Geography shapes investing ability — Warren Buffett's track record may have been enabled by his removal from the frantic pace of Manhattan, and Chris Begg's own multi-geography lifestyle has been transformational for his investment perspective.

(00:00:01) You're listening to TIP. (00:00:02) You're listening to the richer, wiser, happier podcast, where your host, William Green, interviews the world's greatest investors and explores how to win in markets and life. (00:00:17) This show is not investment advice. (00:00:19) It's intended for informational and entertainment purposes only. (00:00:23) All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. (00:00:29) Now for your (00:00:30) host, William Green. (00:00:40) Hi there, this is William Green, host of the Richer, Wiser, Happier podcast. (00:00:45) Before I welcome today's very special guest, I wanted to share some news that I'm really excited about. (00:00:50) Later this year, I'll launch a new Richer, Wiser, Happier masterclass for a small, very intimate group of 22 people who'd like to study with me over the course of a year. (00:01:02) We'll meet once a month over Zoom to discuss the most important themes in my book, Richer, Wiser, Happier, and I'll also talk about how my thinking on these subjects continues to evolve, drawing on lessons from hundreds of hours of interviews that I've conducted with many of the world's greatest investors. (00:01:17) Members of the Masterclass group will also be invited to join me at 2 unique in-person events, starting with a two-day gathering in New York later this fall. (00:01:27) My goal in forming the Masterclass is to create a year-long journey of exploration for people who are deeply interested in building lives that are truly richer, wiser, and happier. (00:01:37) If this idea appeals to you, please e-mail my friend and fellow podcast host Kyle Grieve (00:01:43) who's in charge of the wait list, and he can share details with you about prices and dates and the like. (00:01:48) His e-mail address is Kyle, that's K-Y-L-E, at theinvestorspodcast.com. (00:01:55) I should also mention this will be the third year in a row that I've hosted a richer, wiser, happier masterclass. (00:02:01) The first two groups included an amazingly accomplished selection of people from many countries around the world, including some hugely successful hedge fund and mutual fund managers. (00:02:12) various asset allocators, wealth advisors, managers of family offices, a management consultant, a doctor, several CEOs and entrepreneurs, and a renowned physicist turned quant fund manager. (00:02:25) Part of the beauty of the master class lies in the very strong relationships forged between its members, many of whom have become really good friends. (00:02:33) If you like the idea of studying with me and this extraordinary group of keen investors and passionate learners, (00:02:39) please e-mail Kyle at theinvestorspodcast.com. (00:02:42) And if the stars align, I'd love to see you later this year when the masterclass begins. (00:02:47) Thanks so much. (00:02:49) And now on with the show. (00:02:51) Hi, folks. (00:02:52) We have a very special treat for you today. (00:02:54) I'm really excited to welcome back a terrific hedge fund manager who's one of the most thoughtful people in the investment world and one of my favorite people in the investment world too. (00:03:04) His name is Chris Begg. (00:03:05) and he's the CEO and the CIO, the chief investment officer of East Coast Asset Management. (00:03:11) Chris teaches the security analysis class at Columbia Business School that Ben Graham famously taught back in the early 1950s when his star student was Warren Buffett. (00:03:21) He's also a dear friend, so I'm particularly thrilled to have him back on the podcast. (00:03:25) It's wonderful to see you, Chris. (00:03:27) William, it's great to be here as always. (00:03:29) Thank you. (00:03:30) And I was just explaining to you before we started that part of my challenge today (00:03:34) is that you gave me so much to read of your unpublished essays and the like that I ended up this morning with 42 pages of notes and questions that I'd put together while preparing for this interview. (00:03:46) I counted it was almost 20,000 words. (00:03:47) So there's this sort of perennial challenge of synthesis and distillation. (00:03:52) I got it down to about 13 pages this morning. (00:03:54) So if I'm confused, you'll know why. (00:03:57) So I've spent the last few days reading a lot of your unpublished essays. (00:04:01) And I think (00:04:02) our last count, you'd written something like 46 of them. (00:04:04) And I've read probably a couple of handfuls. (00:04:07) I've listened to dozens of the 150 songs or more that you've written in the last couple of years. (00:04:14) I've reread your last year's year-end letter shareholders, which was 30 pages, plus