The Exchanges

Q And then you went on, um, you had sold them. What was the timing around that? Like, uh, I don't quite know what happened, but you went on CNBC and you sort of like said, we need to do more. Uh, and you were, you were, well, you walked me through that.

A Sure. Yeah. Uh, so basically we put the hedge on in maybe the third week in February and And by March 12th, the hedge had gone from being worth nothing to being worth, you know, 2.7 billion dollars. And the markets had dropped, I don't know, 25% or so at that point in time. And we said, you know what, uh, we've got this massive position in the hedge, which maybe has the potential to double if the, you know, credit spreads widen to where they were during the financial crisis. But if they don't, and the government takes the right steps, you know, this hedge could be worth zero and the stock market can go right back up to where it was. So we made a decision to exit the hedge. And so we started selling the hedge and we started aggressively buying stocks On the 12th. I went on CNBC at 12:30 on the 18th, and the reason why I know these details is because, you know, I wanted to respond to some of my detractors. We'd invested two billion fifty million between March 12th and March 18th at 1230 in the stock market buying, you know, additions, adding to our portfolio, buying, repurchasing Starbucks. We had sold half the hedge for a 1,000,000,300, a little more than half the hedge for a billion three hundred million, and Uh, so we were three billion, you know, three hundred and fifty million more long stocks, if you will, than we were on March 11th. And bear in mind, this was a firm with t…

AI assessment note: “I went on CNBC at 12:30 on the 18th”

Q I, I definitely relate to that. How would you handle the bailouts? Like, is there, who would get what, and is there a way that you can think of realistically to direct capital to capable hands and away from just prolonging economic failure, or is that not the way that you would handle this, or walk me through that?

A Sure. Look, I think there are businesses that prior to the coronavirus were structurally challenged. You know, think department stores. Um, so the notion that you'd want to save these businesses, I don't, I don't think makes a huge amount of sense to me that you, it makes sense to take taxpayer money and try to save a otherwise dying business. So think about businesses that are in structural decline. This would, you know, likely put them out of business. But I wouldn't spend any of taxpayer resources on them. You know, the, the way that You know, big companies, the only thing that happens when a big company goes through a disruption like this is that the owners and you, and there isn't quote unquote a government bailout, if you will, is that the owners change, right? If you're an airline and you run out of cash, uh, what happens is, you know, the bondholders end up becoming, you know, converting into equity, you know, through some kind of either prepackaged or other restructuring process, they end up being the owners. And You know, I, I am receptive to this notion that you have airlines that have spent, you know, billions of dollars buying back stock. You know, why should taxpayers come in and, in effect, support the shareholders that were beneficiaries of buybacks, and had they retained that capital for a rainy day, they wouldn't need a government bailout. So that, that concep…

AI assessment note: “I wouldn't spend any of taxpayer resources on them.”

Q I'm curious as to, you mentioned reading sort of a lot at night. I'm curious as to what your information intake looks like. Like what publications do you read regularly? Books, blogs, specific authors, memos, what does that look like?

A Sure. So, you know, I read a lot of traditional media sources, you know, Wall Street Journal, Financial Times, New York Times, uh, Economist, Fortune, Forbes, uh, Grant's Interest Rate Observer, and beginning sort of, as I got deeper into coronavirus, I started using Twitter actually as a news feed and found it to be very, very helpful and interesting. You know, almost, uh, having the experience of reading the news a couple of days before You read the news and the rest of the media. Bloomberg, Bloomberg News, of course. And then I just, you know, I go where the, you know, the, the facts sort of take me. And then, you know, I don't regularly listen to, you know, read blogs. Although I'm starting to understand the benefits. So I'm a late, but sort of recent adopter of finding more interesting, curated news sources.

AI assessment note: “Wall Street Journal, Financial Times, New York Times, uh, Economist, Fortune, Forbes”

Q So you're looking at Starbucks and then, but there's millions of people looking at Starbucks. Where does that edge come from?

