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Welcome to personal finance for
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long-term investors, where we believe
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Benjamin Franklin's advice that an
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investment in knowledge pays the best
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interest both in finances and in your
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life. Every episode teaches you personal
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finance and long-term investing in
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simple terms. Now, here's your host,
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Jesse Kramer. Hello and welcome to
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episode 110 of Personal Finance for
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Long-Term Investors. My name is Jesse
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Kramer. By day, I work for a fiduciary
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wealth management firm helping clients
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all over the country. For more details,
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you can go to bestinterest.blog/work.
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Link will be in the show notes. And by
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night, I write a blog called The Best
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Interest, and I podcast here on personal
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finance for long-term investors. I try
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to help busy professionals and retirees
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avoid costly mistakes and grow their
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wealth. And I do so by simplifying
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complex ideas about personal finance,
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from investing to taxes to retirement
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and beyond. And we have a fun and unique
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episode for you today. When Warren
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Buffett decided to announce his
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retirement from Berkshire Hathway this
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year, I penciled in an episode dedicated
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totally to Warren. If you read or if you
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listen to me enough, you'll know that
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he's not only one of my favorite
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investing minds, but his communication
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style, his emphasis on reputation and
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the actions we take, even his hokey
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small town, Midwestern style, all things
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that I really appreciate. And now, what
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I don't want today to be is simply to
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lob, you know, Warren Buffett quotes at
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you and and tell you why I like those
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quotes. That's not what we're going to
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do. Even though, yes, he is the most
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quotable investor of all time. Instead,
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I want to dive deeper. I want to go into
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I decided upon eight subject matter
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areas, many specific to investing, uh,
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where I believe Warren Buffett has added
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a huge amount of wisdom over the years.
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Eight topics where you'll be a better
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investor and maybe even a better person
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because you'll hear what Warren Buffett
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has to say. But first, let's do a review
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of the week. Marv8383
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left a five-star review on Apple Podcast
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and said, "You'll love it. Great show.
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Jesse has an amazing way of explaining
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concepts. Highly recommend." Marv,
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thanks so much for the kind words. And
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yes, I now have a a super soft batch of
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uh t-shirts specifically for the
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personal finance for long-term investors
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brand. They are no longer the best
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interest t-shirts. So, shoot me an
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email, Marv, and I will send one of
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those t-shirts your way. And now, let's
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get back to Uncle Warren Buffett. First,
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I want to talk about something near and
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dear to all of our hearts. The benefits
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of long-term thinking. At its core,
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Warren Buffett's investing philosophy is
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remarkably simple. Buy wonderful
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businesses at fair prices and hold them
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for forever. But wrapped in that
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simplicity is this commitment to
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patience and discipline. And the idea
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that time, not timing, but time, is the
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investor's greatest ally. Yes, it sounds
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so easy, but executing that philosophy
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through thick and thin throughout his
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whole career, that's the hard part. He
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taught that investing isn't about
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reacting to headlines or timing the
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market. It's about aligning with
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companies that produce real value over
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decades. You know, he famously said, "If
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you aren't willing to own a stock for 10
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years, don't even think about owning it
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for 10 minutes." That mindset pushes
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investors to think less like traders and
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to think more like owners, right? We are
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all owners. We own shares of businesses.
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You wouldn't buy a local farm or a local
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pizzeria to own it for just a month or
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even just to own it for a year. you
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would probably have a multi-year
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business plan in mind, maybe even a
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decade or an infinite business plan, an
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indefinite business plan in mind. And
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the same goes for owning stocks. Buffett
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also redefined what it means to quote
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unquote do nothing in our world that's
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kind of obsessed with action and
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optimization. He champions inactivity
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really as a strength. He has this famous
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quote where he said, "Leuthy bordering
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on sloth remains the cornerstone of our
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investment style." Yes, of course it's
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funny, but it's also this profound
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statement on allowing long-term
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compounding to do the heavy lifting. You
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only have to make a few good decisions
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and then you can let compounding of time
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take care of the rest. And then there's
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his temperament. Buffett showed that
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investing success isn't just about IQ or
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models. It's really about behavior.
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Granted, if you've heard Buffett talk,
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especially when the numbers are
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involved, yes, he also has a very
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impressive IQ. So, it kind of oozes out
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of them, I guess. But nevertheless, when
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the markets panic, long-term thinkers
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stay grounded. when other people chase
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fads, we stay the course. And Buffett
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proved that mental discipline and that
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emotional control are these durable
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competitive advantages. And we will come
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back to that phrase later. In doing all
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this, Buffett gave everyday investors
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like us a a northstar. His letters, his
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interviews, his examples provide not
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just market insight, but really some
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life guidance to think long term, to
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stay rational, to let the compounding of
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time do its quiet work. And it really is
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quiet work. You know, I'm a little over
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a decade into my personal investing
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timeline. And granted, it's been one
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heck of a decade to be invested in
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stocks, but man, there's some pretty
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quiet yet impressive growth that happens
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over a decade. Sometimes that quiet
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compounding actually gets pretty loud
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and impressive. Next, I want to talk
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about a a different and interesting
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Buffett ism. It's the circle of
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competence. Warren Buffett famously
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said, "Know your circle of competence
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and stay inside it." It's another one of
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those ideas that is quite simple. It's
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almost too easy to ignore. Kind of like
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eat your vegetables or or get enough
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sleep. But part of Buffett's genius lies
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in that simplicity. He's not trying to
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sound clever. He's just trying to stay
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effective. Your circle of competence is
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what you actually understand. You know,
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it's what you were competent in. It's
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not what you've skimmed through once on
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social media or what your buddy at the
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golf course ranted about. It's the stuff
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that you've dug into, you've studied and
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tested and internalized. It's the stuff
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that you could explain to a like a smart
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12-year-old and have them actually get
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it. And most of the world, I think it's
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fair to say, is not inside our personal
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circles of competence. Only the stuff
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that we're truly an expert in is inside
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our circle of competence. To that end,
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we probably all have that one friend who
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seems to have an opinion about
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everything and also kind of acts like
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this walking Wikipedia page who drops
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facts on you. I would argue that people
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like that ought to tighten up their
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circle of competence a little bit. And
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for Buffett, that circle includes
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insurance companies and banks and
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railroads and consumer brands like
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Coca-Cola. He's famously said that there
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are huge areas of the market like tech
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being the the most famous one for most
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of his career that he just doesn't
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understand well enough to invest in. He
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probably could have bluffed that fact
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and most of us probably would have
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believed that bluff, but he doesn't do
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it. He has some humility and and
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discipline and a really powerful
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combination of those two things. And the
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investing lesson here is pretty obvious.