an addendum, an unpublished addendum that was another 11 pages. (00:04:23) And so as I was working my way through this, I was like, oh my God, my friend Chris, he's like actually a much more prolific writer than I am. (00:04:30) And I started to realize, oh, this is like (00:04:32) really central to your process, the process of writing. (00:04:36) And it's so key to you in terms of building your philosophy of investing, business and life. (00:04:42) And so I wanted to start actually by asking you about the process of writing for you and why it's so important as part of this broader challenge that you have and that I have, which you describe as compressing complexity into essence. (00:04:59) That's right. (00:05:00) Wow, what a great intro, William. (00:05:01) Thank you. (00:05:02) Yeah, the writing for me, when we launched the firm in 2008, there was a lot I had to say because I had to articulate the process. (00:05:11) And so I started writing quarterly letters. (00:05:14) And the quarterly letters were so helpful to me as I was kind of working through getting that process articulated on paper. (00:05:23) And that moved to annual letters. (00:05:27) there wasn't as much to say quarterly, plus it was a lot of work getting those quarterly letters up. (00:05:31) And the annual letter became another way to compress how the philosophy of it was evolving, holdings and so forth. (00:05:38) I still look back at that period of time as probably the most important period of learning that I've had. (00:05:44) And so having a methodology to take this learning and to put it into words, and then with the idea that there's an audience that might read this, (00:05:55) There's a bar of excellence that you're looking for, a quality that you want versus it just being in my journal, the learnings being in the journal and so forth. (00:06:03) And a couple of years ago, I paused some of the year-end letter writing as well. (00:06:08) And it was a couple of years where I didn't have an outlet for some of the learning I was doing. (00:06:14) And so when I came back to it, which you referred to the year-end letter last year, it kind of opened up something in me that had been kind of held back. (00:06:23) And so now, like you said, this period of time, which is the last 12 months or so, has been probably the most prolific writing I've done in my career. (00:06:32) And these essays that have emerged from the learning, they've been fun to write, and I continue to get a lot of satisfaction from the process. (00:06:40) So your next question at some point is going to be, well, what are you going to do with them? (00:06:44) How are you going to publish them? (00:06:45) And after your dinner in Omaha, I was walking with Eric Markowitz, who's writing a beautiful book called Outlast. (00:06:52) about things that endure through time. (00:06:54) And I shared with them about some of these essays that were coming out and I was calling them essays at the time. (00:07:00) And he was the first person that said to me, he's like, wait a sec, Chris, you have, at the time, it was about 15 to 18 of these, 3,000 words a piece. (00:07:08) He said, so let me get this straight, you've written a book. (00:07:12) So maybe it's on its way to something that looks like a book, but we'll see. (00:07:17) Yeah, that would be great. (00:07:17) And Eric is working on something really important and will definitely, I hope, come on the podcast when it's published in several months. (00:07:25) And it's very similar in a sense that both of you are looking at what endures, what outstanding businesses endure, for example. (00:07:34) And so, yeah, we'll discuss that topic further as we go along. (00:07:38) One thing that struck me is that even though you're very prolific with your writing, you're really not in a hurry. (00:07:45) And (00:07:46) When you did come out with that year-end letter at the end of 2025, which we'll discuss a lot in this discussion because it really gets at some very profound ideas, I think, about investing in life. (00:07:57) When you published it, you pointed out that actually it was two or three years since you'd published your previous annual letter, which is kind of interesting and unusual. (00:08:06) And you wrote, over the last two years, I found that every time I sat down to write what I thought would be the next letter, the ideas were still becoming. (00:08:14) And you said certain ideas (00:08:15) need to be lived longer before they can be written honestly. (00:08:19) And you, like me, are somewhat obsessed with Robert Pirsig and Zen and the Art of Motorcycle Maintenance. (00:08:24) And I kept thinking about this line that he wrote that I don't know if you remember that I think I quoted in the notes on sources and resources in my book where he said, as he was setting about writing his book, he said, I don't want to hurry it. (00:08:37) That