:27,040

So, I remember that example.

452

00:23:27,040 --> 00:23:30,720

I thought, that's really, that's a neat, neat thing he did.

453

00:23:30,720 --> 00:23:36,640

And then also he listed the questions he likes to ask management.

454

00:23:36,640 --> 00:23:40,400

And, and mistakenly, I thought, okay, I got the questions here, but you need to, you know,

455

00:23:40,400 --> 00:23:44,480

you need to read a lot to understand the meaning behind answers from, from those questions,

456

00:23:44,480 --> 00:23:48,920

but, but so those, those, that, that book really stuck with me.

457

00:23:48,920 --> 00:23:54,280

And of course, again, my philosophy is shaped by numerous investing, value investing books

458

00:23:54,280 --> 00:23:59,560

that my, my dad gave to me, but that motivated me to get into the investment business.

459

00:23:59,560 --> 00:24:05,720

And then why I didn't join my dad, you know, I had this in my head thinking, I wanted

460

00:24:05,720 --> 00:24:09,480

my dad as my dad, and I didn't want him as my boss.

461

00:24:09,480 --> 00:24:11,040

Yeah, I understand that.

462

00:24:11,040 --> 00:24:16,600

You know, and, and, and after working for, you know, bosses, it's just, it's just, it's a different

463

00:24:16,600 --> 00:24:18,200

dynamic, right?

464

00:24:18,200 --> 00:24:23,840

And so I've been in the investment industry now for 22 years, and I am very happy with my

465

00:24:23,840 --> 00:24:24,840

decision.

466

00:24:24,840 --> 00:24:28,280

You know, I'm involved serving on the board.

467

00:24:28,280 --> 00:24:30,120

And the company will always be professionally run.

468

00:24:30,120 --> 00:24:36,360

So, I think that's an added benefit, not to be engaged day to day on the day to day, workings

469

00:24:36,360 --> 00:24:37,400

of the company.

470

00:24:37,400 --> 00:24:40,440

And then the other thing is we're always going to have an internal candidate.

471

00:24:40,440 --> 00:24:43,240

I just want to state that upfront for Fairfax.

472

00:24:43,240 --> 00:24:49,440

And I, I speak with multiple Fairfax executives many times a year on a quarterly basis

473

00:24:49,440 --> 00:24:52,600

on some on a monthly basis.

474

00:24:52,600 --> 00:24:55,000

And you know, I get updates on their, on their businesses.

475

00:24:55,000 --> 00:24:59,560

This is more say the, the billion plus in revenue businesses.

476

00:24:59,560 --> 00:25:03,840

And you develop a good relationship with them because I think business is about, about

477

00:25:03,840 --> 00:25:04,840

relationships.

478

00:25:04,840 --> 00:25:07,360

And then my dad, on a weekly basis,

479

00:25:07,360 --> 00:25:09,060

we're talking shop all the time.

480

00:25:09,060 --> 00:25:10,620

We talk about personal stuff,

481

00:25:10,620 --> 00:25:11,960

but we always love discussing also

482

00:25:11,960 --> 00:25:13,640

what's going on in the business world.

483

00:25:13,640 --> 00:25:14,800

- Yeah, and you play tennis

484

00:25:14,800 --> 00:25:16,020

With him once a week, right?

485

00:25:16,020 --> 00:25:18,080

- I play tennis with them once a week, as well.

486

00:25:18,080 --> 00:25:20,680

That's quite a battle.

487

00:25:20,680 --> 00:25:24,620

He, I don't play that off.

488

00:25:24,620 --> 00:25:27,320

I only play him once a week, but he plays three times a week.

489

00:25:27,320 --> 00:25:30,560

So even though he's 28 years older than me,

490

00:25:30,560 --> 00:25:33,040

it's tough.

491

00:25:33,040 --> 00:25:34,200

He's got experience

492

00:25:34,200 --> 00:25:36,640

and he's got the practice to 10,000 hours,

493

00:25:36,640 --> 00:25:41,120

and I just have a youth on my side and will to win.

494

00:25:41,120 --> 00:25:42,440

- I know, it's bad.

495

00:25:42,440 --> 00:25:44,760

I'm really curious who wins these matches.

496

00:25:44,760 --> 00:25:45,960

- I won the last two.

497

00:25:45,960 --> 00:25:46,800

I'll say that.

498

00:25:46,800 --> 00:25:47,640

But you know what it is?

499

00:25:47,640 --> 00:25:49,200

It can be either way.

500

00:25:49,200 --> 00:25:50,320

It can go either way all the time.

501

00:25:50,320 --> 00:25:54,000

We're very, what's good about it is we're close in skill,

502

00:25:54,000 --> 00:25:56,600

and it's whoever's kind of like getting their shots

503

00:25:56,600 --> 00:25:58,720

that day is going to win.

504

00:25:58,720 --> 00:26:00,000

- He does love tennis.

505

00:26:00,000 --> 00:26:01,600

I know that about your father.

506

00:26:01,600 --> 00:26:02,680

- He tries really hard.

507

00:26:02,680 --> 00:26:04,440

Like I'm worried that, you know,

508

00:26:04,440 --> 00:26:06,440

we're gonna have to slow it down a little bit.

509

00:26:06,440 --> 00:26:09,520

- Yeah, don't reach for too many years.

510

00:26:09,520 --> 00:26:13,760

- He runs, he runs hard for shots and stuff.

511

00:26:13,760 --> 00:26:16,680

So don't be surprised if one of us has a broken arm

512

00:26:16,680 --> 00:26:20,000

or something at some point in our battles.

513

00:26:20,000 --> 00:26:22,240

- One of my favorite memories is playing tennis

514

00:26:22,240 --> 00:26:25,080

with Tony Griffiths one time in Toronto,

515

00:26:25,080 --> 00:26:26,720

who was a Fairfax director

516

00:26:26,720 --> 00:26:29,080

and also a really big tennis player.

517

00:26:29,080 --> 00:26:31,040

- Well, that's one of the reasons my dad plays is

518

00:26:31,040 --> 00:26:34,360

because Tony was able to play multiple times a week

519

00:26:34,360 --> 00:26:38,480

into his 90s and he attributed his being limber

520

00:26:38,480 --> 00:26:41,680

and with it because he could exercise by playing tennis.

521

00:26:41,680 --> 00:26:43,800

And so my dad said, okay, I’ve got to make this part

522

00:26:43,800 --> 00:26:46,400

of my routine so I can do that.

523

00:26:46,400 --> 00:26:49,760

- I think it's really good from a cognitive perspective

524

00:26:49,760 --> 00:26:50,760

Too, to play tennis.

525

00:26:50,760 --> 00:26:52,640

They say it's really good for your brain.

526

00:26:52,640 --> 00:26:55,200

Not that your dad needs any help in that department.

527

00:26:55,200 --> 00:26:58,520

- But it's good to keep adding new routines that,

528

00:26:58,520 --> 00:26:59,600

he's always loved tennis,

529

00:26:59,600 --> 00:27:03,440

but he's just made it a point to do it three times a week now.

530

00:27:03,440 --> 00:27:05,360

So that's been great for him.

531

00:27:05,360 --> 00:27:07,680

Now just getting back--

532

00:27:07,680 --> 00:27:09,180

- And you have siblings?

533

00:27:09,180 --> 00:27:12,260

- Yes, I have two younger sisters, yes.

534

00:27:12,260 --> 00:27:13,520

- Very close family.

535

00:27:13,520 --> 00:27:17,240

- Very close, we all live within five, 10 minutes

536

00:27:17,240 --> 00:27:18,080

of each other.

537

00:27:18,080 --> 00:27:22,240

And yeah, they're great.

538

00:27:22,240 --> 00:27:27,240

And my middle sister has her three children,

539

00:27:28,160 --> 00:27:31,780

two of them are the same age as my two children, 11 and 8.

540

00:27:31,780 --> 00:27:34,560

And so, they're very close so we get together

541

00:27:34,560 --> 00:27:36,080

and they spend a lot of time together

542

00:27:36,080 --> 00:27:38,520

than my younger sister as well is.

543

00:27:38,520 --> 00:27:43,160

She is great as, and we have a monthly lunch

544

00:27:43,160 --> 00:27:47,240

where we get together just the three of us and talk.

545

00:27:47,240 --> 00:27:49,160

And when my sister turned forty last year,

546

00:27:49,160 --> 00:27:53,360

the three of us went away on a trip by ourselves,

547

00:27:53,360 --> 00:27:55,280

which was great, you know, it's really hard.

548

00:27:55,280 --> 00:27:56,960

When you have family get togethers,

549

00:27:56,960 --> 00:27:59,360

the kids are around, the parents are around,

550

00:27:59,360 --> 00:28:01,320

it's very hard to get that connection time

551

00:28:01,320 --> 00:28:02,280

because everybody's there.

552

00:28:02,280 --> 00:28:05,640

So that's why we try to do things alone as well

553

00:28:05,640 --> 00:28:07,080

so that we can connect too.

554

00:28:07,080 --> 00:28:08,120

- Well, that's wonderful.

555

00:28:08,120 --> 00:28:10,120

I'm sure it's a very unique experience

556

00:28:10,120 --> 00:28:12,400

growing up with Prem as a father

557

00:28:12,400 --> 00:28:15,520

and watching Fairfax grow over the years.

568

00:28:43,720 --> 00:28:47,960

He's been a tremendous example

569

00:28:47,960 --> 00:28:52,960

for me in terms of how to run my own firm and treat people

570

00:28:52,960 --> 00:28:55,040

and that kind of thing.

571

00:28:55,040 --> 00:28:58,920

I will say that in terms of launching, you know,

572

00:28:58,920 --> 00:29:01,200

I've launched now, I have two small and mid-cap funds,

573

00:29:01,200 --> 00:29:03,920

one was North America and then I launched an India one.

574

00:29:03,920 --> 00:29:08,920

And, you know, in terms of not getting back to

575

00:29:08,920 --> 00:29:12,280

whether working for him or not, you know,

576

00:29:12,280 --> 00:29:16,600

by launching that fund, I deepen my connection

577

00:29:16,600 --> 00:29:21,160

with India and expanded my network.

578

00:29:21,160 --> 00:29:24,840

And, when I started my company after 16 years,

579

00:29:24,840 --> 00:29:26,840

you know, the people that backed me were my friends,

580

00:29:26,840 --> 00:29:29,320

my family, my colleagues, business associates

581

00:29:29,320 --> 00:29:31,640

and I wouldn't, I wouldn't have really grown

582

00:29:31,640 --> 00:29:34,800

from that experience if I wasn't doing my own venture.

583

00:29:34,800 --> 00:29:36,880

- Yeah, I've read your investment letters preparing

584

00:29:36,880 --> 00:29:41,000

for this interview and I'm really impressed with the letters.

585

00:29:41,000 --> 00:29:43,080

I've enjoyed reading them.

586

00:29:43,080 --> 00:29:45,960

They're well thought out, well written

587

00:29:45,960 --> 00:29:49,000

that when you describe your investment thesis

588

00:29:49,000 --> 00:29:52,120

for different stocks, it makes a lot of sense.

589

00:29:52,120 --> 00:29:54,240

I'm very impressed with your letters

590

00:29:54,240 --> 00:29:57,400

and I can tell you spend a great deal of time on them.

591

00:29:57,400 --> 00:29:59,200

- I try to, yeah.

592

00:29:59,200 --> 00:30:01,640

- Yeah, your father's known as a great letter writer.

593

00:30:01,640 --> 00:30:05,200

So obviously, you know, the acorn and didn't fall

594

00:30:05,200 --> 00:30:07,040

too far from the tree.

595

00:30:07,040 --> 00:30:09,120

But let's talk about your long journey

596

00:30:09,120 --> 00:30:11,680

In the investment world.

597

00:30:11,680 --> 00:30:14,480

Can you detail how your professional strategies

598

00:30:14,480 --> 00:30:17,000

and philosophies have evolved over time?

599

00:30:17,000 --> 00:30:20,160

- Yeah, I'm a former investment banker.

600

00:30:20,160 --> 00:30:22,320

I spent my first five and a half years in banking

601

00:30:22,320 --> 00:30:26,320

and at that time when you're just told what to do.