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You don't have to swing at every single
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pitch. In investing, you're allowed to
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just keep the bat on your shoulder as
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long as you want to. You can let the
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confusing pitches go by and you can wait
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for the fat pitch right down the middle
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in the middle of your circle of
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competence. And your circle of
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competence might be small and that's
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okay. What matters is that you know
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where the edges of your circle are. And
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that idea, it expands way beyond
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investing too. You know, we're
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constantly nudged, sometimes even shoved
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outside our circles of competence.
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Social media, probably the internet
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these days, rewards overconfidence. At
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work, a boss might reward a fake it till
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you make it approach. And that's not
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exactly good. That's outside of a circle
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of competence. Our egos, if we're being
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honest, love the idea of being the
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smartest person in the room. I'm okay
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admitting that. But the problem is that
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consistently operating outside your
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circle of competence is going to lead to
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mistakes and stress and imposttor
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syndrome. It's going to end up
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overcommitted, underinformed. We're
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going to wonder why things in life feel
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so fragile, like we're always kind of at
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the at the edge of breaking. But the
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flip side is that staying inside your
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circle of competence, it's not a sign of
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weakness. It's just a sign of
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self-awareness. And if you want to grow,
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you don't need to pretend to know
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everything. You can just learn a little
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bit more. Just expand the circle of
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competence slowly and deliberately. And
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Buffett again had a quote where he said,
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"You don't have to be an expert on every
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company or even many companies. You only
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have to be able to evaluate companies
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within your circle of competence. The
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size of that circle is not very
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important, but knowing its boundaries is
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vital." And yeah, same goes for life.
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You don't need to be the best parent,
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the best investor, the best partner, the
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best athlete, cook, comedian, home
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repair expert all at once. Instead, you
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can focus on your circle of competence.
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Go deep. Chip away at the edges, sure,
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when it makes sense. But this idea, it's
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not flashy. It might not make you the
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most fun person at the cocktail party,
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but it might help you make better
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decisions in investing and in life.
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Next, I want to talk about Buffett's
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contributions to the idea of intrinsic
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value. Intrinsic value, you know, what
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is something worth? And that question,
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I'd say Warren Buffett kind of
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consistently hunted for the answer to
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that question throughout his career. He
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made tens of billions of dollars asking
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that question over and over again. What
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is this thing really worth? Not what
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it's trading for, not what the headlines
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say, not what your buddy on Reddit
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thinks it'll do next week, not what the
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market says its price is. What's it
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really worth? Now, Buffett describes
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intrinsic value as the present value of
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future cash flows. That's it. That's
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usually what his definition is. If you
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buy a lemonade stand, what matters, you
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know, it doesn't matter what the paint
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color is or whether people are excited
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about lemonade this week. What matters
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is how much real cash that lemonade
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stand will produce for you next month,
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next year, and over the next 20 summers,
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over the coming decades. What is that
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stream of future income? What is that
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worth to you today? That's intrinsic
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value. And intrinsic value, it forces us
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to think like a business owner, not like
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a trader, not like a speculator. It's a
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filter that Buffett uses, well, used and
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uses to strip away the noise, to strip
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away the hype and some of the psychology
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and speculation in markets and ask
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himself, what am I actually getting in
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return for the dollars that I spend on
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this company that I spend on this
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investment today? What am I actually
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getting in return? And sure, that
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particular lens has made Buffett one of
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the richest men in the world, but just
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as importantly, it's helped him avoid
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all sorts of shiny distractions along
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the way. And speaking of shiny
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distractions and intrinsic value, that
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brings us to two assets that Buffett
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doesn't like. Gold and Bitcoin. So,
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starting with gold, Buffett doesn't deny
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that it's valuable in the sense that
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people want it. You know, it's shiny,
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it's rare, it has thousands of years of
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monetary history behind it. But
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Buffett's argument against gold is
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pretty simple. Gold doesn't produce
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anything. You can hold it, you can store
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it, you can polish it, but it doesn't
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grow. It doesn't generate income. It
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doesn't throw off cash flows. In
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Buffett's world, that means that its
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intrinsic value is basically zero. From
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his 2011 letter to Berkshire Hathway
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shareholders, Buffett wrote, "Gold gets
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dug out of the ground, and then we melt
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it down, dig another hole, bury it
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again, and pay people to stand around
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guarding it. It has no utility." Of
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course, he's describing like bank vaults
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or safes there, digging another hole,
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burying it, and paying people to guard
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it. So gold has extrinsic value because
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another person will likely come along
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and buy it from us, but it has no
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intrinsic value. It has no growth engine
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built into it. Now onto Bitcoin.
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Buffett's even less enthusiastic. In
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2022, he famously said, "If you told me
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you owned all the Bitcoin in the world
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and you offered it to me for $25, I
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wouldn't take it because what would I do
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with it? It doesn't reproduce. It
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doesn't send me a check. It doesn't do
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anything." And that argument I actually
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find is particularly interesting because
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if you did own all of the Bitcoin in the
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world, who would you trade it with to
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give you value? If I own all of the
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Apple stock in the world, if I'm the
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100% owner of Apple as a business, I bet
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someone would be willing to come along
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and buy some of that Apple from me
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because equity in Apple does have
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intrinsic value because the company
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sheds off cash flow to investors. But if
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all the Bitcoin in the world is in one
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person's hands, would the rest of us
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feel a need to buy some from that
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person? Are we missing out on something
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if one person owns all the Bitcoin? I
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think that's a pretty interesting and
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convincing thought experiment. But
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before the the lasered crypto crowd
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comes after me, does that mean that gold
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and Bitcoin are worthless? Well, no.
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They have market value. They have
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subjective value, and that's exttrinsic
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value. And in Bitcoin's case, you can
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make the argument around say the network
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effects and scarcity and its role as a a
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store of value or alternative currency.
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That's fine. But in Buffett's framework,
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price is what you pay and value is what
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you get. And if there's no future cash
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flow, then there's no intrinsic value to
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to anchor you to a future price.
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Buffett's idea of intrinsic value
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doesn't just work for giant companies or
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investment portfolios. It works for
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normal people, too, just looking to
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invest their 401k or make sense of a
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volatile world. It reminds us to ask,
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you know, what am I really buying? What
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am I expecting to earn from this
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investment in the future? Is this
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investment producing something real
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internally, or am I just hoping that
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someone will pay more later than I paid
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today? And that can be a compass to help
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us out in confusing markets. Gold shines
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when the world gets nervous. Bitcoin
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spikes usually on on stories and hope.