itself is a poisonous 20th century attitude. (00:08:41) When you want to hurry something, (00:08:42) That means you no longer care about it and want to get onto other things. (00:08:46) I just want to get at it slowly, but carefully and thoroughly. (00:08:50) And I wondered what sorts that stirred in you. (00:08:54) Oh, I love that. (00:08:56) Yeah, and as you know, Pirsig is my, probably my favorite, one of my favorite authors, definitely two of the best in my top 10 books are Zen and Lila. (00:09:05) So yeah, I feel those, the year-end letters are a reflection on (00:09:13) this craft that we've taken on. (00:09:16) And they should be approached with a sense of mastery. (00:09:20) And during that time period, I was working through something I thought was very, very important that I thought could be compressed to a year-end letter. (00:09:30) And when I realized it struggled to be, it couldn't fit into the year-end letter format. (00:09:37) And I had to let go of a little bit of what that topic was. (00:09:42) and allow it to come out in different other forms. (00:09:44) And that was okay. (00:09:46) So coming back and writing this year-end letter, distilling pieces of what I had been working on, it was a relief in a way, because I had to release a little bit of what I wanted to say in its full form. (00:10:00) So as you know, what we've tried to do at East Coast is a little non-conforming. (00:10:06) We're trying to compound capital at very high rates of return over a long period of time. (00:10:11) And we've self-selected for bringing partners, friends along with us. (00:10:18) We're not thinking of ourselves in the business to build a big investment management company. (00:10:22) That's never been part of our objectives. (00:10:25) It's to really think about excellence and quality. (00:10:28) So our partners, if we miss a year-end letter because we're working on something, I think they're quite forgiving and they understand that the process has not paused at all. (00:10:39) And I should probably mention I am a partner in the fund. (00:10:42) So I was quite happy with Chris's silence. (00:10:45) I'm like, good, he's working on something that may enable me to retire before the age of 135. (00:10:50) I thought part of what was interesting though, one of your essays is about what you called the consecration of attention. (00:10:58) And so this idea of going slowly and living really thoughtfully with important subjects (00:11:06) This is more than a passing interest of yours, and it's obviously a huge timely issue and challenge at the moment. (00:11:13) And you wrote in that essay about how we're all living in this environment that trains people to seek interruption, to prefer novelty to continuity, to confuse the constant movement of information with the actual deepening of understanding. (00:11:28) And you talked about the challenge of this bottleneck of attention, as you put it, (00:11:32) Information floods towards us. (00:11:34) Summaries multiply, opinions crowd every surface. (00:11:38) Almost anything can be sampled instantly. (00:11:40) A person can live in the illusion of omnidirectional learning while scarcely having entered anything deeply enough to be changed by it. (00:11:48) And so I'm really curious because I'm so faced with this issue, right? (00:11:51) I'm constantly bombarded with podcasts and books and articles and substack pieces and everything seems kind of worthwhile or marginally worthwhile. (00:12:01) And I'm wondering how (00:12:03) in the midst of this kind of bombardment of information, of this illusion of omnidirectional learning, as you put it. (00:12:10) How have you managed to train your attention and develop what you call the will to remain with a topic until you reach hard-won simplicity? (00:12:20) Yeah, this was something that I think early in my career, I realized I had much more of that right brain, creative, but also (00:12:32) willingness to kind of go broad. (00:12:35) I think in the early days, if I were to critique my process, I was maybe a couple inches deep and a mile wide. (00:12:41) I wanted to know a lot about physics, biology, you wanted to just have the information. (00:12:47) But when tested, I realized I didn't have a first principle understanding of that topic at a level that I could pass as being knowledgeable about it. (00:13:01) It wasn't the level that I wanted to be knowledgeable about it. (00:13:03) So I set out a goal, as we've talked about in the past, where I would spend these three month periods of time going very, very deep, that consecration of attention to train myself to really understand something from the foundation up. (00:13:20) And that habit clicked because I really, really enjoyed it. (00:13:23) And I realized when I did that, I was starting to connect one field to the next. (00:13:29) And I had a place to store the information in