602

00:30:26,320 --> 00:30:28,760

You're told what to research.

603

00:30:28,760 --> 00:30:31,720

You don't have much, and you don't know what to research

604

00:30:31,720 --> 00:30:33,320

at that point in time anyways.

605

00:30:33,320 --> 00:30:36,880

So, you've got to soak up and learn what you can.

606

00:30:36,880 --> 00:30:40,040

And now at this point in my career,

607

00:30:40,040 --> 00:30:42,280

I can direct what I'm learning about,

608

00:30:42,280 --> 00:30:44,360

what I think is important.

609

00:30:44,360 --> 00:30:48,960

And more and more, you know, now I take, you know,

610

00:30:48,960 --> 00:30:49,920

you mentioned my letters.

611

00:30:49,920 --> 00:30:53,160

I take them as an opportunity to educate my clients

612

00:30:53,160 --> 00:30:56,720

through what I've learned and also verbally too,

613

00:30:56,720 --> 00:30:58,160

but through the letters.

614

00:30:58,160 --> 00:31:00,800

And what I'm trying to do is make my clients

615

00:31:00,800 --> 00:31:03,040

better value investors, if that makes sense.

616

00:31:03,040 --> 00:31:05,440

Because it makes our fund better.

617

00:31:05,440 --> 00:31:08,480

It makes, you know, if you have a stable

618

00:31:08,480 --> 00:31:11,160

and wonderful client base,

619

00:31:11,160 --> 00:31:13,080

that really contributes to excellent returns, right?

620

00:31:13,080 --> 00:31:16,320

You don't have, for example, the pandemic happens.

621

00:31:16,320 --> 00:31:19,400

And I didn't, you know, we didn't experience any redemptions

622

00:31:19,400 --> 00:31:21,560

during that period of time.

623

00:31:21,560 --> 00:31:24,840

And in fact, they actually contributed capital.

624

00:31:24,840 --> 00:31:26,000

I wrote to them and said, you know,

625

00:31:26,000 --> 00:31:28,320

now is the time to put money into markets.

626

00:31:28,320 --> 00:31:33,120

And, you know, you kind of, and the main message is

627

00:31:33,120 --> 00:31:36,600

that to stay invested during market downturns, right?

628

00:31:36,600 --> 00:31:39,360

This too shall pass. To younger listeners

629

00:31:39,360 --> 00:31:41,600

to this podcast, that's the message.

630

00:31:41,600 --> 00:31:44,440

Don't get out during the bottom of the market.

631

00:31:44,440 --> 00:31:47,920

During a severe pullback, anyways,

632

00:31:47,920 --> 00:31:50,280

it will pass at some point in time.

633

00:31:50,280 --> 00:31:52,560

When I look over my letters, right?

634

00:31:52,560 --> 00:31:56,120

And this is what I'm honored to be named after Ben Graham

635

00:31:56,120 --> 00:31:59,640

and Warren Buffett still, he talks so highly of him

636

00:31:59,640 --> 00:32:04,080

because the concepts that Benjamin Graham came up with

637

00:32:04,080 --> 00:32:06,960

in the Intelligent Investor, when I look over my letters,

638

00:32:06,960 --> 00:32:09,400

and I look at, you know, Warren Buffett always talks

639

00:32:09,400 --> 00:32:10,880

about chapter 8 and chapter 20.

640

00:32:10,880 --> 00:32:15,160

So chapter eight has parts on market fluctuations, right?

641

00:32:15,160 --> 00:32:18,000

And Mr. Market being the manic depressive

642

00:32:18,000 --> 00:32:21,760

that offers to buy and sell your stock at highs and lows

643

00:32:21,760 --> 00:32:23,560

throughout, and that you can't time markets.

644

00:32:23,560 --> 00:32:27,760

And then chapter 20 talks about having a margin of safety, right?

645

00:32:27,760 --> 00:32:30,520

And being diversified.

646

00:32:30,520 --> 00:32:33,600

And so those concepts, when I look at my letters,

647

00:32:33,600 --> 00:32:39,520

I see myself somewhere explaining these things constantly

648

00:32:39,520 --> 00:32:43,160

in, because I'm finding them the most important things too.

649

00:32:43,160 --> 00:32:47,000

But it's, you know, from all comes from Ben Graham.

650

00:32:47,000 --> 00:32:49,440

And so I was just leafing through the letter

651

00:32:49,440 --> 00:32:51,760

'cause there was a great line in one of your letters

652

00:32:51,760 --> 00:32:55,440

that I'd underlined, but I think maybe I don't have

653

00:32:55,440 --> 00:32:57,440

the right letter in front of me,

654

00:32:57,440 --> 00:32:59,680

but it was about just, you know,

655

00:32:59,680 --> 00:33:02,320

an investment manager's success is very tied

656

00:33:02,320 --> 00:33:05,040

to the behavior of your clients or something like that.

657

00:33:05,040 --> 00:33:07,960

It was said so well, and I thought, wow,

658

00:33:07,960 --> 00:33:10,000

that's a really great way of putting that,

659

00:33:10,000 --> 00:33:12,760

but of course, I can't find it now.

660

00:33:12,760 --> 00:33:14,880

Do you want to explain to listeners

661

00:33:14,880 --> 00:33:16,840

how the name for your business came about?

662

00:33:16,840 --> 00:33:18,040

That's interesting too.

663

00:33:18,040 --> 00:33:19,440

- Sure.

664

00:33:19,440 --> 00:33:23,080

Yeah, my name came about, so Marval,

665

00:33:23,080 --> 00:33:26,320

Mar stands for margin of safety.

666

00:33:26,320 --> 00:33:29,640

Val stands for value over the long term.

667

00:33:29,640 --> 00:33:31,720

And so I just kind of put that together.

668

00:33:31,720 --> 00:33:35,360

I thought those were two central concepts to value investing.

669

00:33:35,360 --> 00:33:38,240

And MCL are the initials of the company,

670

00:33:38,240 --> 00:33:42,360

which stand for all my wife and then my daughter's,

671

00:33:42,360 --> 00:33:45,760

my wife's names after M, my daughter's name C,

672

00:33:45,760 --> 00:33:48,320

and my L is for my son.

673

00:33:48,320 --> 00:33:53,320

And so, tried to come up something that would fit.

674

00:33:53,320 --> 00:33:58,760

But also jumping back to what we were discussing

675

00:33:58,760 --> 00:34:00,880

on investment philosophies, I started,

676

00:34:00,880 --> 00:34:03,880

well, not that I started,

677

00:34:03,880 --> 00:34:07,200

but I went through the great financial crisis.

678

00:34:07,200 --> 00:34:11,120

And going through that made me very aware of leverage

679

00:34:11,120 --> 00:34:13,240

and careful of leverage.

680

00:34:13,240 --> 00:34:16,320

And I learned not to be,

681

00:34:16,320 --> 00:34:22,800

I wanted to have a portfolio of companies

682

00:34:22,800 --> 00:34:26,120

where net cash, a lot of them had net cash.

683

00:34:26,120 --> 00:34:29,320

So over half our companies and both portfolios have

684

00:34:29,320 --> 00:34:31,000

a net cash position.

685

00:34:31,000 --> 00:34:33,000

They're very conservative, they can survive.

686

00:34:33,000 --> 00:34:35,000

They have optionality and can benefit

687

00:34:35,000 --> 00:34:37,120

if there is a downturn because they have cash

688

00:34:37,120 --> 00:34:39,120

to make good decisions, right?

689

00:34:39,120 --> 00:34:42,360

And then I also like having high levels of free cash flow

690

00:34:42,360 --> 00:34:45,160

and high returns on invested capital.

691

00:34:45,160 --> 00:34:46,920

That's very good.

692

00:34:46,920 --> 00:34:48,880

And then in terms of influences,

693

00:34:48,880 --> 00:34:51,840

also investment professionals that everyone would know,

694

00:34:51,840 --> 00:34:55,360

I think like Warren Buffett obviously spent a lot of time,

695

00:34:55,360 --> 00:34:58,440

but his genius to me is that he can identify companies

696

00:34:58,440 --> 00:35:01,760

that you can hold forever.

701

00:35:12,920 --> 00:35:17,760

Michael Price

702

00:35:17,760 --> 00:35:22,320

who trained Seth Klarman holding a cash position

703

00:35:22,320 --> 00:35:25,920

and the power of having cash allows you to do other things

704

00:35:25,920 --> 00:35:27,360

because you have that cash position.

705

00:35:27,360 --> 00:35:29,960

And it can be a value at certain points

706

00:35:29,960 --> 00:35:33,880

to keep some money aside rather than having 100% invested

707

00:35:33,880 --> 00:35:34,880

in the markets.

708

00:35:34,880 --> 00:35:37,520

Especially today when you can get paid a little bit on it.

709

00:35:37,520 --> 00:35:38,360

Yeah, yeah.

710

00:35:38,360 --> 00:35:41,960

The T-Bills are suddenly a viable option now.

711

00:35:41,960 --> 00:35:43,320

Yeah, that's great.

712

00:35:43,320 --> 00:35:44,400

That's nice.

713

00:35:44,400 --> 00:35:48,880

Yeah, it really is after a decade of not being able to,

714

00:35:48,880 --> 00:35:51,280

you know, what do you do with cash that just sat there

715

00:35:51,280 --> 00:35:53,200

and didn't make any money?

716

00:35:53,200 --> 00:35:56,000

Joel Greenblatt again for spin-offs, right?

717

00:35:56,000 --> 00:35:58,000

And if you haven't read,

718

00:35:58,000 --> 00:35:59,600

You Can Be a Stock Market Genius.

719

00:35:59,600 --> 00:36:01,640

I think it's a well worth a read

720

00:36:01,640 --> 00:36:06,280

in terms of understanding how to take advantage of spin-offs

721

00:36:06,280 --> 00:36:10,120

and always paying attention when the company has a spin-off.

722

00:36:10,120 --> 00:36:13,440

Yeah, you too can be a stock market genius, right?

723

00:36:13,440 --> 00:36:14,520

Yeah.

724

00:36:14,520 --> 00:36:16,080

And then Charlie Munger?

725

00:36:16,080 --> 00:36:17,920

Charlie Munger on quality.

726

00:36:17,920 --> 00:36:18,920

You know, you've listened to him,

727

00:36:18,920 --> 00:36:21,000

he always talks about Costco.

728

00:36:21,000 --> 00:36:24,200

And it just to me that just reminds me,

729

00:36:24,200 --> 00:36:25,720

you don't have to do a lot of things, right?

730

00:36:25,720 --> 00:36:28,760

You just have to get kind of one thing right

731

00:36:28,760 --> 00:36:29,760

and stick with it.

732

00:36:29,760 --> 00:36:34,880

Don't get moved from that investment, right?

733

00:36:34,880 --> 00:36:36,880

And of course, he taught Warren Buffett that

734

00:36:36,880 --> 00:36:39,200

with the purchase when they purchased See’s Candies.

735

00:36:39,200 --> 00:36:43,520

That was the first transition at Berkshire Hathaway

736

00:36:43,520 --> 00:36:46,280

into quality businesses and the idea of,

737

00:36:46,280 --> 00:36:49,040

you can pay a little bit more for a quality business.

738

00:36:49,040 --> 00:36:50,200

Yeah, and you don't have to keep,

739

00:36:50,200 --> 00:36:52,640

and as you got bigger and bigger,

740

00:36:52,640 --> 00:36:54,000

Berkshire Hathaway got bigger and bigger,

741

00:36:54,000 --> 00:36:58,320

it couldn't just move from one company to the next as easily, right?

742

00:36:58,320 --> 00:37:01,960

Well, can you give an example of one of your successful investments?

743

00:37:01,960 --> 00:37:05,160

And I think it would be good to also maybe hear about a failure

744

00:37:05,160 --> 00:37:08,640

and what key lessons did you learn from each of the experiences?

745

00:37:08,640 --> 00:37:12,840

My first big investment when I started managing a fund,

746

00:37:12,840 --> 00:37:15,480

so I started managing money in 2012.