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But cash flowing businesses, ones with
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pricing power and loyal customers and
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long-term demand, those are the kind of
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assets that Buffett would bet on and
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those are the ones that tend to hold up
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over decades. At its core, intrinsic
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value is a mindset. It says you don't
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need to predict the next trend. You
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don't need to outhype the crowd. You
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just need to understand what you own,
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why you own it, and what it will give
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you or provide to you in return.
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Sometimes that's a stock, sometimes it's
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rental property, sometimes it might be
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bonds, it could be just boring old index
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funds. But if you know the cash flows
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and you pay less than what they're
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worth, you're probably on the right
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path. And if you don't know the cash
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flows, well, you might want to ask
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yourself, is this investing or am I just
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speculating? Buffett's circle of
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competence doesn't include gold or
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Bitcoin, but it does include clear
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thinking, patience, and knowing what
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something's really worth. That is
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intrinsic value. The next big Buffett
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topic, so you know, how do you know that
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your investment choices aren't too
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risky? Well, Buffett would suggest that
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you need a sufficient margin of safety.
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It's a funny thing. If you listen enough
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to Buffett, his sense of humor is great
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and often uh it's in the gutter. And if
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you had to pick one of his more innocent
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gutter quotes, it's that only when the
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tide goes out do you discover who's been
00:13:52
swimming naked in investing. That
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principle is all about the margin of
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safety. It's not just a financial idea.
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It is a way of thinking about risk in
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general and uncertainty in general and
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just the future. I would argue it's how
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smart people stay solvent, how they stay
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in the game, how they sleep at night.
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So, we'll start with the investing
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version. Buffett borrowed the concept of
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margin of safety from his mentor
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Benjamin Graham. Ben Graham, the father
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of value investing. You know, like many
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of us, Buffett stood on the shoulders of
00:14:18
giants and specifically on the shoulders
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of Benjamin Graham. Many amazing
00:14:22
investing ideas seem to originate with
00:14:24
Graham. The metaphor of Mr. Market is
00:14:26
probably my favorite of those Graian
00:14:28
ideas. But back to margin of safety, we
00:14:31
should start with the idea that we just
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discussed. Every investment has
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intrinsic value, what it's actually
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worth based on future cash flows and
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fundamentals. But we're not perfect,
00:14:40
right? We're humans. We make mistakes.
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The future is uncertain. Our
00:14:43
spreadsheets won't always match reality.
00:14:45
So what do we do about that fact? Well,
00:14:47
we build in a cushion. We aim for
00:14:49
undervalued assets that give us some
00:14:51
breathing room that give us a margin of
00:14:53
safety in case we're wrong. If we think
00:14:55
that a company's intrinsic value is $10
00:14:58
per share, we should only purchase it if
00:15:00
it's selling for $7 or $8 per share.
00:15:03
That difference, that's our margin of
00:15:05
safety. Buffett put it this way. You
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don't try to drive a 9800 lb truck over
00:15:11
a bridge that says limit 10,000 lb.
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Instead, you go down the road a bit and
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you find a bridge that says limit
00:15:17
15,000. Margin of safety protects us
00:15:20
from two scary realities in investing.
00:15:22
The first is just being wrong. And the
00:15:24
second one is bad luck, right? Maybe
00:15:26
this business that we're looking at,
00:15:28
maybe it hits a rough patch. Maybe
00:15:30
interest rates go haywire or our
00:15:32
analysis was just off. If we bought with
00:15:34
a margin of safety, we have room to be
00:15:36
wrong and still come out the other side
00:15:38
okay. Maybe not with huge gains, but at
00:15:40
least without catastrophic losses. And
00:15:43
investing, it it truly is a losers game.
00:15:45
If you're unfamiliar, losers games are
00:15:47
games where it's all about minimizing
00:15:49
bad outcomes. I would argue that for
00:15:52
most of us, tennis is a losers game
00:15:54
because if you've ever seen amateur
00:15:55
tennis or even like pretty good high
00:15:57
school or decent college tennis, a lot
00:16:00
of tennis is simply about not hitting
00:16:01
the ball out. Winners games though are
00:16:04
all about maximizing good outcomes. And
00:16:07
investing, that is a losers game.
00:16:09
Avoiding catastrophe is the name of the
00:16:11
game in investing. It's a name of the
00:16:13
game in financial planning. It's about
00:16:15
understanding our risks and avoiding or
00:16:17
minimizing or mitigating them. And
00:16:19
Buffett's investing record, it's not
00:16:21
just about hitting home runs. Yes, he
00:16:23
hit a lot of home runs, but more so it's
00:16:26
about never striking out. He preserves
00:16:28
capital. He avoids ruin. He only bets
00:16:30
when the odds and the price are clearly
00:16:32
in his favor. He's got the, you know,
00:16:34
another one of his famous quotes that
00:16:35
just kind of popped into my head is the
00:16:37
rule number one is never lose money and
00:16:39
rule number two is don't forget rule
00:16:40
number one, try not to strike out,
00:16:43
right? That's what that rule is. But the
00:16:44
principle doesn't just apply to stocks.
00:16:46
really does apply to a lot of other
00:16:48
things in finances. I mean, if we think
00:16:49
about our personal finances, the best
00:16:51
financial plans have a built-in cushion.
00:16:53
They have an emergency fund,
00:16:55
conservative withdrawal rates in
00:16:56
retirement, not maxing out your your
00:16:59
mortgage just because the bank says you
00:17:00
can, sufficient insurance coverage to
00:17:03
mitigate risks. These are all examples
00:17:05
of margins of safety in our personal
00:17:07
financial life because life is
00:17:09
unpredictable. Layoffs happen. Roofs
00:17:11
leak, your kids need braces, your HVAC
00:17:14
dies on the coldest day of the year. A
00:17:16
margin of safety means you're not living
00:17:17
paycheck to paycheck. It means a
00:17:19
surprise doesn't break you. It might
00:17:21
annoy you, but it doesn't break you. You
00:17:23
avoid the awful, terrible losses as best
00:17:25
you can. In business, the same idea.