my mind so I could access it. (00:13:35) It had a longer shelf life when I was doing this. (00:13:37) It wasn't like in and out. (00:13:39) So I guess it created a bit of a flywheel, a reflexivity. (00:13:42) Once I saw it working, then I continued to hone the habit. (00:13:46) And to this day, that process definitely lives in the portfolio. (00:13:51) We run a long-only concentrated portfolio so we can get to know these companies really, really well. (00:13:58) And it feels like we're going on a journey with them that in the early stages, we expected to last decades. (00:14:05) So we can go unhurried. (00:14:08) We can have this deep understanding, this deep relationship with the information. (00:14:14) And I feel like all these subjects that I work on, they're not subjects, they're almost embodied learnings that become part of you. (00:14:23) And that's why I wrap them in art and poetry and other things because (00:14:27) Each one of those mediums have a different connection to the material. (00:14:31) And that's what's been fun about these essays is that it's a way to take some of these personal portals and find the underlying law that is a general principle that can be observed through this portal. (00:14:44) Yeah, and I think part of why I wanted to start by discussing this subject is I wanted to make it clear to our listeners (00:14:51) and our viewers that in a way, this isn't just about investing, it's about a different way of carrying yourself in the world where there's so much pressure to be quick and shallow and scattered. (00:15:03) And one of the things that makes, I think, your approach worthy of study is the fact that it's so countercultural. (00:15:10) And there's a line that I thought I would quote from that essay on the consecration of attention that I really love, where you said, everywhere I have found anything worthy (00:15:21) I have found the same hidden law beneath it. (00:15:23) Stay longer, go closer, return again, refuse premature summary, hold the light steady, let the thing teach you how it must be seen. (00:15:33) And that clearly has huge ramifications for investing as we'll see because a lot of what we're discussing is looking at companies that are temporarily obscured by misperception. (00:15:46) Can you talk about that idea of (00:15:49) Just as a general sort of operating principle, staying longer, going closer, returning again, refusing premature summary. (00:15:58) Yeah, you know, when we think about the normal tendency that we all have as humans is a system one instinct of survival and distinction. (00:16:10) You know, there's this, those are the things that are working on us at all times. (00:16:14) As we get bombarded with this information, short-term information, you're feeling, this is fearful, or I want to do more of this because I'm seeing others winning by doing more of this. (00:16:28) And so that's the temptation, certainly in investing, is that you're constantly being bombarded by short-term news that's giving you a sense of fear or greed, or fear or missing out. (00:16:40) And so trying to quiet those natural instincts (00:16:43) so that you can reason through something, what Kahneman talks about system two, and then moving even beyond system two where it becomes embodied, right? (00:16:54) That when you see the short-term news, you quiet it naturally, and that you're being guided by an intuition that feels natural. (00:17:05) And I think that connects to what you said is this, (00:17:08) It just becomes a habit of doing it more and more where you can actually feel into these moments where, okay, I feel system one gearing up around these things, but I know the quieting of that. (00:17:22) I know what it feels like to quiet it. (00:17:24) I know what it feels like to reason through. (00:17:26) And I know what it feels like to have an intuition or insight that guides me into something that maybe is more intelligent. (00:17:33) Do you have recommendations when you're teaching your students, for example, or analysts at your fund and you're trying to encourage them to build a life that fosters that kind of spaciousness and ability to think and go deep? (00:17:46) Like what do you actually encourage people to do in terms of their habits from meditation to sleep to breathing, whatever it is? (00:17:54) And in your case, I think part of it is that you spent half the year (00:17:58) living basically in the jungle, not in such a rustic way, but physically very removed from the noise. (00:18:07) Yeah, I was thinking about that this morning, William. (00:18:10) Would Warren Buffett be the investor that he became if he lived in Manhattan? (00:18:16) Can you picture Warren living in Manhattan and having the track record that he had, right? (00:18:22) There was a sense of that removal (00:18:26) from maybe what felt very hurried to do something that was more long-term