747

00:37:15,480 --> 00:37:17,400

The first big investment I came across,

748

00:37:17,400 --> 00:37:21,800

Cray in 2011, and at that time, and still to this day,

749

00:37:21,800 --> 00:37:24,960

actually, data is doubling every two years.

750

00:37:24,960 --> 00:37:26,680

So every two years, we create more data

751

00:37:26,680 --> 00:37:29,720

than has been created in human history.

752

00:37:29,720 --> 00:37:33,840

So, yeah, and I just thought people that could,

753

00:37:33,840 --> 00:37:35,480

if you could analyze that data,

754

00:37:35,480 --> 00:37:37,800

you'd have a competitive advantage, right?

755

00:37:37,800 --> 00:37:39,400

And the quicker you could do it.

756

00:37:39,400 --> 00:37:42,520

And so Cray is a supercomputing company,

757

00:37:42,520 --> 00:37:44,640

and they were building shovels for the gold rush, right?

758

00:37:44,640 --> 00:37:47,040

They were helping build the tools to analyze that data

759

00:37:47,040 --> 00:37:48,320

at the highest level.

760

00:37:48,320 --> 00:37:49,880

And if you think of a supercomputer,

761

00:37:49,880 --> 00:37:51,800

a supercomputer is really a computer

762

00:37:51,800 --> 00:37:53,920

that costs over $10 million.

763

00:37:53,920 --> 00:37:55,880

But Cray is even at the high end of that,

764

00:37:55,880 --> 00:38:00,880

and what got me interested in it was that IBM

765

00:38:00,880 --> 00:38:06,600

had this $300 million contract from the government

766

00:38:06,600 --> 00:38:10,440

to build a supercomputer for $300 million over three years, right?

767

00:38:10,440 --> 00:38:14,320

And IBM wanted to use standardized software and parts.

768

00:38:14,320 --> 00:38:17,840

And that doesn't work for a computer of this size.

769

00:38:17,840 --> 00:38:20,760

You need entrepreneurial creative thinking

770

00:38:20,760 --> 00:38:25,120

on how to alleviate all the bottlenecks that are gonna go on

771

00:38:25,120 --> 00:38:28,200

to the computer of the size of a Walmart Supercenter.

772

00:38:28,200 --> 00:38:30,120

You can't just have standardized parts.

773

00:38:30,120 --> 00:38:33,160

And so, you know, just an example of the power

774

00:38:33,160 --> 00:38:37,360

of a computer this big, if one person were to multiply

775

00:38:37,360 --> 00:38:41,200

two numbers together and they did it every second,

776

00:38:41,200 --> 00:38:43,240

it would take a million years to do

777

00:38:43,240 --> 00:38:45,280

what this computer calculates in one second.

778

00:38:45,280 --> 00:38:52,320

And, you know, and so Cray took over the job

779

00:38:52,320 --> 00:38:54,120

and started delivering within eight months.

780

00:38:54,120 --> 00:38:55,920

So to me that said, okay,

781

00:38:55,920 --> 00:38:58,280

there is something special about this company.

782

00:38:58,280 --> 00:39:00,880

And so they had about $190 million,

783

00:39:00,880 --> 00:39:04,000

they got, I think about $190 million on that contract.

784

00:39:04,000 --> 00:39:08,760

And, you know, their revenue for the prior year was $236 million.

785

00:39:08,760 --> 00:39:11,360

So they get $190 million from one contract.

786

00:39:11,360 --> 00:39:14,840

So, you know, the kind of demand that could happen.

787

00:39:14,840 --> 00:39:17,600

And, you know, not too long after,

788

00:39:17,600 --> 00:39:21,600

they also got a contract from the Department of Energy

789

00:39:23,080 --> 00:39:25,040

that was nearly $100 million.

790

00:39:25,040 --> 00:39:29,720

And that thing, you know, used 19,000 16 core processors.

791

00:39:29,720 --> 00:39:34,400

And the power it uses would be to power 9,000 homes.

792

00:39:34,400 --> 00:39:36,520

So, you needed, you needed,

793

00:39:36,520 --> 00:39:38,200

you need the government's involvement

794

00:39:38,200 --> 00:39:41,680

to fund some of these projects and initiatives.

795

00:39:41,680 --> 00:39:44,360

But the revenue and earnings are so lumpy

796

00:39:44,360 --> 00:39:47,640

that the stock would move 30, 40%,

797

00:39:47,640 --> 00:39:49,400

whether they made earnings or missed earnings.

798

00:39:49,400 --> 00:39:52,240

And so, and no one really on the street covered it.

799

00:39:52,240 --> 00:39:56,280

So, you would have opportunities to get in and out of the company.

800

00:39:56,280 --> 00:40:00,240

And trim and add to the position

801

00:40:00,240 --> 00:40:04,040

because Mr. Market was so, so pervasive

802

00:40:04,040 --> 00:40:06,000

in that investment.

803

00:40:06,000 --> 00:40:08,560

And, you know, like, and we, you know,

804

00:40:08,560 --> 00:40:11,200

it actually gave insight into what was going on

805

00:40:11,200 --> 00:40:14,120

with other countries like China.

806

00:40:14,120 --> 00:40:16,400

China went, I think in 2015,

807

00:40:16,400 --> 00:40:19,160

you only had about 7% of the top 500 computers.

808

00:40:19,160 --> 00:40:25,440

In six months, they went to over about 22% of the top 500 computers.

809

00:40:25,440 --> 00:40:27,640

So, they were really, they had given their plan,

810

00:40:27,640 --> 00:40:29,600

they're going to invest heavily in technology

811

00:40:29,600 --> 00:40:31,560

and you could see it in this industry.

812

00:40:31,560 --> 00:40:33,840

And today they have about half the spots

813

00:40:33,840 --> 00:40:35,800

in the supercomputer list.

814

00:40:35,800 --> 00:40:38,760

America has about, you know, same 22%.

815

00:40:38,760 --> 00:40:42,120

And they focused on having the most powerful computers.

816

00:40:42,120 --> 00:40:45,280

And Cray is also tied to the defense budget.

817

00:40:45,280 --> 00:40:48,480

And so, we thought even if the defense budget

818

00:40:48,480 --> 00:40:53,480

were to shrink, spending in this area would still increase.

819

00:40:53,480 --> 00:40:57,160

It would, because there's so many, so much to gain from,

820

00:40:57,160 --> 00:40:57,960

from using it.

821

00:40:57,960 --> 00:41:00,480

And, you know, they even built the computers for the NSA

822

00:41:00,480 --> 00:41:01,920

and that kind of thing.

823

00:41:01,920 --> 00:41:05,360

But I also thought that data analytics

824

00:41:05,360 --> 00:41:08,360

would unlock efficiencies in other industries as well.

825

00:41:08,360 --> 00:41:10,600

And just one last example, and I like,

826

00:41:10,600 --> 00:41:12,760

the pharmaceutical company, if you they use the,

827

00:41:12,760 --> 00:41:15,800

you know, your home computer to analyze billions of points

828

00:41:15,800 --> 00:41:18,360

of data for 100 million people,

829

00:41:18,360 --> 00:41:20,720

if you could even do it, maybe you'd get 12 results

830

00:41:20,720 --> 00:41:22,720

in the year, one a month or something like that.

831

00:41:22,720 --> 00:41:25,520

And if you build a very expensive computer,

832

00:41:25,520 --> 00:41:27,120

you can get 500,000 results.

833

00:41:27,120 --> 00:41:31,360

And then Cray can, your supercomputer could analyze that.

834

00:41:31,360 --> 00:41:33,920

So Cray used the example, you're finding a needle

835

00:41:33,920 --> 00:41:35,560

in a needle stack.

836

00:41:35,560 --> 00:41:39,320

And that can give you the connection to carrying a disease.

837

00:41:39,320 --> 00:41:41,720

And so that's why you, why you'd use them.

838

00:41:41,720 --> 00:41:43,400

You know, in terms of valuation, the company,

839

00:41:43,400 --> 00:41:46,200

when we got involved, 250 million market cap,

840

00:41:46,200 --> 00:41:47,760

had 50 million net cash.

841

00:41:47,760 --> 00:41:52,760

It was about half of sales and two times three cash flow.

842

00:41:52,760 --> 00:41:56,200

And, you know, we bought it for about $7 in 2012.

843

00:41:56,200 --> 00:42:00,320

It went to $35 because it was sold to HP.

844

00:42:00,320 --> 00:42:02,640

And I always saw the computer like this needs to be,

845

00:42:02,640 --> 00:42:05,440

you know, 'cause it was doing a lot of sensitive material.

846

00:42:05,440 --> 00:42:07,800

Meaning like one example they gave,

847

00:42:07,800 --> 00:42:12,800

if we, they had a voice sample of a terrorist,

848

00:42:12,800 --> 00:42:16,440

and there were 200,000 phone calls going on in Manhattan,

849

00:42:16,440 --> 00:42:19,680

they could tell you which phone's making that call.

850

00:42:19,680 --> 00:42:21,200

Where, where, which one is on?

851

00:42:21,200 --> 00:42:25,720

So, we thought, you know, it has to be hidden under a,

852

00:42:25,720 --> 00:42:28,120

in a bigger company, what they're doing.

853

00:42:28,120 --> 00:42:31,200

And so, HP actually ended up buying the company

854

00:42:31,200 --> 00:42:32,360

and it worked out well for us,

855

00:42:32,360 --> 00:42:35,280

but you know, Warren Buffet talks about

856

00:42:35,280 --> 00:42:37,400

all mission versus co-mission.

857

00:42:37,400 --> 00:42:39,840

And all mission are the bigger errors.

858

00:42:39,840 --> 00:42:43,000

So, okay, we bought Cray at half of sales.

859

00:42:43,000 --> 00:42:44,280

So when I was asking them,

860

00:42:44,280 --> 00:42:48,360

how do they make, you know, what kind of processors do they use?

861

00:42:48,360 --> 00:42:51,600

Like, what is it Intel, the CPUs, and they told me,

862

00:42:51,600 --> 00:42:53,240

no, they use Nvidia.

863

00:42:53,240 --> 00:42:56,880

And Nvidia were harder to program, but much more powerful.

864

00:42:56,880 --> 00:42:58,480

And these are graphic processors, right?

865

00:42:58,480 --> 00:43:00,000

The difference between a computer processor

866

00:43:00,000 --> 00:43:01,680

and a graphic processor.

867

00:43:01,680 --> 00:43:04,480

So Nvidia was trading at twice sales

868

00:43:04,480 --> 00:43:05,960

and I'm buying Cray at half a sale.

869

00:43:05,960 --> 00:43:07,560

So four times cheaper.

870

00:43:07,560 --> 00:43:11,560

So, and I thought, no, so Nvidia is too expensive at that time.

871

00:43:11,560 --> 00:43:13,280

So they had about a eight billion market cap.

872

00:43:13,280 --> 00:43:18,080

Now, Nvidia has gone up over 100 X in 11 years, okay?

873

00:43:18,080 --> 00:43:23,000

Now, my only solace, when I think about it is,

874

00:43:23,000 --> 00:43:24,240

I already thought it was expensive.

875

00:43:24,240 --> 00:43:27,640

So then if it went to 16, and since adjusted myself,

876

00:43:27,640 --> 00:43:30,280

I like, I probably would have paid twice sales at,

877

00:43:30,280 --> 00:43:32,480

I'm going back, but it went to, you know,

878

00:43:32,480 --> 00:43:34,280

if it went to 16 billion,

879

00:43:34,280 --> 00:43:35,840

I probably would have sold it along the way.

880

00:43:35,840 --> 00:43:38,040

There's no way I would have held it,

881

00:43:38,040 --> 00:43:39,840

to get to realize the 100,

882

00:43:39,840 --> 00:43:41,560

the discipline of being a value investor,

883

00:43:41,560 --> 00:43:42,640

I wouldn't have been able to.

884

00:43:42,640 --> 00:43:44,640

But I did learn from that failure

885

00:43:44,640 --> 00:43:49,480

and the success of Cray in terms of when I'm looking in India

886

00:43:49,480 --> 00:43:51,400

for these kind of tech opportunities

887

00:43:51,400 --> 00:43:55,720

that are on, that haven't been fully discovered.