00:17:27
Great operators don't run their
00:17:29
companies at the edge of disaster. They
00:17:31
keep some cash on hand. They avoid
00:17:33
overleveraging. They leave a little bit
00:17:34
of slack in the system because the real
00:17:36
world isn't frictionless, right? There
00:17:38
are delays and defects, bad customers,
00:17:41
broken supply chains, economic
00:17:43
downturns, and the margin of safety. It
00:17:46
can apply to so many other areas of
00:17:47
life. I won't wax philosophical on on
00:17:50
relationships or lifestyle or things
00:17:51
like that, but consider how building in
00:17:54
a margin of safety can help you
00:17:55
certainly on the financial side and
00:17:57
maybe elsewhere too. Cuz when the storm
00:17:59
comes, and it will come, right? The
00:18:01
storm always has come before and we can
00:18:03
only see so far out on the horizon. The
00:18:05
margin of safety is what keeps you and
00:18:07
your plan and your finances intact. Or
00:18:09
as Buffett would say, only when the tide
00:18:12
goes out do you find who's been swimming
00:18:14
naked. So don't swim naked, at least not
00:18:16
metaphorically. Here's a quick ad and
00:18:19
then we'll get back to the show. Every
00:18:21
week I send a quick free email to
00:18:23
thousands of readers that shares three
00:18:25
simple things. One, my new articles and
00:18:28
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00:18:30
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that explains some important concept in
00:18:37
the news that week. It's a great primer
00:18:39
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00:18:42
Jesse, I don't want another email. Well,
00:18:45
this might not be for you, but I do hear
00:18:47
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00:19:01
homepage at bestinterest.blog.
00:19:03
Again, that's a free no strings attached
00:19:06
subscription at bestinterest.blog.
00:19:09
For the next big buffetism, you know,
00:19:11
here on personal finance for long-term
00:19:12
investors, we've talked about the
00:19:14
benefits of diversified passive
00:19:15
investing and efficient markets. But I
00:19:18
want to talk about Buffett's focus on
00:19:20
market inefficiencies and on
00:19:22
concentration rather than
00:19:24
diversification. Because even though it
00:19:26
might not be something that most of us
00:19:27
do in our personal portfolios, there are
00:19:29
some really valuable lessons to learn
00:19:31
here. Buffett's career has been this
00:19:34
70-year rebuttal of one of the most
00:19:36
popular modern theories in finance, the
00:19:39
efficient market hypothesis or EMH. EMH
00:19:42
basically says that stock prices or
00:19:44
market prices in a quote unquote
00:19:46
efficient market that they always
00:19:48
reflect all available information. That
00:19:50
the market is a perfectly rational
00:19:52
pricing machine. that it's impossible to
00:19:55
consistently beat the market unless
00:19:56
you're lucky or cheating. So, it's not
00:19:59
to say that the market is always right.
00:20:01
It's a little bit different than that.
00:20:02
Instead, EMH says that the market has
00:20:05
always synthesized available information
00:20:08
better and more consistently than any
00:20:10
individual can synthesize that
00:20:12
information. So, doesn't mean that the
00:20:14
market's always right. It just means
00:20:16
that the market is better at
00:20:17
understanding what's going on than you
00:20:19
are as an individual. And if you think
00:20:21
you can consistently beat the market,
00:20:23
well, you're in trouble because there's
00:20:25
no way you can have more information and
00:20:27
and do better things with that
00:20:28
information than the market can. That's
00:20:30
what the efficient market hypothesis
00:20:32
says. But Buffett famously disagrees. He
00:20:35
doesn't think that the market is
00:20:37
irrational all the time, but he's built
00:20:39
his fortune betting that at a reasonable
00:20:41
frequency, the market is irrational
00:20:44
enough for him to outsmart it. And he's
00:20:46
been right consistently for decades.
00:20:49
Buffett isn't saying that markets are
00:20:50
dumb. He's just saying that humans are
00:20:52
emotional. And since markets are made up
00:20:54
of humans and since humans, like all
00:20:56
mammals, sometimes have some herd
00:20:58
behavior that stock prices often reflect
00:21:01
our biases, our fears, and our manas.
00:21:04
Sometimes we get greedy. Other times, we
00:21:06
panic. In both cases, prices can swing
00:21:08
wildly away from what a business is
00:21:11
truly worth, away from that intrinsic
00:21:13
value that we talked about earlier. And
00:21:15
going back to earlier when I mentioned
00:21:16
Benjamin Graham's uh Mr. market
00:21:18
metaphor. Buffett refers to Mr. Market
00:21:21
as your manic business partner. Every
00:21:24
day, Mr. Market offers to buy or sell
00:21:26
shares of companies at whatever
00:21:28
mooddriven price he feels like.
00:21:30
Sometimes he's generous with you. Other
00:21:32
times, he's delusional. Part of
00:21:34
Buffett's genius is waiting until Mr.
00:21:36
Market is being irrational in Buffett's
00:21:38
favor by essentially selling $1 bills
00:21:41
for.7 and then Buffett pounces. In doing
00:21:44
so, he's made billions by disagreeing
00:21:47
with the idea that markets are always
00:21:49
right. By disagreeing with the efficient
00:21:51
market hypothesis, em it it lives in the
00:21:54
halls of academia. It's very clean. It's
00:21:56
elegant. It's mathematically satisfying.
00:21:58
It's logically satisfying. But the real
00:22:00
world and investing in the real world is
00:22:02
messy and prices get distorted. Fear
00:22:05
sometimes spreads faster than
00:22:06
spreadsheets would recognize. And not
00:22:08
all investors are rational,
00:22:10
well-informed agent. In fact, most
00:22:11
aren't. Buffett once joked, "I'd be a
00:22:14
bum on the street with a tin cup if the
00:22:16
markets were always efficient." Because
00:22:18
if prices were always right, there'd be
00:22:20
no such thing as a cheap stock. There'd
00:22:21
be no undervalued business. There'd be
00:22:23
no opportunity to buy Coca-Cola at a 40%
00:22:26
discount during a market sell-off. But
00:22:28
Buffett did exactly that and made
00:22:30
billions in the process. If EMH was
00:22:32
right, there'd essentially be no risk or
00:22:36
volatility in the market. If EMH was
00:22:38
perfectly right, we would have a much
00:22:41
different feeling stock market than we
00:22:42
currently do. But we should pivot here
00:22:44
to Buffett's other quote unquote heresy,
00:22:47
at least compared to the way that most
00:22:48
of us invest. He doesn't really
00:22:50
diversify. I mean, I guess at this point
00:22:51
he diversifies a little bit, but he
00:22:53
certainly doesn't diversify in the way
00:22:55
that conventional wisdom says you
00:22:57
should. Modern finance says to own
00:22:59
hundreds of stocks, to spread out your
00:23:00
bets, to reduce risk, to not put too
00:23:02
many eggs in one basket. But Buffett's
00:23:04
approach is more like you should put all
00:23:06
your eggs into very few baskets, baskets
00:23:09
that you've analyzed very very
00:23:11
critically and then you should wash
00:23:12
those baskets very carefully. He
00:23:14
believes in concentration. When he finds
00:23:16
a business that's deeply undervalued or
00:23:19
of extremely high quality and it's
00:23:21
within his circle of competence, it's
00:23:22
run by trustworthy managers. He buys
00:23:25
big. That's how Bergkshire Hathway ends
00:23:27
up with massive positions in Apple and
00:23:29
Coca-Cola and American Express. Not to
00:23:31
mention the real way that Bergkshire has
00:23:33
grown so much, you know, Bur Bergkshire
00:23:35
is kind of famous for owning Apple and
00:23:36
Coca-Cola, but the real way that
00:23:38
Bergkshire has grown so much is by
00:23:40
buying entire privately held companies
00:23:42
outright. He's not trying to own a
00:23:44
little bit of everything. He's trying to
00:23:46
own a lot of the very best things bought
00:23:49
at the right price. And that's a key
00:23:51
reason why he's outperformed for so
00:23:52
long. When most investors are taking a
00:23:55
little bit of everything, Buffett's
00:23:56
waiting for the pitch to be right down
00:23:58
the middle and then he swings hard. But
00:24:00
yes, Buffett did also say that indexing
00:24:03
is smart and we should touch on that and
00:24:05
this is where kind of nuance matters.