oriented. (00:18:32) So I think geography is really important. (00:18:35) I see a lot of MBA students, probably over a thousand now, that come to me usually in their second year at Columbia Business School, and they're exceptional, right? (00:18:46) Of course they're exceptional, they're there. (00:18:48) But the speed with which that they're in a hurry to get back into the workforce, (00:18:53) to get back into making money, paying off student loans, whatever it might be, it's hard to slow them down. (00:18:59) It really is. (00:19:00) And they're seeing what their friends are doing. (00:19:02) They're interviewing, they're getting a job at an investment bank and they have to take the interview. (00:19:07) But I get to a handful of them and they leave our course, our time together and they're saying, I'm seeing things differently. (00:19:14) I'm going to do this. (00:19:14) I'm going to take this track. (00:19:15) I'm going to work for a business and learn how to operate a business. (00:19:21) And I love that. (00:19:21) It's not that I'm trying to (00:19:23) I don't have any philosophy of the way they do it, but some listen and change track. (00:19:28) I love working with undergrads for that purpose because they're a little bit more removed from it. (00:19:34) They're a little bit more of a blank canvas and you can kind of share with them some of these things that may lead to them having more spaciousness for a career that might align more with their temperament. (00:19:49) I was very struck. (00:19:50) I went on a meditation retreat a few times with Soknyi Rinpoche, who's been a guest on the podcast with Daniel Goleman, the writer of Emotional Intelligence, who's also a great meditation expert. (00:20:00) expert and practitioner. (00:20:01) And when I went in New York, the first couple of days, I would say Sokny had all of these practices to get the New Yorkers like me to settle their nervous energy. (00:20:11) And there's a beautiful Tibetan Buddhist word where he would talk about lung, which I think means this kind of speedy, buzzy energy that's up in your head, which I have the whole time, or at least much of the time. (00:20:22) And then I went and did a meditation retreat with my son Henry, a six-day meditation retreat with Sokny Rinpoche in England, in the countryside in England. (00:20:28) And that process that took about two days in New York took about 5 minutes in England. (00:20:34) Like they were so much less buzzy and frenetic. (00:20:37) And it was, I had this image, it sounds like a negative image, but it's really not of them as like cows chomping in the field. (00:20:43) Like it was just so much easier for them to settle. (00:20:47) And so I think that's one of the big challenges that we have. (00:20:50) It's like, you need to be pretty dynamic to do well in the world and to compete. (00:20:55) And yet at the same time, you need this kind of (00:20:58) this chill, spacious, calm, quiet ability to sort of step back and see truth, I think. (00:21:06) Yeah, we've had this multi-geography life now for about 7 years and two different latitudes. (00:21:14) And it was a bit of work for the family to kind of re-architect. (00:21:18) COVID was a little bit of our permission to at least experiment with this. (00:21:23) And it's (00:21:24) I think from an investment standpoint, it's really, really been kind of transformational in the sense of opening up a different lens, a different calibration of time. (00:21:35) And I think connecting with nature is something that I continue to see just enormous benefits from, whether it's surfing or going for a long walk and thinking, all of those things I think are really important to (00:21:53) to think through something that's really important. (00:21:55) When we're working through investment decisions, I was even written about Nikola Tesla, when he came up with his most insightful idea, it was like literally on the banks of a river quoting Goethe. (00:22:08) He was like listening to, he's like reciting poetry and it clicked. (00:22:13) So I think removing yourself and being in a place where you can think independently is extremely valuable. (00:22:20) I wanted to talk in some depth about year-end letter from 2025 because I think it gets at some really, really important points about how to invest and think and businesses, how to live. (00:22:32) And as part of my preparation for this conversation, I was looking back at our old text messages because we texted each other pretty often. (00:22:40) And you had sent me a draft of your year-end letter back in January before you published it. (00:22:47) And I wrote back to you (00:22:49) I just finished reading your extraordinarily rich shareholder letter. (00:22:51) It's a lovely letter, exceptionally thoughtful, full of intellectual riches, soulful and beautifully written. (00:22:57) I'm not sure that I can think of anyone