888

00:43:55,720 --> 00:43:58,960

And we came across a company called KPIT Technologies

889

00:43:58,960 --> 00:44:02,840

that makes the autonomous driving software for cars,

890

00:44:02,840 --> 00:44:05,440

it makes the battery connectivity software

891

00:44:05,440 --> 00:44:07,720

and connecting the cars on the road.

892

00:44:07,720 --> 00:44:11,000

And they have a team that's bigger than any individual,

893

00:44:11,000 --> 00:44:12,840

Automobile OEM.

894

00:44:12,840 --> 00:44:15,240

So, for example, like BMW,

895

00:44:15,240 --> 00:44:17,800

we'll use them for their software

896

00:44:17,800 --> 00:44:19,520

and then they will just customize it

897

00:44:19,520 --> 00:44:21,280

to make it look like BMW software,

898

00:44:21,280 --> 00:44:22,840

but the white label is from them.

899

00:44:22,840 --> 00:44:27,640

So we were able to get that at a, you know, sort of,

900

00:44:27,640 --> 00:44:29,080

you know, in India's a growth market,

901

00:44:29,080 --> 00:44:30,240

we'll maybe discuss this more,

902

00:44:30,240 --> 00:44:33,960

but it was sort of 20 times, maybe mid-20s

903

00:44:33,960 --> 00:44:35,560

in terms of earnings,

904

00:44:35,560 --> 00:44:38,080

and we sold it after in and about over a year,

905

00:44:38,080 --> 00:44:39,520

when up to six X,

906

00:44:39,520 --> 00:44:41,960

but so we learned from that,

907

00:44:41,960 --> 00:44:44,040

and then tried to, you know,

908

00:44:44,040 --> 00:44:46,840

a little more open-minded when we see that kind of thing.

909

00:44:46,840 --> 00:44:48,280

And using Charlie Mungers' quote,

910

00:44:48,280 --> 00:44:50,960

"All smart investment is value investment”

911

00:44:50,960 --> 00:44:55,120

as a principle on looking at certain tech stocks

912

00:44:55,120 --> 00:44:57,920

that are early, you know,

913

00:44:57,920 --> 00:44:59,920

you're catching them sort of maybe a little bit earlier

914

00:44:59,920 --> 00:45:01,880

than other people I notice.

915

00:45:01,880 --> 00:45:02,720

So.

916

00:45:02,720 --> 00:45:04,680

- That's another thing I like about your letters

917

00:45:04,680 --> 00:45:08,760

is that there is, you use great quotes throughout your letters.

918

00:45:08,760 --> 00:45:10,760

So, I always like to read quotes

919

00:45:10,760 --> 00:45:12,760

and your letters were great.

920

00:45:12,760 --> 00:45:15,120

You had some good ones in there.

921

00:45:15,120 --> 00:45:19,040

- I love quotes that kind of help shape

922

00:45:19,040 --> 00:45:21,320

what you're writing about.

923

00:45:21,320 --> 00:45:25,720

And, you know, I'd, I remember Arnold Van Den Berg

924

00:45:25,720 --> 00:45:28,440

shared with me one of his quote books.

925

00:45:28,440 --> 00:45:31,360

Actually, he gave a Google talk and I'd listened to it,

926

00:45:31,360 --> 00:45:34,640

and then I wrote to him because he mentioned the quote book in it,

927

00:45:34,640 --> 00:45:35,640

and then he sent it to me,

928

00:45:35,640 --> 00:45:37,840

so he sent a copy for me and my dad,

929

00:45:37,840 --> 00:45:42,000

and I just thought, you know, it only had quotes in it,

930

00:45:42,000 --> 00:45:45,400

but I thought, yeah, I should use more quotes for my letters

931

00:45:45,400 --> 00:45:46,760

and that kind of thing.

932

00:45:46,760 --> 00:45:50,480

So I enjoy just researching quotes, I guess, from that.

933

00:45:50,480 --> 00:45:51,320

- It's awesome.

934

00:45:51,320 --> 00:45:53,320

I have his quote book on my desk.

935

00:45:53,320 --> 00:45:56,400

He's a great guy and he's been a guest on the show, as you may know.

936

00:45:56,400 --> 00:46:02,040

Well, can you talk a little bit more about your investment activities

937

00:46:02,040 --> 00:46:05,600

because they expand India and the US.

938

00:46:05,600 --> 00:46:09,120

Do you have a North American fund and a fund focused on India.

939

00:46:09,120 --> 00:46:12,640

Can you discuss the different dynamics between the markets?

940

00:46:12,640 --> 00:46:15,720

- Sure, that, you know, that's, yeah, it is very interesting now

941

00:46:15,720 --> 00:46:19,040

when I look back of, especially the US and India,

942

00:46:19,040 --> 00:46:21,240

they're both very deep markets,

943

00:46:21,240 --> 00:46:24,480

and they both really have their homegrown companies

944

00:46:24,480 --> 00:46:26,760

that dominate.

945

00:46:26,760 --> 00:46:28,680

- And your focus is on small and mid-cap.

946

00:46:28,680 --> 00:46:29,880

- Small and mid-cap, right?

947

00:46:29,880 --> 00:46:33,600

But if I look at the overall market,

948

00:46:33,600 --> 00:46:37,360

you're seeing these homegrown companies that dominate

949

00:46:37,360 --> 00:46:39,880

and they're both consumption-driven economies.

950

00:46:39,880 --> 00:46:44,880

So the US is in the high 60s for consumption in India's around 60%.

951

00:46:44,880 --> 00:46:51,320

But one thing that's different between the markets is that,

952

00:46:51,320 --> 00:46:56,760

from a value investment perspective, deep value,

953

00:46:56,760 --> 00:46:58,600

I don't believe that works in India,

954

00:46:58,600 --> 00:47:00,600

but it does work in North America.

955

00:47:00,600 --> 00:47:04,360

And the reasons is like what I see is why it doesn't work in India is,

956

00:47:04,360 --> 00:47:10,240

so India is a growth market, so companies that, even bad companies

957

00:47:10,240 --> 00:47:12,400

might be growing a 10% a year, right?

958

00:47:12,400 --> 00:47:15,600

So if you're really cheap, if you're, you know,

959

00:47:15,600 --> 00:47:18,880

like trading at under 15 times earnings in India,

960

00:47:18,880 --> 00:47:22,440

you probably have, you might have corruption,

961

00:47:22,440 --> 00:47:24,040

you might have excessive leverage,

962

00:47:24,040 --> 00:47:26,600

part of your business might be becoming obsolete,

963

00:47:26,600 --> 00:47:29,480

or maybe you're a government-run business,

964

00:47:29,480 --> 00:47:31,480

or some combination of all of those.

965

00:47:31,480 --> 00:47:36,800

And so the most risk are the cheapest companies in India.

966

00:47:36,800 --> 00:47:41,800

Whereas in the US, you can still find a good margin of safety

967

00:47:41,800 --> 00:47:48,240

in deep value companies, and so many things can come about.

968

00:47:48,240 --> 00:47:52,280

And so in India, you know,

969

00:47:52,280 --> 00:47:55,040

we've really, we've kind of sided with,

970

00:47:55,040 --> 00:47:58,200

sided with market-leading type companies and small and mid-caps.

971

00:47:58,200 --> 00:48:01,600

But, you know, if you look at it as a growth market overall,

972

00:48:01,600 --> 00:48:05,480

the difference here is that, and why can still grow in everything,

973

00:48:05,480 --> 00:48:11,240

the collective market cap of the US, US companies is around $40 trillion,

974

00:48:11,240 --> 00:48:13,160

and India is less than one tenth of that,

975

00:48:13,160 --> 00:48:14,960

so it's about three and a half trillion.

976

00:48:14,960 --> 00:48:18,720

And then the average American makes 30 times more than the average Indian.

977

00:48:18,720 --> 00:48:21,200

So the average Indian is making about $2,500 a year.

978

00:48:21,200 --> 00:48:24,520

average American, I think, is like $76,000 something like that.

979

00:48:24,520 --> 00:48:27,720

And the middle class is projected to really grow in India.

980

00:48:27,720 --> 00:48:28,560

That's right.

981

00:48:28,560 --> 00:48:31,400

So there's, you know, when you go to India right now,

982

00:48:31,400 --> 00:48:33,240

and this is where there's a lot of low hanging fruit,

983

00:48:33,240 --> 00:48:36,440

because there's only 200 million people

984

00:48:36,440 --> 00:48:40,520

that are really participating and make up the consumer class in India.

985

00:48:40,520 --> 00:48:43,320

But by 2030, they think that'll grow to a billion people

986

00:48:43,320 --> 00:48:45,200

to your point, Lauren.

987

00:48:45,200 --> 00:48:49,560

So there is that aspect that can,

988

00:48:49,560 --> 00:48:52,440

where India is really starting to take off now

989

00:48:52,440 --> 00:48:54,920

because they become much more business friendly.

990

00:48:54,920 --> 00:48:59,120

And they're aiming, so there's certain sectors that are doing well too.

991

00:48:59,120 --> 00:49:03,720

So, make in India is an initiative where they want to increase manufacturing.

992

00:49:03,720 --> 00:49:06,920

So, manufacturing right now is about 18% of the economy.

993

00:49:06,920 --> 00:49:08,440

They want to move it to 25%.

994

00:49:08,440 --> 00:49:14,440

Now to increase it to 25% when the economy is already growing in 6, 7% a year,

995

00:49:14,440 --> 00:49:17,280

you have to give massive incentive and that kind of thing to it.

996

00:49:17,280 --> 00:49:20,960

But what they have going for them is that China's population,

997

00:49:20,960 --> 00:49:23,320

by 2070 right now, the estimates are,

998

00:49:23,320 --> 00:49:26,040

India might have twice the population of China.

999

00:49:26,040 --> 00:49:27,640

Right, because China's declining.

1000

00:49:27,640 --> 00:49:29,320

Right, so if you see someone like Apple,

1001

00:49:29,320 --> 00:49:35,120

that's why they're investing to manufacture in India now.

1002

00:49:35,120 --> 00:49:40,200

And because they're still going to have that big working-age population

1003

00:49:40,200 --> 00:49:42,320

if when you start looking decades out.

1004

00:49:42,320 --> 00:49:46,280

And then if I give you an example, like the banking sector,

1005

00:49:46,280 --> 00:49:50,440

the banking sector 15 years ago in India was 90%

1006

00:49:50,440 --> 00:49:53,640

run by the state-owned banks.

1007

00:49:53,640 --> 00:49:58,640

Today it's about 60% and the private banking, the private banks,

1008

00:49:58,640 --> 00:50:01,040

you know, they're going at 20 to 30% a year.

1009

00:50:01,040 --> 00:50:02,600

They're taking lots of share.

1010

00:50:02,600 --> 00:50:04,640

So there's lots of opportunity in different sectors.

1011

00:50:04,640 --> 00:50:08,840

Then, you know, a great operator can come in and dominate a field.

1012

00:50:08,840 --> 00:50:11,840

So for example, again, like just over 15 years ago,

1013

00:50:11,840 --> 00:50:16,400

Indigo Airlines was created and it was started by the US Airway CEO.

1014

00:50:16,400 --> 00:50:25,800

And he put an order with Airbus for Airbus 320 planes.

1015

00:50:25,800 --> 00:50:30,000

And he specified those planes because he thought they were the most fuel-efficient.

1016

00:50:30,000 --> 00:50:32,480

And he specified the parts and then he leased them.

1017

00:50:32,480 --> 00:50:34,600

So he had a lower cost, but he went to Airbus and say,

1018

00:50:34,600 --> 00:50:36,440

"I want 150."

1019

00:50:36,440 --> 00:50:40,560

And Airbus only entertained it because he was the former US Airways CEO.

1020

00:50:40,560 --> 00:50:42,880

And so they delivered that.

1021

00:50:42,880 --> 00:50:47,680

Then in 2009, he orders another 100, 150 planes for them.

1022

00:50:47,680 --> 00:50:48,880

And no one resorted in planes.