00:24:06
Buffett has said that for most
00:24:08
investors, including many of us
00:24:10
listening, for most investors,
00:24:12
diversification is the way to go because
00:24:14
most people don't have the time, the
00:24:16
skill, or the temperament to identify
00:24:18
these inefficiently priced businesses
00:24:20
and to concentrate in them wisely. So
00:24:23
instead of pretending that you're Warren
00:24:25
Buffett or the next Warren Buffett or
00:24:26
that you have the time to even be half
00:24:28
of what Warren Buffett is, it's probably
00:24:30
better to own the whole market and to do
00:24:32
so cheaply and to let compounding do the
00:24:35
rest. That's not a contradiction. It's
00:24:37
just an acknowledgement of reality. For
00:24:39
the skilled few investors out there,
00:24:41
inefficiencies do exist. They aren't
00:24:43
necessarily easy to find or to exploit.
00:24:46
And Buffett had the right temperament
00:24:48
and the right framework and the right
00:24:49
discipline to act when others couldn't.
00:24:51
So yes, most people should diversify,
00:24:53
but for Buffett, concentration in a few
00:24:56
mispriced gems, that's exactly what made
00:24:58
him rich. Buffett didn't just reject
00:25:00
efficient markets. He he really crushed
00:25:02
them. And he showed us in practice some
00:25:04
of the issues with the efficient market
00:25:06
hypothesis. So the efficient market
00:25:08
hypothesis says you can't beat the
00:25:10
market. Well, Buffett says maybe you
00:25:11
can't, but I can and I did. And if
00:25:14
you're not Buffett, that's fine. Just
00:25:15
own the whole haystack. Just don't be
00:25:18
surprised. And you should remember that
00:25:20
there's still a needle there in the
00:25:22
haystack. And every so often, someone
00:25:23
with the right skills and the right
00:25:25
mindset is going to be pretty good at
00:25:27
finding those needles. The next
00:25:29
Buffettism I want to go down is the
00:25:30
frequently cited ideas of economic moes.
00:25:33
In business speak, an economic moat is a
00:25:36
durable competitive advantage that a
00:25:38
company has that protects it from the
00:25:40
competition. Just like a medieval moat
00:25:42
protected a castle from would-be
00:25:44
invaders, the wider and the deeper the
00:25:46
moat, the harder it is for rivals to
00:25:48
attack. And Buffett spent a lifetime
00:25:50
looking for castles with moes and just
00:25:52
as importantly for trustworthy, you
00:25:54
know, royalty kings and queens to sit
00:25:56
inside of those castles. He said, "The
00:25:58
most important thing for me is figuring
00:26:00
out how big a moat there is around the
00:26:02
business. What I love, of course, is a
00:26:04
big castle and a big moat with piranhas
00:26:07
and crocodiles." So, let's not get ahead
00:26:09
of ourselves. Let's talk a little more
00:26:11
specifically about what makes a moat a
00:26:13
moat. Buffett and Charlie Munger had a
00:26:16
name for the key types of moes that they
00:26:18
would identify over the years. First,
00:26:20
they looked for brand. So, when you
00:26:21
think Coca-Cola, Apple, Disney, you're
00:26:24
not just buying sugar water or tech
00:26:26
gadgets or cartoon movies. You're buying
00:26:29
trust and nostalgia and identity. Those
00:26:32
names, Coke, Apple, Disney, they mean
00:26:35
something to us beyond just what the
00:26:37
products are. That's brand. The next
00:26:39
mode they talked about are network
00:26:40
effects. The more people who use a
00:26:42
service, the more valuable it becomes.
00:26:44
So if you think of Visa or Mastercard,
00:26:46
they have these huge, you know, networks
00:26:48
of payment processors. Modern examples
00:26:51
might be Airbnb or LinkedIn. These
00:26:54
network effects, they're typically
00:26:55
compounding in nature, right? So 200,000
00:26:58
users of LinkedIn isn't just twice as
00:27:01
good as 100,000. It might be 10 times as
00:27:03
good. And for each additional user, it
00:27:06
just compounds the network bigger and
00:27:08
bigger and bigger. The next moat that
00:27:10
companies have are cost advantages. If
00:27:12
you can produce or distribute something
00:27:14
cheaper than anyone else, you've got an
00:27:15
edge. Two examples here might be Walmart
00:27:17
because of their scale or GEICO because
00:27:20
of their underwriting model. There are
00:27:21
things that Walmart and Geico can do
00:27:23
with their scale that protects them
00:27:25
against upstart competition. The next mo
00:27:28
is switching costs. For some companies,
00:27:30
it can be painful for customers to leave
00:27:32
you, whether due to logistics or cost or
00:27:35
complexity, and you've built a moat
00:27:37
around your business because of that.
00:27:39
So, one example might be enterprise
00:27:40
software like Oracle or Salesforce.
00:27:42
There might even times in our own lives
00:27:44
where changing dentists or starting to
00:27:46
use a new grocery store and trying to
00:27:48
figure out the new store layout has this
00:27:51
annoying switching costs and that kind
00:27:53
of that inertia of annoyance. we might
00:27:56
not want to switch. Certain companies
00:27:58
and certain services, they can magnify
00:28:00
these switching costs to a huge degree.
00:28:02
It's not that they're trying to be
00:28:03
annoying to switch away from. It's just
00:28:05
the nature of their work. And that
00:28:07
stickiness, that switching cost is a big
00:28:09
competitive advantage and a big moat.