other than Warren Buffett and Nick Sleep who has written shareholder letters of this quality. (00:23:03) And then I said, I read the final section to my wife Lauren just now and then said, he can really write. (00:23:10) And I said, as she knows, that's very, very rare praise from me. (00:23:13) And so (00:23:14) really struck me this letter. (00:23:16) And so I went back this week and spent a couple of days with it because it's long. (00:23:20) And then there was this unpublished addendum that you'd written since then, which I also read. (00:23:25) And the letter gets at this really important overarching theme. (00:23:29) It's all about things that are hiding in plain sight. (00:23:32) Can you talk about that theme and about how you relate it to this pirate ship, a treasure ship from your childhood? (00:23:42) Yeah, thank you, William. (00:23:44) By the way, when I sent you an early copy of the letter, that was the most unsettling, the waiting process if William would approve of this letter. (00:23:54) When you sent that back, it was very kind 'cause I felt like I was close to a final draft at that point. (00:24:01) The hiding in plain sight, I always like to find a personal portal to a law. (00:24:07) And so I was thinking back to what really, really got me excited about research. (00:24:12) and research as a craft. (00:24:14) And I reflected back to my, it was my senior year in high school, and I had probably my favorite teacher of all time, Mick Carlin, and he was the journalist teacher at Barnesville High School on the Cape where I went to high school. (00:24:27) And he was one of these just real exceptional teachers. (00:24:30) And if your work, your research work, your journalism was good enough, you got published in the school newspaper. (00:24:36) So at the time, my father's best friend, Barry Clifford, best friend from (00:24:42) growing up had discovered the only recovered pirate ship about in 1984, so years earlier. (00:24:52) And it'd be kind of part of the family, right? (00:24:54) Like listening to the stories of this pirate ship. (00:24:57) And of course, as a young boy, there's nothing of a better story than a found pirate ship. (00:25:02) And he found it right off of Wellfleet. (00:25:04) It was literally not far from where we kind of grew up surfing. (00:25:08) And to think that this treasure was under the water (00:25:11) hiding in plain sight. (00:25:13) So I wrote about it for that paper and was published in the school newspaper, but it stayed with me. (00:25:19) And so the letter was kind of a reflection on that history. (00:25:26) My love really started my love of research and to realize that if you worked with something long enough with the research, you can actually arrive at an insight or a treasure in the case of what Barry found. (00:25:38) And (00:25:40) I find that that's kind of what we do every day. (00:25:43) If we're really kind of looking across this wide field of investment opportunities to try to understand what is being, what's hiding there? (00:25:55) What is that exceptional business that for some reason is being ignored and therefore the valuation gives us an opportunity to earn above market returns over (00:26:09) a long period of time. (00:26:10) So that's really the element of our process. (00:26:13) And it ties back actually to what we were discussing before about slowing down. (00:26:18) Because you talk in the essay about, you say often the most important truths are not hidden because they're obscure, but because they're quiet, familiar, and easy to pass by. (00:26:28) So you talk about the work of quote, seeing clearly what others overlooked, slowing down long enough to recognize what was already there. (00:26:36) Because that boat was there, that pirate ship, I think, had sunk in 1717. (00:26:41) And so, 250 or so years longer, it had sat there. (00:26:46) So in terms of like what you saw of the process from watching someone like this treasure hunter, who was your dad's friend, Barry, what did you learn about the process of finding stuff, finding buried treasure, which is really what you're doing in the stock market? (00:27:02) Yeah, the process gets back to what you had said earlier, which is that consecration of attention. (00:27:07) We are looking for, we own less than 10 companies in our portfolio, so nine companies today. (00:27:15) Each one of those is a found treasure. (00:27:17) They're rare, right? (00:27:18) To earn what we deem to be above, we're underwriting 15% or better IRRs over 10 years. (00:27:29) over a 16 year time period, we've been able to translate that objective into returns. (00:27:35) And so each one of those things has a lot, each one is a treasure that has to do a fair amount of heavy lifting over a long period of time. (00:27:43) And so we treat it as such as you don't get, you have to focus that work so that when you have an opportunity that you can act with (00:27:54) a sense of conviction and a sense of knowing that this is something that's actionable. (00:27:59) So that's the process. (00:28:01) And I saw that with Barry. (00:28:02) I saw it with anyone that has done deep research, deep work, and then comes to the other side with a really a high probability insight that's ideally probably non-consensus, but right. (00:28:17) That's really the work. (00:28:19) Let's take a quick break and hear from today's sponsors. (00:28:22) Curious about online trading but haven't taken the first step yet? (00:28:26) You're not alone. 