1023

00:50:48,880 --> 00:50:53,080

So Airbus went and said, "Okay, we will deliver those planes."

1024

00:50:53,080 --> 00:50:58,880

Now, India only today only has about 700 to 800 planes for domestic travel in the whole country.

1025

00:50:58,880 --> 00:51:02,880

Yeah, so America has about less than 6,000 planes.

1026

00:51:02,880 --> 00:51:05,880

And China has about 7,000 planes.

1027

00:51:05,880 --> 00:51:09,880

So India is like a tenth of China right now, but also earns less.

1028

00:51:09,880 --> 00:51:11,280

So less people can travel.

1029

00:51:11,280 --> 00:51:16,280

But, in the last year or so, two companies in India,

1030

00:51:16,280 --> 00:51:21,280

Indigo go being one of them and Tata, the Tata Group, have ordered 1,000 airplanes.

1031

00:51:21,280 --> 00:51:24,280

So you know, to quote Wayne Gretsky,

1032

00:51:24,280 --> 00:51:26,280

you can see where the puck is going in terms of travel, right?

1033

00:51:26,280 --> 00:51:31,280

Those middle class, the number of consumers moving to the middle class will be able to consume.

1034

00:51:31,280 --> 00:51:35,280

And so I'm very happy for the Indian people that this is happening because,

1035

00:51:35,280 --> 00:51:39,280

you know, I've been going there since I was 6 months old in ‘78.

1036

00:51:39,280 --> 00:51:43,280

But been going there my whole life and the levels of poverty,

1037

00:51:43,280 --> 00:51:47,280

it's the one place that makes you almost want to get into politics to help the people.

1038

00:51:47,280 --> 00:51:51,280

Because you don't see the politicians really helping the people.

1039

00:51:51,280 --> 00:51:57,280

But now we've got a Prime Minister Modi who's moving,

1040

00:51:57,280 --> 00:52:01,280

the first business-friendly government India has ever had.

1041

00:52:01,280 --> 00:52:03,280

And taking them from socialism to capitalism.

1042

00:52:03,280 --> 00:52:07,280

And so what's happening is, you know, the brain drain that's been happening,

1043

00:52:07,280 --> 00:52:11,280

people like my dad left India because it was no opportunity for them, right?

1044

00:52:11,280 --> 00:52:15,280

I'm telling my dad, now hey, you know what, the opportunity for my kids,

1045

00:52:15,280 --> 00:52:17,280

they might have to go back to India, right?

1046

00:52:17,280 --> 00:52:21,280

So instead of a Modi had this quote, instead of a brain drain, it's a brain gain.

1047

00:52:21,280 --> 00:52:23,280

Because people will start coming back.

1048

00:52:23,280 --> 00:52:27,280

And, you know, animal spirits are starting to work in India.

1049

00:52:27,280 --> 00:52:31,280

So in 2016, there was only 1,000 startups in India.

1050

00:52:31,280 --> 00:52:33,280

Today there's over 90,000. Wow.

1051

00:52:33,280 --> 00:52:41,280

And, you know, India being business-friendly is allowing the markets to decide who the winners are.

1052

00:52:41,280 --> 00:52:45,280

So I'm very, very happy with India.

1053

00:52:45,280 --> 00:52:49,280

And why I decided to create a small and mid-cap fund,

1054

00:52:49,280 --> 00:52:51,280

this is where I compared it to the US.

1055

00:52:51,280 --> 00:52:55,280

When I look at my favorite investors, you know, so I mentioned Michael Price,

1056

00:52:55,280 --> 00:52:59,280

Seth Klarman, Joel Greenblatt, even Warren Buffett,

1057

00:52:59,280 --> 00:53:03,280

where he grew tremendously, my dad, including him as well.

1058

00:53:03,280 --> 00:53:07,280

It was between the 80s and 90s.

1059

00:53:07,280 --> 00:53:15,280

And so in the beginning of 1979, America was a $2.5 trillion economy.

1060

00:53:15,280 --> 00:53:19,280

And by the end of 2000, so 22 years later, it gets to $10 trillion.

1061

00:53:19,280 --> 00:53:23,280

So that's a 4X growth on the economy.

1062

00:53:23,280 --> 00:53:27,280

The S&P 500 compounded at about 17% during that time.

1063

00:53:27,280 --> 00:53:31,280

So, there was the opportunity to do really well in that environment, right?

1064

00:53:31,280 --> 00:53:35,280

Your money doubles at 15% every five years.

1065

00:53:35,280 --> 00:53:41,280

So now, India, when we started in mid-2019,

1066

00:53:41,280 --> 00:53:43,280

India's economy was around $2.5 trillion.

1067

00:53:43,280 --> 00:53:47,280

It's getting to $10 trillion in about 17 years, you know,

1068

00:53:47,280 --> 00:53:51,280

like plus or minus a few years, but it should be there before the US.

1069

00:53:51,280 --> 00:53:53,280

That's a very fertile environment.

1070

00:53:53,280 --> 00:53:57,280

And the chances are that India's stock market will compound at a high level,

1071

00:53:57,280 --> 00:54:01,280

just like America did, because they're under a capitalist society.

1072

00:54:01,280 --> 00:54:09,280

And so, if you look at most emerging market funds that go to that market,

1073

00:54:09,280 --> 00:54:15,280

they're only investing the top 10 companies in India are about 40% of the S&P 500.

1074

00:54:15,280 --> 00:54:19,280

So these emerging market funds, they have about 10% to 15% of their investment in India.

1075

00:54:19,280 --> 00:54:23,280

And they only invest in the top 30 companies, primarily, you know,

1076

00:54:23,280 --> 00:54:25,280

being generally generalizing here.

1077

00:54:25,280 --> 00:54:31,280

But so we saw the opportunity to get a small and mid-cap fund and go and go a little deeper,

1078

00:54:31,280 --> 00:54:37,280

find some market leaders and do well there with our network and checking out who the founders are.

1079

00:54:37,280 --> 00:54:39,280

And that kind of thing.

1080

00:54:39,280 --> 00:54:45,280

So we've been building our business and it's been a great thing just to educate Canadians

1081

00:54:45,280 --> 00:54:49,280

and take them and invest them in Indian markets over there.

1082

00:54:49,280 --> 00:54:53,280

So, but those are some of the, I hope that gives some color as to the differences and similarities

1083

00:54:53,280 --> 00:54:55,280

of India and the US.

1084

00:54:55,280 --> 00:54:57,280

It really does.

1085

00:54:57,280 --> 00:55:03,280

Now, your North American fund is focused predominantly on US securities?

1086

00:55:03,280 --> 00:55:05,280

And Canada - and Canadian.

1087

00:55:05,280 --> 00:55:07,280

Yeah, that's about 80% I would say.

1088

00:55:07,280 --> 00:55:13,280

Yeah, well, again, your annual letters for the India fund, especially for 20% of the US.

1089

00:55:13,280 --> 00:55:19,280

For the India fund, especially for 2022, described a lot of those dynamics in detail

1090

00:55:19,280 --> 00:55:25,280

and was very interesting, kind of blown away with some of the initiatives I see coming out of India.

1091

00:55:25,280 --> 00:55:27,280

It's really interesting.

1092

00:55:27,280 --> 00:55:33,280

Ben, is there a particular achievement, a recent achievement that you're proud of?

1093

00:55:33,280 --> 00:55:37,280

You know, like for me, it really is, you know, I launched my India fund,

1094

00:55:37,280 --> 00:55:45,280

and missed non-banking financial crisis in India, which really started from 2018 going into 2019,

1095

00:55:45,280 --> 00:55:49,280

accelerated in the back half of 2019.

1096

00:55:49,280 --> 00:55:53,280

So, we launched this fund. I got all my friends, my family members, colleagues, business associates,

1097

00:55:53,280 --> 00:55:55,280

and it's going down.

1098

00:55:55,280 --> 00:56:01,280

And then we rebound somewhat in January 2020 and I'm, you know, okay, I'm feeling better.

1099

00:56:01,280 --> 00:56:05,280

Because all these people are trusting me to go invest in India with their money.

1100

00:56:05,280 --> 00:56:11,280

And, you know, right now it's a concept. It's not really, you know, I showed them this concept and they all backed me.

1101

00:56:11,280 --> 00:56:18,280

And then, you know, of course, COVID hits in March 2020 and you're down 30, another 30% in the month.

1102

00:56:18,280 --> 00:56:26,280

And, you know, we didn't lose any investors. They trusted me and so I'm so grateful to them.

1103

00:56:26,280 --> 00:56:33,280

And by the end of the year, you know, who would have thought in that 2020 year, lockdowns, zero revenue, that kind of thing,

1104

00:56:33,280 --> 00:56:37,280

the market will be up after all of that at the end of the year, right?

1105

00:56:37,280 --> 00:56:43,280

And we achieved, we, so we had about a 26% in return in 2020.

1106

00:56:43,280 --> 00:56:50,280

And then in 2021, we were up 59% and then we were down about 6% last year.

1107

00:56:50,280 --> 00:56:56,280

And this year we're up sort of about 7% so that makes up for, for last year.

1108

00:56:56,280 --> 00:57:01,280

But, you know, it's, it's not a, these are all short-term numbers.

1109

00:57:01,280 --> 00:57:07,280

We're, we're there for the next like, I tell people like, I'm there for over 30 years kind of thing.

1110

00:57:07,280 --> 00:57:13,280

I want to be, India is the great growth story of our generation.

1111

00:57:13,280 --> 00:57:21,280

And, you know, when I looked at my career and thinking out to when I'm 60 years old, what would I regret not doing?

1112

00:57:21,280 --> 00:57:26,280

And I thought if I just focus on North America and I, when I know what's going on in India, I'd regret it.

1113

00:57:26,280 --> 00:57:32,280

And, you know, India right now, it's a $3.5 trillion economy. It expects to be at 7 trillion by 2030.

1114

00:57:32,280 --> 00:57:39,280

And if you just think of that, that, that's doubling everything they've ever done in their history in the next seven years.

1115

00:57:39,280 --> 00:57:42,280

You know, and, and just put that in a US perspective.

1116

00:57:42,280 --> 00:57:46,280

That's like adding another, you know, I know it's not the same size or anything,

1117

00:57:46,280 --> 00:57:51,280

but it's like adding another Apple, Microsoft, Google, the entire US banking system in seven years.

1118

00:57:51,280 --> 00:57:53,280

That's what they're doing for their own economy.

1119

00:57:53,280 --> 00:57:57,280

So, it's, you know, I'm just so excited to be, to be part of it.

1120

00:57:57,280 --> 00:58:11,280

Well, that should be something you're proud of. And it does, and I'm going to push on that, that just a little bit because it reminds me of Sir John’s investment with Paul Matthews and his Korea fund on the heels of the Asian financial crisis.

1121

00:58:11,280 --> 00:58:13,280

There was a really funny story about that.

1122

00:58:13,280 --> 00:58:21,280

So evidently, things had gotten so depressed in the Matthews office that they had bought like a ping pong table, and they just played ping pong during the day.

1123

00:58:21,280 --> 00:58:27,280

And then this fax came through from John Templeton saying, "I'm going to invest in your Korea fund."

1124

00:58:27,280 --> 00:58:35,280

You know, this was, they had had, they had been like the worst performing mutual fund ranked by Morningstar that year.

1125

00:58:35,280 --> 00:58:47,280

And then Sir John invested in the next year. They were the top performing mutual fund, which says a lot because it was during the tech boom and they beat the high flying tech funds.

1126

00:58:47,280 --> 00:58:55,280

I just want to push on that experience a little bit. Like really what was that like in March of 2020? You just launched this fund, COVID hit.

1127

00:58:55,280 --> 00:58:59,280

I mean, what? Tell, describe it more.

1128

00:58:59,280 --> 00:59:09,280

I looked at it as, okay, I was pretty concentrated in both funds. And what I did there was I had to expand.

1129

00:59:09,280 --> 00:59:17,280

I decided to expand the holding. So, anything that would fell in line with markets was on the table ready to be sold.