00:28:11
The next moat is regulatory protection.
00:28:13
This one is certainly not sexy, but
00:28:15
Buffett owns utility companies for a
00:28:17
reason. When regulation grants you a
00:28:20
near monopoly, that is a moat that's
00:28:22
enforced by law. And the last one that
00:28:24
they would look for is intellectual
00:28:25
property. So patents and trademarks and
00:28:28
proprietary technology offers a strong
00:28:30
defense for a company. Now sure Buffett
00:28:33
was not very enamored with tech
00:28:34
throughout his career. Apple being the
00:28:36
one notable difference, but that moat is
00:28:38
still a relevant one here in 2025. Now
00:28:41
one of the key attributes of these moes
00:28:43
is durability. A moat isn't just some
00:28:45
flash in the pan advantage. It's a
00:28:47
structural feature of a company that
00:28:49
lets the business fend off competition
00:28:51
for years, if not decades into the
00:28:52
future. But Buffett doesn't just want to
00:28:54
own Modi businesses. He also wants to
00:28:56
own them at a fair price. That's really
00:28:58
the sweet spot because a great moat
00:29:01
might already be priced into the
00:29:03
company. And if you're paying too much
00:29:04
for a company, even the best moat can't
00:29:06
protect you from poor returns. And I
00:29:09
think this is an interesting lesson
00:29:10
that, you know, we can if we want to
00:29:11
apply it to our own life. And for me, I
00:29:14
think about the skill sets that we each
00:29:15
have that are just hard to replicate or
00:29:17
maybe the the networks that we've built
00:29:19
over time or the reputations that we've
00:29:22
built over time. You know, are you known
00:29:23
for a a rare technical ability? Have you
00:29:26
cultivated relationships in your network
00:29:28
that keep on opening doors for you? Do
00:29:30
other people at work say, you know what,
00:29:32
we really need you and specifically you
00:29:34
on this project? Those are all moes. And
00:29:37
just like in business, you want to
00:29:38
invest in deepening and widening your
00:29:40
moat through learning, through
00:29:42
consistency and trust. There's a the
00:29:44
saying here in the content creation
00:29:46
world that some people are in overnight
00:29:48
success, but years in the making. And I
00:29:50
see a lot of truth in that. You know,
00:29:51
when I look at the flywheel of my blog,
00:29:54
but especially here on this podcast, it
00:29:56
is spinning faster than ever. More
00:29:58
listeners, more reader than ever. But
00:30:00
it's really only spinning that fast
00:30:01
because of the years that I've put into
00:30:03
it so far. that time, that effort,
00:30:05
that's a natural moat. And yes, if some
00:30:08
giant company wanted to come in and
00:30:10
publish a hundred episodes over the
00:30:12
course of three months and just really
00:30:14
put a ton of resource into their own
00:30:16
podcast, I'm sure they could, you know,
00:30:18
market it and surpass me and that's
00:30:20
fine. But there's something too that the
00:30:22
time and effort, the natural moat that
00:30:24
I've built that the every weekly article
00:30:27
and every episode digs my moat a little
00:30:30
bit wider and a little bit deeper. Now,
00:30:32
moes like that, they don't guarantee
00:30:34
success, but they certainly make failure
00:30:36
a lot less likely. Buffett once said,
00:30:37
"In business, I look for economic
00:30:39
castles protected by unreachable moes.
00:30:42
In life, I look for personal
00:30:43
relationships that are built on
00:30:45
unshakable trust." We can't all be
00:30:47
billionaires who are buying these
00:30:49
monopolistic railroads and global
00:30:51
insurers like Geico. But we can build
00:30:53
trust. We can build skills. We can widen
00:30:55
our own moes financially,
00:30:56
professionally, and otherwise. And that
00:30:58
might be one of the most buffetesque
00:31:00
moves of all. Here's a quick ad and then
00:31:03
we'll get back to the show. I still
00:31:04
remember it was 2019 and a guy from
00:31:06
Fidelity came in to speak to my then
00:31:08
employer about personal finance in
00:31:10
general and about our 401k plan in
00:31:12
particular. There were 60 or so of us
00:31:14
who attended, mostly 50 plus years old,
00:31:17
clearly with retirement on their minds.
00:31:19
And nothing against this individual from
00:31:21
Fidelity, but unfortunately the guy just
00:31:23
didn't really know what he was talking
00:31:24
about. It ended up being a major
00:31:26
disappointment. And a bunch of my
00:31:28
colleagues afterwards said, in short,
00:31:30
you know, man, we're really thirsty for
00:31:31
good financial retirement information.
00:31:34
Where do we go find it? Now, does that
00:31:36
sound true, listeners, for you and your
00:31:38
colleagues? Last year, either in person
00:31:40
or via Zoom, I spoke to about 800
00:31:43
employees at 11 different organizations.
00:31:45
Sometimes about personal finance in
00:31:47
general, sometimes about specifics of
00:31:49
their retirement plans, sometimes about
00:31:50
the the nitty-gritty details of social
00:31:52
security and withdrawal planning and
00:31:54
retirement math. The point being, if
00:31:56
you're interested in inviting me to come
00:31:58
talk money to you, to your colleagues,
00:32:00
where you work, that is absolutely
00:32:02
something I'm interested in talking to
00:32:03
you about. Simply drop me an email to
00:32:05
jesse@b bestinterest.blog and let's
00:32:08
start a conversation. And I've got two
00:32:10
more topics today, two more Buffett
00:32:12
topics that I I just find really cool
00:32:13
and special. You know, Buffett has
00:32:15
always had a great way of tackling
00:32:17
issues where too few people understood
00:32:19
the risk involved, but Buffett wasn't
00:32:21
afraid to speak up. One of my favorite
00:32:23
examples of that is derivatives. Buffett
00:32:26
once called derivative products
00:32:27
financial weapons of mass destructions.
00:32:29
At its simplest, right, a derivative is
00:32:31
a financial contract where the value of
00:32:33
that contract is derived derivative
00:32:36
derived from something else. A stock, a
00:32:38
bond, an index, currency, even the
00:32:40
weather. Common examples are options and
00:32:42
futures and swaps. And I know I I've
00:32:44
given you the definition, but I haven't
00:32:46
really explained it yet. You can think
00:32:47
of these derivatives as financial side
00:32:50
bets. I could go out right now and I
00:32:52
could bet $5 that Apple will reach $250
00:32:56
per share by a certain date. And if I'm
00:32:59
right, depending on the way the contract
00:33:01
is structured, depending on what Apple's
00:33:03
price actually reaches, if it's $ 250 or
00:33:05
if it's more, I could easily turn my $5
00:33:08
bet into $100. But if I'm wrong, then my
00:33:11
$5 bet goes to zero. That's a really
00:33:13
simple example of an option. It's a side
00:33:16
bet on the future price in this case of
00:33:18
a different financial instrument. I'm
00:33:20
not buying Apple stock itself. I'm
00:33:22
betting on the price of Apple in the
00:33:24
future. Simple example of an option.