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(00:30:59) It powers millions of businesses worldwide, from names like Mattel and Gymshark to founders just getting started at shopify.com slash TIP. (00:31:11) With Shopify, nothing stands between your idea and a real business, so go make it one. (00:31:17) Start your free trial at shopify.com/tip. (00:31:22) Start your free trial at shopify.com/tip. (00:31:28) So as we've discussed on the podcast before, you have what you call your grove of titans, which is this small selection of exceptional businesses that have a rare (00:31:39) combination of qualities that provide exceptional long duration compounding. (00:31:44) And so I wanted to talk a bit about some of these great businesses that you've identified in this very kind of painstaking way, often looking at what's, as you would put it, hidden conspicuously, not concealed, but unrecognized, and how these companies illustrate different principles of how you invest. (00:32:06) And so (00:32:07) I think it's helpful to tether ourselves to the companies themselves because in some way, otherwise, the concepts can sound really theoretical and abstract, but they're actually really important underlying laws and principles. (00:32:19) So I thought I would start by asking you about Alphabet. (00:32:22) And you wrote at one point in your letter, the end of the year letter, Alphabet remains one of the most extraordinary businesses ever built. (00:32:31) At its core, (00:32:32) It is a graph, or as Americans would say, it is a graph, designed to organize the world's information and make it universally accessible and useful. (00:32:41) And so this gets at a really important theme for you, which is this idea of graph theory, of graphs, of edges and nodes, and your focus on investing in graphs as they become stronger. (00:32:54) Can you talk about that? (00:32:55) Can you explain that way of looking at the world by (00:33:00) telling us about Alphabet. (00:33:01) Because I actually, I think you've noticed something that's so fundamentally important and that as we go through this conversation, some of our listeners and viewers will start to realize, oh man, he's figured something out. (00:33:14) Yeah, there's three pillars. (00:33:15) You know, we look at the Grove of Titans, which is this universe of exceptional companies. (00:33:21) Each one of them we feel has, you know, 3 pillars. (00:33:25) And the three pillars is, do they have a moat and is it widening? (00:33:30) And we kind of deconstruct that. (00:33:31) There's eight different layers of moat that we're looking for. (00:33:34) And not that we want every company to have all eight, but we want layers of a competitive advantage that's identifiable and that we understand. (00:33:43) And that as we're looking at that moat, we're like, is this something that's going to be still present 10 years from now in a different form? (00:33:51) So these things we want to make sure they have a long shelf life. (00:33:54) The second pillar is really secular tailwinds. (00:33:57) And secular meaning long-term secular talents that's driving the top line growth of the business. (00:34:03) We don't typically do a lot of things where they're facing secular headwinds, that they're being disrupted by something. (00:34:09) Even if we think that disruption may take some time, we usually avoid those things. (00:34:14) So moat, secular talents. (00:34:16) And the last piece is the human element, right? (00:34:18) We want to partner with great operators that ideally have a history of pretty intelligent capital allocation. (00:34:26) So those three things give us kind of a quality score on the business that we would put in that Grove of Titans basket that we're just spending our time really understanding. (00:34:37) Valuation, and we're looking at 10-year valuations, right? (00:34:41) We want to find something that's going to earn 15% rate of return from today's price over 10 years. (00:34:46) We measure that on free cash flow growth. (00:34:49) And so when you get the (00:34:52) quality at a reasonable price, there's usually clouds, right? (00:34:55) There's clouds around the business that give you this opportunity to invest when perhaps there's some ambiguity in what the business. (00:35:05) So