A I think a big part of the edge comes from, we're not going to do a better job predicting next quarter's earnings than people who focus on that, and we just don't focus on that at all. What we focus on is, what is this business worth over its life? And the, the markets generally overreact to short-term information and noise, because many stocks are traded on the basis of, you know, the marginal buyer and seller is a short-term investor trying to predict whether the stock's going to go up or down on the quarter. And we, we don't spend any time trying to figure that out, and that kind of activity, whether it's driven by quantitative traders or computers or, you know, fast, fast money, so to speak, moves, uh, securities around occasionally to crazy prices, and Starbucks was trading as if the business had fundamentally changed, and our view is it hadn't, and that the company was taking all the right steps to address You know, some of the performance related issues that they had both in the U S and that they had, you know, a lot of opportunity for growth and they were becoming a more focused, better companies. They were actually taking, you know, normally we'd look for a great business that had lost its way. We try to figure out what they had done wrong. And then we'd recommend a series of changes after buying a stake in the company. That's sort of our core business. But in the case …

AI assessment note: “a big part of the edge comes from, we're not going to do a better job predicting next quarter's”

Q Who are some of your investing heroes? Or actually, who are some of your heroes, not investing heroes, but who just generally are some of your heroes?

A Sure. So just briefly on the investment side, you know, I got into this business because someone tipped me off about Warren Buffett early on, so he's certainly obviously a hero. Two investors I learned a ton from over the course of my career and were kind of supportive of me early on. A guy named Joe Steinberg, who just likes being out of the headlines, and his partner Ian Cumming ran a company called Lucadia National Corporation, you know, a very interesting investment firm. I learned a ton. Over time. But, you know, I admire people like Elon Musk. You know, I admire people who take on unbelievable challenges and, and succeed. You know, the notion of building a car company to compete with the big car companies is something that, uh, on its own, I think it's fairly remarkable. And if you want, if you do that at a time when you're building a company, you know, to, uh, you know, launch rockets into space, you know, I think it's even more remarkable. So he's, Someone I have, uh, enormous respect for.

AI assessment note: “I admire people like Elon Musk. You know, I admire people who take on unbelievable challenges”

Q So talk to me about the role of short selling. Uh, is that good for the world? Is it bad for the world? Is there a line where it becomes you've gone too far or how do you see that?

A Sure. So I think, I think short selling is a essential and generally Positive function for markets. I give a lot of credit to the folks at Muddy Waters who have unearthed a meaningful number of fraudulent companies, and I've yet to find an example of a regulator finding a fraudulent company. It's either a journalist often being fed by a short seller or a short seller that has been, is, you know, the one to identify fraud because they have a huge economic incentive to, to find bad companies or Well, it's certainly fraudulent of businesses. So I think that function is a, is a great function for the capital markets. And I think if, you know, if I were, uh, you know, running the SEC, uh, I would make sure that my enforcement division was talking closely with the best short sellers, hearing their favorite ideas, and that would be the best way for the SEC to uncover fraud. So I think that is a very effective and good thing. Where it's a negative is the problem with being a short seller. If you, All you do is short stocks. You want your companies to fail no matter what. And, you know, some short sellers will take steps to actually cause harm to a business as a goal, you know, in order to make their short, uh, successful. And, uh, so that's where it crosses the line. And I, I, you know, I sort of followed the whole, uh, again, never been an investor in Tesla, you know, long or short. B…

AI assessment note: “short selling is a essential and generally Positive function for markets”

Q What are some of the lessons you learned from your parents?

A You know, it's interesting to speak about my parents, because I've been living with them now for, uh, I think about six weeks, uh, and haven't done that for a good 30 years. So, uh, it is an interesting time to talk about lessons learned from parents. But my father is, I like to describe myself as the most persistent person in America, but actually my father is the most persistent person in America. So I certainly live in a, a home Where you learn never to give up on pretty much anything. And, uh, so I've, I've, uh, I think that's a big takeaway. And, uh, you know, mom and dad, you know, hardworking, motivated, educated people, high ambitions for their kids, always talked about setting an example. I learned a lot of things from my parents. I learned about philanthropy. I think of philanthropy as something that is not Genetic, it is learned, and something that my dad reinforced pretty much from the time I was a kid.

AI assessment note: “Where you learn never to give up on pretty much anything. And, uh, so”

Q You did go through a divorce though, right?