1130

00:59:17,280 --> 00:59:25,280

If I could find something that fell, there was a great quality company that for no other reason than the market panic fell twice the market.

1131

00:59:25,280 --> 00:59:35,280

Like 60, 70%. That's what I was looking for. And so, we were able to find some of those. So we were, you know, even in North America, we were up 25% in 2020.

1132

00:59:35,280 --> 00:59:45,280

And that's, that's what we did. We tried to take tax losses where we could. And, and then put them in great companies that we thought we could hold a long time.

1133

00:59:45,280 --> 00:59:59,280

Upgraded your portfolio. Yeah, yeah, in a nice way. I mean, we have great companies. But yes, if there are opportunities in, in things that might be even better, yes, then we will, we will do that.

1134

00:59:59,280 --> 01:00:05,280

And, you know, the nice thing is that we're not very big. So we can do that. And, and that's, that's the strategy we took.

1135

01:00:05,280 --> 01:00:17,280

So going, going through, going through the crisis. And, you know, there was a little bit sleepless, sleepless nights in the sense that I'm trading in North America during the day and then India at night as well.

1136

01:00:17,280 --> 01:00:28,280

So, so there was a little bit of that. And then I wrote the most, I like, I usually only communicate with clients because I, for every year, unless I have something to say or something is going on in the market.

1137

01:00:28,280 --> 01:00:41,280

And I communicated over 10 times, I think, through letters that year to clients because I wanted them to understand what they're, what was going on.

1138

01:00:41,280 --> 01:00:49,280

And I told them even I think in one, one note, you know, take your statement write it down what you're feeling and look back at it in a year.

1139

01:00:49,280 --> 01:01:00,280

Interesting. Because I guarantee like, I didn't guarantee it, but I did say that I think we will be in a much better spot in a year from now.

1140

01:01:00,280 --> 01:01:02,280

Yeah, we don't guarantee anything in investing.

1141

01:01:02,280 --> 01:01:13,280

Yeah, you don't guarantee anything. But, but at that, you know, that kind of panic and what was happening, you it would be hard for it to continue to last that.

1142

01:01:13,280 --> 01:01:22,280

What you know, like, they I think, they were quoting mortality where death rates of three to five percent at that time and there you know so there.

1143

01:01:22,280 --> 01:01:35,280

The one thing that that was different in that crisis was a health scare on top, but so that was worrisome, especially, you know, when you think of your parents and people that were in the age demographic that could be impacted by it, right.

1144

01:01:35,280 --> 01:01:51,280

There's a lot of uncertainty, but it created opportunity for good companies. And again, I throw over my framework of trying to reduce risk of having cash rich companies that are, you know, good free cash flow and and that have managed themselves in a conservative manner.

1145

01:01:51,280 --> 01:01:56,280

So that they could go a year without revenue and still survive.

1146

01:01:56,280 --> 01:02:10,280

So I wasn't worried about our companies, but yeah, it was quite it was well, it was I get excited by downturns not because let's see this one the health scare wasn't as exciting.

1147

01:02:10,280 --> 01:02:24,280

But if you're a true value investor, a lot of times you're not involved in what's causing the crisis and I go back to the great financial crisis is more of a normal thing where people got in excessive leverage and that kind of thing.

1148

01:02:24,280 --> 01:02:32,280

You're not involved with what drove the market up. So you're not fully participating in normal circumstances when it goes down.

1149

01:02:32,280 --> 01:02:39,280

And so you get excited because you're now you're seeing all these opportunities that you weren't able to take part and right and.

1150

01:02:39,280 --> 01:02:53,280

So that doesn't totally apply to the pandemic, but it does apply in the sense that there's these businesses like again, like I mentioned Spin Master, I thought people would still buy toys right and in fact, I thought people would buy more toys if we have to stay at home.

1151

01:02:53,280 --> 01:02:59,280

And I had two kids I have I had they were seven and four at the time. I'm like you know, we need to get some toys in this house.

1152

01:02:59,280 --> 01:03:02,280

I'm going to play with.

1153

01:03:02,280 --> 01:03:10,280

Because you know, you're trying to do a call and my four-year-old did not care what I was doing. And I remember even my seven-year-old, my daughter at the time, she came in.

1154

01:03:10,280 --> 01:03:16,280

I was on a call and she yelled at me like, I you know, I didn't make her lunch because my call went through lunch.

1155

01:03:16,280 --> 01:03:26,280

And so my wife was out at the time. Well, I don't know if she was walking around the block or whatever and my daughter's like, you didn't make me lunch.

1156

01:03:26,280 --> 01:03:31,280

Just a moment. Let me let me just put this on mute.

1157

01:03:31,280 --> 01:03:42,280

It's stressful. I was stressed during COVID and it was mostly, I, like you look forward to moments and maximum pessimism so that I can go in and take advantage of the market.

1158

01:03:42,280 --> 01:03:54,280

It's exciting, but having the additional stress of worrying about family members and the health consequences of the virus if they caught it, I found was very stressful.

1159

01:03:54,280 --> 01:03:57,280

I particularly worried about my parents. So that was hard.

1160

01:03:57,280 --> 01:04:01,280

And then you also have challenges of homeschooling too, right?

1161

01:04:01,280 --> 01:04:07,280

Well, I let that slide a bit, maybe my kids are a bit behind.

1162

01:04:07,280 --> 01:04:13,280

I just I could not do that but have great appreciation for our teachers. Yes, yes, they did not sign up for that.

1163

01:04:13,280 --> 01:04:21,280

Speaking of COVID, what's keeping you up at night right now as a fund manager and investor? What are you thinking about?

1164

01:04:21,280 --> 01:04:29,280

I think I explain that I try to limit, you know, I try to look at the factors that I can control and what I can't control.

1165

01:04:29,280 --> 01:04:39,280

And so when I talk about having net cash companies and good fundamentals, you know, like good free cash flow, that kind of thing, good returns on investment.

1166

01:04:39,280 --> 01:04:43,280

It's to limit poor outcomes. So I try to control what I can.

1167

01:04:43,280 --> 01:04:52,280

And the quantitative factors are things that you can control, but it's very hard to, we might get some of the qualitative factors wrong.

1168

01:04:52,280 --> 01:05:06,280

But when I look at the macro, I remember Peter Lynch, I'm going to paraphrase here, I'm not going to get it exactly right, but he said something like if you spend more than 15 minutes a year worrying about the market, you've wasted 13 minutes.

1169

01:05:06,280 --> 01:05:11,280

And you know, you can't control what the market's going to do. All you can control is what you do.

1170

01:05:11,280 --> 01:05:20,280

So you really have to just focus on having a portfolio of companies where you're comfortable with the risks that you're in.

1171

01:05:20,280 --> 01:05:33,280

And so that's what I do. And so I don't stay up at night worrying, you know, other things keep me up at night, but not my companies because of because of the way I've structured the portfolio, I'd say.

1172

01:05:33,280 --> 01:05:35,280

I almost look at it…

1173

01:05:35,280 --> 01:05:41,280

Risk management has like, you know, you take your health seriously to reduce probabilities of a serious event occurring.

1174

01:05:41,280 --> 01:05:49,280

You can't, you can't, you know, you might still get hit by a bus or something like that, but you try to minimize the chances of a permanent loss of capital.

1175

01:05:49,280 --> 01:05:58,280

And that's, that's really what I've been been trying to do. And then I try to employ, you know, routines and checklists to make sure I'm not missing things along the way.

1176

01:05:58,280 --> 01:06:04,280

Checklist manifesto is a good book that helped me show the importance, demonstrated to me the importance of having a checklist.

1177

01:06:04,280 --> 01:06:18,280

And so I've tried to do that through investing as well. And, and minimize negative impacts. And, you know, when I look at the S&P 500, one thing that I'm always, that, so maybe this would be a point that might keep me up at night in the sense that,

1178

01:06:18,280 --> 01:06:28,280

18% when I, in the 1960s, I believe about 18% or so of the S&P 500 was replaced every decade.

1179

01:06:28,280 --> 01:06:38,280

Today, it's over 40%. So I am always trying to say, is there something in my business in one of these businesses that can be displaced by technology.

1180

01:06:38,280 --> 01:06:41,280

Sure. And that's only speeding up.

1181

01:06:41,280 --> 01:06:47,280

Yeah. And that's speeding up. And, you know, we're seeing like a scenario where Google everyone was comfortable with it.

1182

01:06:47,280 --> 01:06:52,280

You know, just over a year ago. And today is Google a growth company anymore.

1183

01:06:52,280 --> 01:06:58,280

Don't know. You know, now they, from a 90% market share, could they be 70%?

1184

01:06:58,280 --> 01:07:08,280

Still have a nice market share, but maybe advertising revenue also comes down. They've got a second challenger or like, you know, now Apple might say, hey, well, maybe we'll use Bing as our default engine.

1185

01:07:08,280 --> 01:07:19,280

And they can get some pricing discussions with Google, which they couldn't have in the past in terms of being their default, browser, search engine all on Safari or something.

1186

01:07:19,280 --> 01:07:21,280

Anyways. Good point.

1187

01:07:21,280 --> 01:07:36,280

Yeah. This AI revolution is very, very interesting. And it will be entertaining to watch for sure. I sure have enjoyed toying around with ChatGPT.

1188

01:07:36,280 --> 01:07:42,280

It's an indispensable tool now in daily life, especially for people like us, right?

1189

01:07:42,280 --> 01:07:45,280

It's been fantastic.

1190

01:07:45,280 --> 01:07:53,280

Yeah, it really has. Well, Ben, I'm curious what you would, how you would describe your leadership style preference?

1191

01:07:53,280 --> 01:07:56,280

Well, now I'm biased on that point.

1192

01:07:56,280 --> 01:08:05,280

I've seen the decentralized approach work so well at Fairfax. I cannot, I could not think of a better way to do it.

1193

01:08:05,280 --> 01:08:10,280

It, you know, it really empowers the individual to make decisions.

1194

01:08:10,280 --> 01:08:17,280

So every CEO at our, and I'm going to put my Fairfax hat on here, but every CEO runs their own company.

1195

01:08:17,280 --> 01:08:24,280

And by doing that, you're very, you're much less likely to lose the talent in the organization, right? They want to stay there.

1196

01:08:24,280 --> 01:08:30,280

And then we overlay that with the golden rule. So everyone treats everyone with respect. And that's vital to it.

1197

01:08:30,280 --> 01:08:40,280

So, I really think of it as a decentralized collaboration where our subsidiaries, they operate day to day autonomously.

1198

01:08:40,280 --> 01:08:46,280

But key decisions and my dad talks about this, at length as well at the head office.

1199

01:08:46,280 --> 01:08:57,280

So key decisions at the head office, Fairfax head office, meaning investing, right, for the flow, the insurance flow, M&A transactions and dramatically expanding or contracting a major line of business.

1200

01:08:57,280 --> 01:09:02,280

We're, you know, we're talking like the, the billion-dollar lines of business within the insurance company.

1201

01:09:02,280 --> 01:09:13,280

Those are discussed at the head office. But, you know, day to day and everything, bonusing and all that, that's all done at the, at the company level and not, not discussed at headquarters.

1202

01:09:13,280 --> 01:09:24,280

I read a book by Dee Hock, the founder of Visa. And I thought he had an analogy that really summarized why decentralized approach works, right?

1203

01:09:24,280 --> 01:09:29,280

He said, innovation came from subsidiaries scattered across the world.

1204

01:09:29,280 --> 01:09:43,280

And, and rather than from just the headquarters, right? But if there was a mistake made in the organization, the, that idea died quickly without really impacting the, the subsidiary too much.

1205

01:09:43,280 --> 01:09:50,280

But if you had a success, a great idea, it was swiftly emulated and it spread throughout the organization.

1206

01:09:50,280 --> 01:09:56,280

Right. And when you're keeping the talent, you have those kinds of people that are, that are bringing up those kinds of ideas.

1207

01:09:56,280 --> 01:10:07,280

And if you look at, and why we always say we'll have an internal candidate because, well, if you look at it first of all, like, yeah, Fairfax, our, our presidents, our CEOs have been with the company over 20 years.