this is a little bit of a backdrop to understand Google because Google is probably one of the most extraordinary companies that's ever been built, as you noted that I said in the letter. (00:35:15) And the search business was designed and built around graph theory. (00:35:20) And graph theory (00:35:21) is something that when you look at nodes and edges and how things scale, when nodes and edges are populating across a domain, we start to see increasing returns to scale. (00:35:37) And I think that's one of the things that a lot of people have misunderstood about this period of technology is that as these businesses have gotten bigger, they haven't run into this law of diminishing returns. (00:35:49) They've actually (00:35:50) their growth has accelerated. (00:35:52) And so Brian Arthur kind of did this work at Santa Fe Institute, and we started to understand that what is present that is allowing for this increasing returns to scale. (00:36:03) And in our conclusion, it's this, there is a presence of a graph that's allowing for the information to grow and to grow exponentially through the nodes and edges that are available to it on the graph. (00:36:17) And so when you look across (00:36:19) And you start seeing things from a graph lens, you're like, oh, there's another graph. (00:36:24) There's another graph. (00:36:25) Amazon's a graph. (00:36:26) Tesla, we could talk about other things where graphs are present and that they're in the part of the S-curve where that growth is now populating across the nodes and edges of what they've built. (00:36:39) So yeah, Google search business is still a dominant business for connecting ads to consumers. (00:36:49) It's allowed them to build a number of other businesses. (00:36:52) Google Cloud now is an extraordinary business and going to be a bigger, bigger piece of the overall Google evaluation. (00:36:59) We have YouTube, we have, you know, other businesses that have been built, right? (00:37:04) You have Waymo. (00:37:05) But at the core, when we got involved in Google, I think they were, I think their AI advantages was not as understood as it is now. (00:37:15) And Demis Sasabas (00:37:17) in what he's built in DeepMind and in Google is still in our perception is the lead, really leading in AI, leading in not necessarily what we hear about Foundation Labs and building LLMs. (00:37:31) Yes, we do that and we do that very well, but there's a large AI effort that Demis has led, which is leading to all kinds of different applications we saw with AlphaFold, healthcare breakthroughs, AGI, ASI. (00:37:47) So we think there's a lot of things that are misunderstood about their AI advantages and how broad it is. (00:37:53) Yes, I'll stop there if you want to add anything. (00:37:55) Yeah, I mean, just to highlight a couple of points, there was a line you wrote, I think probably in your annual report where you said, much of our research effort is devoted to a simple question, are the clouds temporary or permanent? (00:38:07) And so I think that gets at something really essential in your process, that you're finding these businesses that have some underlying structure (00:38:17) as we'll discuss increasingly in this conversation, that's enormously powerful. (00:38:22) But you're buying them at a moment where there's a kind of misperception that's leading the market to misprice them typically. (00:38:30) Is that a fair summary? (00:38:33) Yeah, and the internal conversation that we have with any company that we own is we say, what are the clouds? (00:38:40) How many clouds are there? (00:38:42) What is our most important questions around those clouds? (00:38:45) And then (00:38:46) That's where a lot of our work lives. (00:38:47) There's one thing to understand the competitive advantage and all of these things, but it's the clouds that really where we devote a lot of time and understanding because that's where the misperception or the mispricing exists. (00:39:01) So in the case of Google over the last couple of years, there was this cloud around that blue links were going away. (00:39:08) All of our search eyeballs are going to go to LLMs, and we're going to move those eyeballs off the Google platform. (00:39:15) onto OpenAI, on Anthropic. (00:39:17) And you had to understand that from first principles and to say, is that true? (00:39:23) Is that perception going to be a reality? (00:39:26) It's not yet. (00:39:27) And that's usually where we see this gap between perception in reality. (00:39:32) And that's where the cloud lives. (00:39:34) It's a perception that something might change versus evidence that it is. (00:39:38) And so when we fast forward a year, what we realized is actually (00:39:43) Google's, their search volumes were going up with AI, not down. (00:39:47) And that they were able through those eyeballs to bring more of their customers to look at AI tools.