A Yes. I mean, the most challenging moment from a business standpoint was not the most recent challenges. You know, losing money on a big investment is disappointing, but it happened. It was coterminous with challenges in my, and perhaps correlated with challenges in my personal life. It is, it can be very distracting to be contemplating whether one should stay married While running a business that requires, you know, a lot of, you know, judgment and clarity of thinking, and, uh, you know, I, I ultimately made some, you know, failures of judgment in my business, and I'm quite sure that the personal challenges I was facing at the same time made things worse. And then I had to deal with the business challenges at the same time I was in the midst of, you know, the normal challenges of divorce and resolving things with a former spouse and kids. And, uh, you know, so it was, it was a challenging period.

AI assessment note: “Yes. I mean, the most challenging moment from a business standpoint”

Q Time arbitrage is like a hard one to, to go away because there's always going to be this short term pressure. And so I like the structural sort of like, or, um, approach to addressing that problem. How do you see the role of ETFs in index fund investing and how does it in fact, or affect investors like yourself?

A So the, the impact on investors who care about governance, in particular sort of activist investors, is, you know, over time as, you know, index funds effectively come to control corporate America, you know, their vote can be the deciding factor, you know, in a contest. And so that's one way that index funds play a major role. Uh, the other side of that is Index funds are also, because of their growing influence, under a fair amount of pressure from their shareholders to oversee the businesses that they own. People thought about the index fund investment business as a business almost without governance, where governance was not a, a focus at all, and then their increasing Ownership of corporate America, global, uh, you know, global securities puts more pressure on them to be thoughtful. Now they don't have the, the resources to lead an activist campaign. I think that requires a more entrepreneurial type investor. So, you know, there's, in a way there has to be a partnership between activist investors and, you know, index funds to make sure that we're governing companies correctly. And, you know, I've seen a number of the top firms Over time, take these issues much more seriously, and, and we've had a good experience working with, with most of these major owners. The problem with the index fund business is it's really a commodity business. You know, if you run an S&P, 500 index …

AI assessment note: “the impact on investors who care about governance, in particular sort of activist investors, is”

Q This is just the headline numbers. I'm glad you explained that behind the scenes. That's really insightful. Thank you. Walk me through some of the economic implications you see today. Like we can't do this for 18 months. Are we going to enter a depression? Like, how do you handicap that? How do you see the risk?

A Sure. So my concern about the virus, I was less concerned about the health implications because I thought it would affect relatively small percentage of, of people and, you know, for the most part, people who are already sick, although, you know, obviously every life is an important life, particularly to the close friends and family, but the economic implications I thought could be, you know, much more harmful even than the health implications, and that's because the only way to stop A virus is to shut down the economy, and I had never in my lifetime seen what a, an intended shutdown of an economy looked like, and as that rolls around the globe, you know, what are the implications, but I think the difference between a depression and a intended But short-term shutdown, if it's managed correctly, the economic implications are, are nothing like the Great Depression. So I am not concerned about a Great Depression-like event taking place, really for a couple reasons. One, that this is sort of an intended, somewhat artificial, temporary shutdown, not driven by economic reasons, but driven by health-related reasons, just to stop the spread of the virus. So that's a very important distinction. The other thing is that governments around the world have taken this incredibly seriously. Not just the health implications, but the economic implications. And the government's basically stepping…

AI assessment note: “I am not concerned about a Great Depression-like event taking place, really for a couple reasons.”

Q And do you see this as like a long-term holding or as a proxy for cash or how do you think about that?

A Yeah. You know, I don't, I think it's a really cheap, interesting stock. You know, run by the best investor in the world. We think, you know, Buffett's taken an approach toward really all of his businesses that's extremely hands-off, and that's worked very well for many of those companies, but other parts of the portfolio, you know, in our view, underperform the competition in terms of their, you know, profitability or growth, et cetera. And I, I think the, as the generational You know, change happens at Berkshire. It appears to us the next generation is going to be much more focused on, you know, extracting the most from the businesses Berkshire owns. I mean, just looking at the Burlington Northern Railroad, we know a lot about railroads by virtue of our experience at Canadian Pacific. It's the largest You know, it should be the most profitable, highest margin railroad in the world. It's not. And I think a bit of that is, is, is Warren's very, uh, you know, kind of his reluctance to get too actively involved with businesses that he owns. Um, but I do think that over time that gets solved. So you have this very well capitalized company controlled by, you know, great investor CEO and a portfolio of businesses, many of which have opportunities for improvement. Um, and you know, I think that's interesting. I don't know how long we're going to own it. You know, we, we always retain…

AI assessment note: “I don't know how long we're going to own it.”