00:33:26
Options can be used smartly to hedge
00:33:29
risks. You know, if you're betting big
00:33:31
on one thing, you might buy options that
00:33:34
kind of bet against that one thing in a
00:33:36
different way just to hedge your risk.
00:33:38
But more often than not, options are
00:33:40
used to speculate and to speculate
00:33:42
wildly. They're used to gamble. And
00:33:44
sometimes, as Buffett's seen, they can
00:33:45
be used to hide the truth. Buffett's
00:33:47
concern isn't that derivatives exist.
00:33:49
It's how they're used and more precisely
00:33:51
how misunderstood they are. And in 1982,
00:33:53
Buffett wrote a very famous letter. He
00:33:56
responded to congressional discussions
00:33:57
that were about approving futures
00:34:00
contracts, derivatives on the S&P 500
00:34:02
index. And at the time, Buffett was
00:34:05
managing a $600 million equity
00:34:07
portfolio. He had 30 years of
00:34:08
experience. and he wrote, "In my
00:34:10
judgment, a very high percentage,
00:34:12
probably at least 95% and more likely
00:34:14
much higher than that of the activity
00:34:16
generated by these contracts will be
00:34:18
strictly gambling in nature." He foresaw
00:34:21
that most activity in in derivatives
00:34:23
wouldn't be for hedging. It wouldn't be
00:34:25
for long-term investing. It wouldn't be
00:34:27
for risk management. It would be purely
00:34:30
speculative betting just like casino
00:34:32
play. Buffett observed that low margin
00:34:35
requirements, they tempt people into
00:34:37
risky bets. And just like the bet I
00:34:38
explained before, if I can put $5 down
00:34:41
on Apple and turn it into $100 in a few
00:34:43
months, that's a low margin requirement
00:34:46
and a risky bet. Buffett also said the
00:34:48
unintelligent are easily seduced by
00:34:51
taking tiny amounts of money to control
00:34:54
large bet positions. And that futures
00:34:56
markets and options markets are a
00:34:57
negative sum game. A negative sum game
00:35:00
because brokers collect high fees on
00:35:02
every transaction. So those who are
00:35:04
trading the options therefore must be
00:35:06
losing overall. And Buffett warned that
00:35:09
speculative volume would tarnish the
00:35:11
stock market's reputation. That casual
00:35:13
investors betting and gambling in this
00:35:15
way would get burned and they would
00:35:17
blame their losses not on the betting,
00:35:19
not on the speculation, but on stocks
00:35:21
and the stock markets, right? They ought
00:35:22
to be blaming the derivatives, but they
00:35:24
won't. They'll just blame the stock
00:35:25
market as a whole. He argued that
00:35:27
America needed long-term investors, not
00:35:30
widespread gamblers, and that futures
00:35:31
contracts would hurt security prices. He
00:35:34
said, "The propensity to gamble is
00:35:36
always increased by a large prize versus
00:35:38
a small entry fee," which I think makes
00:35:40
sense, right? When you see the the the
00:35:42
lotto sign on the billboard driving down
00:35:44
the highway that the Powerball jackpot
00:35:46
is now 10 billion and you can go buy a
00:35:49
Powerball ticket for five bucks, that's
00:35:51
a large prize versus a very small fee
00:35:54
and it gets a lot of people to go and
00:35:55
gamble. Buffett also said that futures
00:35:57
markets would be overwhelmingly
00:35:59
detrimental to the security buying
00:36:01
public. It's an amazingly preient letter
00:36:03
written 43 years ago, but helping to
00:36:05
explain some of what we've seen in
00:36:06
financial markets over recent years.
00:36:08
What follows for the next minute or so
00:36:10
is one long quote. Buffett said, "You
00:36:13
will have people wagering as to the
00:36:15
short-term movements of the stock market
00:36:16
and able to make fairly large wages with
00:36:18
fairly small sums. They will be
00:36:20
encouraged to do so by brokers who will
00:36:22
see rapid turnover of customer capital.
00:36:24
the best thing that can happen to a
00:36:26
broker in terms of his immediate income.
00:36:28
A great deal of money will be left
00:36:30
behind by these 95% as the casino takes
00:36:33
a bite of each transaction. We do not
00:36:35
need more people gambling in
00:36:37
non-essential instruments identified
00:36:38
with the stock market in this country,
00:36:40
nor brokers who encourage them to do so.
00:36:42
What we need are investors and advisers
00:36:44
who look at the long-term prospects for
00:36:46
an enterprise and invest accordingly. We
00:36:48
need the intelligent commitment of
00:36:50
investment capital, not leveraged market
00:36:52
wages. The propensity to operate in the
00:36:54
intelligent pro-social sector of capital
00:36:57
markets is deterred, not enhanced, by an
00:36:59
active and exciting casino operating in
00:37:02
somewhat the same arena utilizing
00:37:04
somewhat similar language and serviced
00:37:06
by the same workforce. Boom. Dropping
00:37:09
the hammer on them, Warren Buffett. But
00:37:11
I mean, I will say not to pick on Robin
00:37:13
Hood, but okay, I'm going to pick on
00:37:15
Robin Hood a little bit. There are
00:37:16
others out there. Robin Hood's probably
00:37:18
just the most well-known. When you can
00:37:20
easily download an app, trade options,
00:37:22
and you get confetti thrown at you on
00:37:25
screen for winning money, that feels
00:37:27
like a casino, and that's not exactly
00:37:29
the intelligent pro-social sector of
00:37:31
capital markets that Warren Buffett is
00:37:33
referring to. So, good for Warren for
00:37:36
taking a stand against derivatives and
00:37:38
often taking a vocal stand to explain
00:37:40
things, especially risky things that
00:37:43
other people uh in the markets weren't
00:37:44
either addressing, weren't aware of, or
00:37:47
needed someone smart to come in and
00:37:48
explain. And the last topic today, the
00:37:51
last Buffett ism that I think Buffett
00:37:53
just added a lot of wisdom to over the
00:37:55
years is trust and character and
00:37:58
reputation. Yes, he's the oracle of
00:38:00
Omaha, a stock picker, a value investor,
00:38:03
a capital compounding savant. But his
00:38:05
true edge isn't intelligence or
00:38:07
investing acumen. It's trust and
00:38:10
character and reputation. Because once
00:38:12
you've built a reputation for honesty
00:38:13
and reliability, people want to do
00:38:15
business with you. As we've seen with
00:38:16
Warren Buffett, they trust you with
00:38:18
their money, their careers, and their
00:38:19
futures. And in a world full of
00:38:21
spreadsheets and tickers and technical
00:38:23
one-upsmanship, Buffett reminds us that
00:38:26
the most valuable asset doesn't really
00:38:27
show up on a balance sheet. It's your
00:38:29
name. He said, "It takes 20 years to
00:38:31
build a reputation and 5 minutes to ruin
00:38:33
it. If you think about that, you'll do
00:38:35
things differently." Buffett's entire
00:38:37
empire at Bergkshire Hathway is built on
00:38:39
trust. It's not a coincidence. In fact,
00:38:41
it's pretty remarkable that many of
00:38:44
Bergkshire's deals, especially those
00:38:46
done in a hurry, they come together
00:38:48
without term sheets, without endless due
00:38:50
diligence, without the legal footnotes.