1208

01:10:07,280 --> 01:10:18,280

So they've got our culture ingrained in, in them. And, and that's only within internal candidates, right? If they took someone, if we took an outside person to run one of our insurance companies,

1209

01:10:18,280 --> 01:10:27,280

well, then they'll bring in their people that think they think that are, they're comfortable with. And they'll run those divisions within the business.

1210

01:10:27,280 --> 01:10:33,280

Pretty soon, all the management of that company, our people outside the organization have nothing to do with their culture and they won't know it.

1211

01:10:33,280 --> 01:10:38,280

So we have now, you know, over 16,000 employees in over a hundred countries.

1212

01:10:38,280 --> 01:10:46,280

We have a lot of talent in the organization. We don't need to look outside. And, and we've got a system in place that, you know, fosters a no-ego culture,

1213

01:10:46,280 --> 01:10:55,280

which is key to this decentralized approach. And that's what makes it really work and where ideas really, really, rise to the top.

1214

01:10:55,280 --> 01:11:05,280

And I also found an idea from Jamie Dimon, which I think he really explained why the decentralized approach works too.

1215

01:11:05,280 --> 01:11:13,280

He said, you know, it's not the value of what's on the balance sheet. That's the value of the company. It's the extraordinary human capital.

1216

01:11:13,280 --> 01:11:23,280

If you think of a great athlete or a great artist, it's not the equipment that you provide them with, right? It's the system that they've been trained in.

1217

01:11:23,280 --> 01:11:31,280

And, and, and the hard work that they put in that makes them great. And sometimes it's not the most talented individuals that win the championship.

1218

01:11:31,280 --> 01:11:40,280

It's the team that delivers a championship. And so I just thought that was, those were two great points on the decentralized approach and what it works.

1219

01:11:40,280 --> 01:11:52,280

Yeah, Berkshire's also decentralized. I'm curious, do you think that's a concept that can apply across industries? I mean, those are two good examples, but they happen to both be in the insurance industry.

1220

01:11:52,280 --> 01:12:05,280

Yeah, I think it, I think it can. I mean, one example of one of the executives that I talked to at Fairfax. He's one of our CEOs that runs one of our, you know, multi-billion-dollar businesses.

1221

01:12:05,280 --> 01:12:15,280

And he said he tries to take that decentralized approach and sort of put it on steroids in the sense that within his company, there are lines of business that are a billion dollars.

1222

01:12:15,280 --> 01:12:26,280

And they are decentralized too. So, they are their own CEOs of that line of business. And they just kind of, he doesn't get involved with the day to day or anything like that, but they report to him.

1223

01:12:26,280 --> 01:12:40,280

And so, you know, he's, he's let it grow that way. And I think, so I think it can work with, with all sorts of companies, but you need to have a no-ego culture. And that is against the grain for a lot of companies.

1224

01:12:40,280 --> 01:12:50,280

You know, if you look, most, most companies are the average CEO in an S&P 500 company is about seven years, I think something like 70 years.

1225

01:12:50,280 --> 01:12:51,280

Yeah, the 10 year.

1226

01:12:51,280 --> 01:12:59,280

So what is, what is, what is your goal when you're only going to get the job that long make as much money as possible is what they try to do, right?

1227

01:12:59,280 --> 01:13:08,280

So, you know, what, what they're doing when they, when they come in and this is the kind of thing that, that is not well appreciated.

1228

01:13:08,280 --> 01:13:14,280

And I think our family helps benefit the company from this is protect against this.

1229

01:13:14,280 --> 01:13:28,280

And we keep them executives focused on the long term and not on the short term. So, executives at some of these other companies, when they think they're only there for a short period of time, if they're not going to make their quarterly earnings, they could sell a line of business, right?

1230

01:13:28,280 --> 01:13:30,280

And that would make their numbers.

1231

01:13:30,280 --> 01:13:42,280

But that might not be in the best interest of the company long term. Now, that won't happen at Fairfax, right? Because we're there for, for a very long term, but it could happen at these other companies.

1232

01:13:42,280 --> 01:13:52,280

A lot of investment managers have noticed that and will even look for companies that have some sort of family control, of course, Fairfax is family controlled.

1233

01:13:52,280 --> 01:14:02,280

Why do you believe that's an asset for the company and sort of how are, how are you going about preparing the next generation for leadership?

1234

01:14:02,280 --> 01:14:14,280

Yeah, I should add to what I was saying. Thank you for that question. The commitment goes beyond just thinking as a company investment or a share price.

1235

01:14:14,280 --> 01:14:27,280

We are there for the long term. And I think, I also think of all the families that are dependent. So we have over 16,000 employees, but you think each family member has five people dependent on it.

1236

01:14:27,280 --> 01:14:41,280

You got, you got, you know, almost 80,000 people that are dependent on the success of Fairfax. And so, how does it last, right? And my dad always talks about creating the hundred-year company.

1239

01:15:12,280 --> 01:15:18,280

And these are the things that we are going to help protect to make sure that are, they're always ingrained in our, in our company.

1240

01:15:18,280 --> 01:15:37,280

Transparency to our shareholders is another, thing. Decentralized collaboration - I had talked about that, an open communication culture. And that can only happen, again in a no-ego system where, where ideas are free to spread and people are free to also say if they don't think something is right.

1241

01:15:37,280 --> 01:15:51,280

Ownership incentives are aligned for the long-term goals. And I was, you know, briefly mentioning about how, you know, short term focused organization, business might be not, you know, might be sold. And it might look good for the quarterly numbers, but not good for the long term.

1242

01:15:51,280 --> 01:16:06,280

We're, we're okay with looking, being offside for a long period of time, right? If it, if it matches with our long-term goals. Keeping a lean structure at the head office so we can make decisions very quickly. And we don't get, you know, caught up in bureaucracy,

1243

01:16:06,280 --> 01:16:21,280

That we can't make a decision. And then integrity, tell the truth and, and make the best decisions for the, for the company. And then we also have teamwork and loyalty. That's another thing that my dad put in place. And, you know, in terms of loyalty.

1244

01:16:21,280 --> 01:16:34,280

You know, I know behind the scenes, my dad had talked to all the CEOs of all their companies and said, you know, this is not the time to let go of anyone. You never like to let anyone go, but particularly doing COVID. They won't get another job.

1245

01:16:34,280 --> 01:16:45,280

And we didn't know how long this would last and that kind of thing. So, he made sure no problem. The expense ratio is higher in this scenario. We want to take care of our people, you know, because they perform for us.

1246

01:16:45,280 --> 01:16:57,280

And then the last point - balanced entrepreneurship. So, you know, we promote, we want hard work and measured risk taking, but not at the expense of, of someone's family and not at the expense of the company.

1247

01:16:57,280 --> 01:17:06,280

And so, you know, those principles, the next generation's challenge is really to uphold those principles to maintain our culture, but it's set out and mapped out for them.

1248

01:17:06,280 --> 01:17:19,280

And so, there shouldn't be a question in their mind. And, you know, I know I'm going to raise my children and Chris is going to raise her children, understanding these principles and these concepts and how important it is to the company and why it makes the difference.

1249

01:17:19,280 --> 01:17:35,280

Right. And so, it's real at Fairfax. I mean, I always say that, and I don't want to talk about Fairfax too much. But, you know, before going on the board of Fairfax, I don't know that I really believed how important a company's culture was.

1250

01:17:35,280 --> 01:17:50,280

And at Fairfax, you just see it at work. It's there. It's in the room with you. It's, it's very well understood what the company's culture is. It is no ego.

1251

01:17:50,280 --> 01:18:08,280

It's a very humble culture. And I think it's extremely important to Fairfax's success over the long term. So, it's been, I've really learned a lot looking at that. Now, I try to evaluate that in the companies that we analyze.

1252

01:18:08,280 --> 01:18:14,280

Do you look for that in companies that, that you research? I mean, how do you identify it?

1253

01:18:14,280 --> 01:18:33,280

I look for companies that, yes, I think that is, if you can find a company at a good valuation that has a family behind it that shows good discipline and is what words shareholders in the long run.

1254

01:18:33,280 --> 01:18:53,280

And yes, you should invest with those companies. I'd give the example of Walmart, right? Walmart, you know, Sam Walton died in 1992. And it's been, it's been, I mean, the company has grown and grown and grown. And the family, you know, the only people that have really stuck with that company the whole time. Maybe there's, you know, five or 10 others.

1255

01:18:53,280 --> 01:19:05,280

And there's really the family that's held on to the company the whole time. They are, family-owned businesses are the best investors because they just hold on to their stock the whole time. Very long-term focused.

1256

01:19:05,280 --> 01:19:21,280

Yeah. And so you try to find those, those kind of companies and because they're not making short term oriented decisions and they're not making, as I was showing, like trying to show with where executives might be a little more short term focused because their career of that company might not be that long.

1257

01:19:21,280 --> 01:19:42,280

You know, it doesn't show up. It's not in the numbers per se. You have to kind of understand from through the CEO or the chairman's writings to how he talks about the company. And then look at his track record, does it back up what he says. I think you have mentioned in the past, Sir John talked about making 200-year investments.

1258

01:19:42,280 --> 01:20:02,280

And so, when we were trying to make this 100-year-old company, you know, right now we have sort of we started since ‘85 the time there were 6000 companies that were started and that were around an ‘85 and of which only 600 are around today.

1259

01:20:02,280 --> 01:20:23,280

And we're of the top 20 in terms of returns since then. So, we're in the top 1% and you know, I say that with pride because of what our company has tried to achieve and what my dad has set out with this company is to make it uncommon amongst uncommon companies when I say uncommon in companies,

1260

01:20:23,280 --> 01:20:37,280

I mean, in terms of the S&P 500 type companies because those are the best businesses in the world that have that have been created, but you know, we already talked about how companies are being displaced 40% of them are falling out of the form.

1261

01:20:37,280 --> 01:20:38,280

It's incredible.

1262

01:20:38,280 --> 01:20:43,280

So how you have to be uncommon. You can't do it. You can't go the common route.

1263

01:20:43,280 --> 01:20:59,280

And think you're going to stay there. It has to be uncommon methodology to remain in that in that S&P 500 and most activists, you know, I was trying to do research on activists that have held their company stock over 20 years.

1264

01:20:59,280 --> 01:21:01,280

You're just not finding any. Oh, I doubt there are any.

1265

01:21:01,280 --> 01:21:03,280

Are there any? I don't think so.

1266

01:21:03,280 --> 01:21:14,280

There'll be one offs for some or maybe not been able to get out of it. But for the most part, I mean, it's you're talking like 1% of the investments are last, right.

1267

01:21:14,280 --> 01:21:21,280

So, activists generally, they're never there longer than five years or something like that.

1268

01:21:21,280 --> 01:21:27,280

So, they're not ever coming in for long term interest of a company.

1269

01:21:27,280 --> 01:21:37,280

They have conviction. And even if they're not long term, right. So you can't you know, so our family control, I think we'll keep the management team of the company.

1270

01:21:37,280 --> 01:21:54,280

We're going to back the management team, keep this culture in place and keep the long-term focus on the whole company for the value of our shareholders and everyone and all the people that are involved with Fairfax too, that work of the company or customers, all our relationships and everything.

1271

01:21:54,280 --> 01:22:05,280

I think they will see that we do things at the highest level of integrity and we're trying to, we continue to keep that focus. And that's the long term

1272

01:22:05,280 --> 01:22:12,280

Focus for us. And yeah, and so I definitely if I can find those companies - and you do see them in India.

1273

01:22:12,280 --> 01:22:26,280

So my average company in India, the Foundering family owns 51% of the company. So I to your point, you know, you find that less so in in North America where you can find those kind of companies.

1274

01:22:26,280 --> 01:22:38,280

But in India, a lot of companies started after India almost went bankrupt in in the early ‘90s. And so there's still the family keeps control of those companies right now.

1275

01:22:38,280 --> 01:22:52,280

I love that long-term focus and those are so many good thoughts on family-controlled businesses. It reminds me of the podcast we just released I think this week with Lawrence Cunningham who describes the different types of shareholders there are in the market.