Q What are some of the lessons that you've drawn from, from those experiences?

A You know, it's interesting. In my first fund, I had a partner who remains a very good friend, and the stress of the ending was enough for him that he just didn't want to continue and do it again, where I was excited to kind of rebuild and go forward. And my business plan was just to make a little progress every day. And if you make a little progress every day, eventually that compounded progress will dig you out of the hole. And what is difficult is you find yourself in a hole, whether it's an investment hole or in your personal life or otherwise, it seems incredibly daunting to get back to, you know, if you will, where you were, and you're looking up at this peak where you were before, and it's just, you're never going to get there. But if you don't focus on the peak and just focus on, you know, one step at a time, you know, making progress, eventually You know, as the weeks go by, just make a series of smart, thoughtful decisions, use good judgment, stay healthy. Eventually you climb your way out of the hole.

AI assessment note: “if you make a little progress every day, eventually that compounded progress will dig you”

Q because you're, you know, you seem way more in touch with your emotions than most people. And yet you're putting yourself out there in a way that, um, people love or hate. There doesn't seem to be a lot in the middle. How do you, how do you deal with that? Do you just ignore it? Do you even look at it? Do you, does it affect you at all?

A You know, I just, and myself, you know, recently, I was becoming more and more concerned that our government was not taking the coronavirus seriously. You know, I was gravely concerned a few months ago, and, you know, took steps both to protect, you know, my father, who's an immune-compromised, my family, the firm, our investors with a hedge, etc. And then I, you know, by, you know, call it mid-March, I said, well, there's just this really straightforward, simple answer. We just need to shut down the country, and once we do that, we can Reopen carefully and go back to rebuilding an economy and rebuilding a country. And I kept waiting for the president to go on TV and make things say, okay, guys, we're shutting down the country and it wasn't happening. So I figured, okay, that's when I went back to Twitter for the first time. And I wrote a tweet saying, look, here's the simple answer. And, uh, it went pretty viral and I got a call from CNBC and they said, would you come on? And I had, I had forsworn going on TV, you know, for a couple of years, but I thought this issue was important enough Uh, that I should make a public case for a countrywide shutdown, which I did. And unfortunately I had a whole bunch of people right after I went on, make the case that I was doing this for some market manipulative reason or to benefit me personally. And so it's frustrating. It's disappointing,…

AI assessment note: “And so it's frustrating. It's disappointing, but I still thought it was important”

Q Do you think that there's a problem with just large institutions? Like, did the CDC and the WHO fail us in this? Current pandemic. And that the problem is the institutions and not the people, or how do you think about that?

A You know, the, what's interesting about this period is it's really been education in, in the, uh, what's good about living in a, you know, democracy and what's bad about living in a democracy. So you look at how China, you know, the negatives of China is they, you know, the, the government officials, the local government officials were too afraid to go public with what was going on. Or when they did, they got, you know, whether you were a doctor or a public official, you got, you know, shut down by, by the, uh, the system, you know, that, that allowed the virus to propagate to have became a serious issue in China. The good news is the dictatorship allowed them to very aggressively, you know, shut down the virus. Um, you've watched, you know, I made my public case for a countrywide shutdown, and the president instead sort of allowed the states to take the lead. In governor by governor, one by one, we got to almost to the place where we should have, and it took, instead of 24 hours, it's taken, you know, 30 days or 45 days. You know, had we entered into a shutdown, you know, March one for 30 days, the outcome would have been, you know, meaningfully different than, you know, starting on March 19th and rolling out over, you know, 30 days, and we're not even, you know, we're still not in a countrywide shutdown, and the degrees of shutdown are different in different places.

AI assessment note: “what's interesting about this period is it's really been education in... democracy”