1276

01:22:52,280 --> 01:23:05,280

And I think specifically of I think it was either Warren Buffett or Charlie Munger either one said, you know, you attract the type of shareholder you deserve and quality businesses can attract quality shareholders with this long-term

1277

01:23:05,280 --> 01:23:20,280

focus and mindset and Ben, we've been recording now for about an hour and a half. So, I'd like to conclude by asking you about your interests and hobbies. We know you play tennis.

1278

01:23:20,280 --> 01:23:29,280

So, is it tennis and investing or investing and kids? What are you doing in your spare time?

1279

01:23:29,280 --> 01:23:39,280

You know, I you know, I reflected on what my, the meaning of life is to me and it's to fall in love with the process of learning new things as they come into your life.

1280

01:23:39,280 --> 01:23:55,280

And you take simple concepts and then replicate them over and over to compound your abilities right. And so, when I mean that coming into your life, you know, health when I look at that, I used to run into my 20s and then I hurt my knee and I stopped focusing on it.

1281

01:23:55,280 --> 01:24:04,280

And you know, I got to maybe over, you know, sort of like 25 pounds overweight and I hurt my back when I was about 39 and I was like, you know what?

1282

01:24:04,280 --> 01:24:12,280

And the 60-year age keeps coming up, but 60 I thought to myself, if I'm 60, I'm not going to it's not going to get any better.

1283

01:24:12,280 --> 01:24:21,280

So, I decided to take a little time and research and study like a stock. And so, you know, that's what I think investing has done, right?

1284

01:24:21,280 --> 01:24:27,280

I think and there's books about that, right? Like how investing is more than just investing. It's a lifestyle.

1285

01:24:27,280 --> 01:24:31,280

Yes. So it is. You can compound in all sorts of different categories.

1286

01:24:31,280 --> 01:24:43,280

It's not just money. And so, I took to studying this and I found this concept from a guy named Pavel who brought the kettlebell in the ‘90s from Russia to America.

1287

01:24:43,280 --> 01:24:53,280

And it is called greasing the groove. You don't kill yourself, but you know, and you do low reps, sort of five to eight. And you just keep things around like, so I'll work out in the morning, yes.

1288

01:24:53,280 --> 01:25:01,280

But I also keep, you know, dumbbell around my desk, a kettlebell. So in between readings, I can just, you know, bust out a few things.

1289

01:25:01,280 --> 01:25:06,280

I have pull up bars on the way to the bathroom.

1290

01:25:06,280 --> 01:25:19,280

Well, I know you're in shape and you work out a lot. Don't drink alcohol, very healthy lifestyle. That's really smart though. I may get a kettlebell to keep in my office because I lift weights.

1291

01:25:19,280 --> 01:25:28,280

Well, there's, you know, and then, and then there was a, so I found this Canadian engineer that made this this pull up bar called, his company is called Dyonamic.

1292

01:25:28,280 --> 01:25:43,280

I’ll give him a plug and he, you know, you just kind of, it fits on any wall, like even when I'm sometimes I bring it with you visiting places and it has like you can hook up to. You can get a, actually a pretty good workout from a small amount of equipment.

1293

01:25:43,280 --> 01:25:51,280

Dyonamic and they're on Amazon and that kind of thing, and GoRuck. GoRuck is an interesting company.

1294

01:25:51,280 --> 01:26:01,280

They make weighted vests and weighted packs and all that and you can just add a little bit extra weight to your pushups or pull ups or everything and just keep them around right and then and you don't have to do, again five to eight reps.

1295

01:26:01,280 --> 01:26:11,280

This guy, at Babel wrote a book and everything it’s great. So, studying that then kids, of course, I always think you have to take care of yourself before you can take care of other people.

1296

01:26:11,280 --> 01:26:31,280

And, and then kids has been a focus of mine and I just want to say one thing like I learned with studying with my kids and both of them now read and I only say this because you might have people listening to this podcast that either are about to have kids have young children or might have grandkids.

1297

01:26:31,280 --> 01:26:46,280

And I didn't see this talked about a lot when I was raising my kids. I thought, you know, you know, in our career, reading is a superpower. It really is, you can learn so much in a lifetime from it, right and as we've talked about compounding.

1298

01:26:46,280 --> 01:26:57,280

So, to give your children the gift of reading at an early age, I think is something special, right? So, you could focus on making them great at skiing or whatever I tried to focus on reading.

1299

01:26:57,280 --> 01:27:10,280

And what I found is when my daughter was born, Clayton Christensen had written a book, How Will You Measure Your Life. And in there, there was a study of the, it was called the 30-million-word cap.

1300

01:27:10,280 --> 01:27:19,280

And it showed how some kids learn how to speak quicker than others. And it was because they'd heard many more words, up to 30 million more words and another kid by the age of three.

1301

01:27:19,280 --> 01:27:41,280

So what, when I was looking up that study, I came across something called the Dolch words, D-O-L-C-H, and which are high frequency words. So basically, the concept is, there's two to three hundred words in the English language that encompass 50% of all the words in books, magazines, you know, whatever you're reading in English.

1302

01:27:41,280 --> 01:27:48,280

And in children's stuff, it's like all the words basically that they would come almost all the words that they would read.

1303

01:27:48,280 --> 01:28:03,280

So, if you teach them all those words from like the time they're born, they'll be vastly ahead in terms of like, if I think of, you would get more out of school if you can read all the instructions, read everything that's in front of you, that kind of thing, right.

1304

01:28:03,280 --> 01:28:10,280

And so that's, so I think it's a gift you can give your kids and my kids both read a couple grades above their, their reading level.

1305

01:28:10,280 --> 01:28:20,280

And I just, I didn't see a lot about that out there. And so, I think, you know, there's a website, Mrs. Perkins Dolch Words, if you search Google that, you'll find it.

1306

01:28:20,280 --> 01:28:28,280

And she has all of them on there. And you just take your kids through it every day for like, you know, five, ten minutes, they'll learn the words.

1307

01:28:28,280 --> 01:28:40,280

So I, I, that was a focus of mine. And then, you know, you learn other things, relationships become very important. So, creating traditions with the kids, like trips alone.

1308

01:28:40,280 --> 01:28:48,280

I was talking to a dad, he's 60 and he takes a, and his daughter is in their 30s, they still take a trip alone every year, right.

1309

01:28:48,280 --> 01:28:54,280

And even though she's married and has kids and everything. So I'm like, okay, I'm going to create that now. Hopefully it lasts with, with both my kids.

1310

01:28:54,280 --> 01:29:08,280

So doing, doing that. And then even with, with friends, right, like I find, you know, I'm sure you have a lot of clients, and you can get so wrapped up in work that you forget about your personal relationships.

1311

01:29:08,280 --> 01:29:19,280

So I've just tried to put in rolling either calls, coffees or, lunches with people in my life that are, that are important.

1312

01:29:19,280 --> 01:29:29,280

And it's just a rolling calendar appointment and whether it's monthly, quarterly or whatever, it comes up. And then if we have to move it, we have to move it. But we're going to do it.

1313

01:29:29,280 --> 01:29:37,280

Because it stemmed from a friend of mine in Kenya that, you know, I saw like three times over five years. And I said, if we had a quarterly call, we would have talked 20 times, right.

1314

01:29:37,280 --> 01:29:48,280

So, and I also looked at some hundred-year-olds and they, they had said the one thing that they cherished most in their life with their relationships that they made from 50 years on, and that they kept.

1315

01:29:48,280 --> 01:29:57,280

And so, I thought, well, I got to increase, increase that in my life. And now with the tools we have, it's easy, easy to do. So, it's amazing.

1316

01:29:57,280 --> 01:30:11,280

And lastly, stoicism, I think, has been something that I'm, you know, I've just started really looking into the last few years and I can't wait to learn more and more about it. And I think Ryan Holiday…

1317

01:30:11,280 --> 01:30:16,280

Quite the buzz word and that value investing industry. Everybody's talking about stoicism right now.

1318

01:30:16,280 --> 01:30:27,280

Yeah, it does apply to investing in the sense of you manage what you can control and what you can't control, you don't worry about, right. And it's you're trying to foster and maximize your positive emotions, minimize your negative emotions.

1319

01:30:27,280 --> 01:30:38,280

I think you've even mentioned like John, Sir John would take this isn't quite negative emotions, but like if there was a thought that was unproductive, he would banish it or something.

1320

01:30:38,280 --> 01:30:52,280

Yeah, people loved that quote. He really did say that to me said when I encounter a negative thought, I just banish it to the nothingness that it was. And, you know, I think the more you think about that, you're like, wow. I need to do more of that.

1321

01:30:52,280 --> 01:31:00,280

But it's so, yeah, well, so, stoicism, they even have a concept of mourning a person that's alive almost like they had died.

1322

01:31:00,280 --> 01:31:13,280

So that the next time you see them, you appreciate them more like there's just all these, you know, there's so much to it and I need to study it more and more, but I really like a lot of things out of it. And so, so.

1323

01:31:13,280 --> 01:31:20,280

Ben, where are you, how are you starting that process of studying stoicism? Where do you start?

1324

01:31:20,280 --> 01:31:29,280

I think Ryan Holiday has done fantastic, if I give you meditations by Marcus Aurelius, you read it, you won't get as much out of it.

1325

01:31:29,280 --> 01:31:38,280

I think Ryan Holiday has written many books on the subject, the easiest one that I give. So, I just made a book list actually, maybe this is just a good thing.

1326

01:31:38,280 --> 01:32:00,280

A friend’s son graduated from college, from high school. And so, I told my friend that, you know, I'm going to pick out six books that I think I would have loved to know at his age and when, you know, when we graduated, you know, there wasn't the kind of materials that there are today.

1327

01:32:00,280 --> 01:32:20,280

So, there's so many good books to give people so The Daily Stoic was one I gave him. It's just a page every day to read. I'm going to give it to my daughter when she gets a little older. She's 11 and so there's a lot of topics that she's not quite ready to read about, but maybe when she's a teenager, but The Daily Stoic daily reading every day with a teaching on stoicism.

1328

01:32:20,280 --> 01:32:37,280

And then the other six books that I recommended to him. And so, if you've got a recent college graduate or someone graduating high school, I think the Atomic Habits and I think you mentioned that in the past.

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That's a great one for, you know, starting and maintaining a productive routine. Think and Grow Rich. Someone gave that to my dad on a train in India when he was, you know, a teenager.

1330

01:32:47,280 --> 01:32:57,280

Napoleon Hill, right? Yeah, Napoleon Hill. And someone just gave that to him randomly, a stranger. And it was a great, he gave it to me too when I was growing up and I thought it was fantastic.

1331

01:32:57,280 --> 01:33:07,280

But how were positive thinking? I think the Almanac of Naval Ravikant was another great, great book with a lot of wisdom, The Psychology of Money.

1332

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How To Save. Morgan Housel. Yeah, Morgan Housel and not to get wrapped up into all the trappings of maybe conventional thinking of money.

1333

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And then The Joys of Compounding. I think that book has done a phenomenal job of taking what's in the past of value investing and then also incorporating more modern like Jeff Bezos and those kind of people into the block and some of their teachings as well.

1334

01:33:32,280 --> 01:33:37,280

So, I thought he did a good job. So those are the six books that I gave out to my friends.

1335

01:33:37,280 --> 01:33:47,280

That's awesome. Well, thank you for sharing that and I will make sure and list those books out in the show notes for anybody who's interested.

1336

01:33:47,280 --> 01:33:54,280

You don't have to write it down. I'll have it on the website for you. Ben, this has been so much fun spending time with you today.

1337

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I just really appreciate your time and thank you for coming on Investing The Templeton Way.

1338

01:33:58,280 --> 01:34:07,280

Yeah, thank you, Lauren. Thank you so much for taking the time to interview with me and I really enjoyed myself today and I'll look forward to talking to you in the near future.

1339

01:34:07,280 --> 01:34:10,280

Thank you so much. Wonderful. Okay, bye-bye.

1340

01:34:10,280 --> 01:34:19,280

Thank you for listening to "Investing the Templeton Way." Please be sure to subscribe on your favorite podcast player.

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To view the show notes and resources mentioned in today's show, head to investingthetempletonway.com.