00:38:52
And as scary as that might sound in
00:38:54
today's latigious world, those deals are
00:38:56
built on trust because people want to
00:38:59
sell to Buffett. If you've ever listened
00:39:00
to some of the stories in some of the
00:39:02
shareholders meetings, there are some
00:39:04
giant companies that proactively reach
00:39:06
out to Buffett and they say, "We're
00:39:08
selling and we want to sell to you." And
00:39:10
if you think about that, if you were in
00:39:12
Buffett's position, you might say, "Boy,
00:39:14
if you're coming just to me, I'm going
00:39:16
to offer you a really low ball price,
00:39:18
but that's not the case. Buffett would
00:39:19
offer a fair price. These people are
00:39:21
reaching out to Buffett. They want to
00:39:23
partner with him because they trust him
00:39:25
to do what he says he'll do." From the
00:39:28
owners of the Nebraska Furniture Mart,
00:39:30
one of the largest furniture stores in
00:39:31
the country, to the family behind the
00:39:33
BNSF Railway, Buffett is known for
00:39:36
keeping his word and treating these
00:39:37
companies fairly, treating the people
00:39:39
fairly. He doesn't renegotiate terms
00:39:41
down the line. He doesn't backstab. He
00:39:43
doesn't nickel and dime. When Buffett
00:39:45
took over Solomon Brothers in the early
00:39:46
90s, 1991, he famously testified in
00:39:49
front of Congress, "If you lose money
00:39:51
for the firm, I will be understanding.
00:39:53
But if you lose a shred of reputation, I
00:39:55
will be ruthless. Yes, profits are nice,
00:39:57
but integrity is more important.
00:39:59
Integrity scales." When Buffett buys a
00:40:01
company, he wants to leave the founder
00:40:03
or the CEO in place. You heard that
00:40:05
right. Buffett doesn't want to start
00:40:06
leading the company. He wants to leave
00:40:08
the management team in place. No
00:40:10
micromanaging, no cultural transplant
00:40:13
because he trusts the people he invests
00:40:15
in. And he only invests in people he can
00:40:16
trust. One of his more famous lines is
00:40:18
about this trifecta he looks for in a
00:40:21
business partner. He says, "We look for
00:40:23
three things when we hire people.
00:40:24
Intelligence, energy, and integrity.
00:40:27
Because if you don't have the last one,
00:40:28
the first two will kill you." Again,
00:40:30
intelligence, energy, and integrity. If
00:40:33
you don't have the last one, integrity,
00:40:35
the first two will kill you. You can't
00:40:37
really outsource trust. You can't fake
00:40:39
character. You either have it or you
00:40:41
don't. Eventually, the cream will rise
00:40:42
to the top. And Buffett's entire
00:40:44
framework, his investing style, his
00:40:46
management philosophy, his public image
00:40:48
is built around filtering for that, for
00:40:50
that trust. You see it in his
00:40:52
partnerships, like with Charlie Munger.
00:40:54
It was a 60-year relationship that never
00:40:56
required a contract. You see it in the
00:40:58
way Buffett handles Bergkshire Hathway's
00:40:59
annual meetings, right? Transparent and
00:41:01
unscripted and honest even when it's
00:41:03
uncomfortable. You see it in the
00:41:05
shareholder letters. He doesn't dodge
00:41:06
the bad years or the bad performance. He
00:41:08
owns it. And in doing so, he earns even
00:41:10
more trust. Back to the the Solomon
00:41:12
brother scandal. When Buffett joined the
00:41:14
board in 1991 to help that firm survive,
00:41:16
a major scandal it was going through
00:41:18
involving illegal treasury trading.
00:41:21
Solomon's reputation was in the gutter
00:41:22
and morale at the firm was crushed and
00:41:25
the feds were really circling in about
00:41:27
to close the firm. And Buffett's fix to
00:41:29
that was to tell the truth and to take
00:41:32
responsibility and to own the mistakes
00:41:34
and rebuild the trust from the ground
00:41:36
up. And Solomon survived, albeit barely.
00:41:39
But Buffett's message rang true beyond
00:41:41
Wall Street that reputation is a moat.
00:41:44
And if you lose your reputation, you
00:41:46
lose everything. Going back to branding,
00:41:48
Buffett's personal brand is so strong
00:41:50
that tens of thousands of people flock
00:41:53
to Omaha every year to hear him talk for
00:41:55
six hours about insurance and railroads
00:41:57
and seize chocolate candies because they
00:42:00
trust him. They believe him. They want
00:42:01
to learn from him, not just about
00:42:03
investing. They want to learn how to
00:42:04
live. And that's the Buffett dividend.
00:42:06
When you live by a trusted set of
00:42:08
principles, you attract people who want
00:42:10
to live the same way. Your network
00:42:11
improves, your opportunities grow, your
00:42:13
upside compounds, not because you're the
00:42:15
smartest person in the room, but because
00:42:17
you're the one that people know they can
00:42:18
rely on. What did Charlie Mer say? We
00:42:21
take the high road because it's less
00:42:22
crowded. It's less crowded up there.
00:42:24
Now, the hard part is that trust takes
00:42:26
years to earn and can take seconds to
00:42:29
lose. And Buffett is careful with his
00:42:31
words. He's plain spoken, but never
00:42:33
careless. He underpromises and
00:42:34
overdelivers, admits mistakes, avoids
00:42:36
conflicts of interest. Crucially, he
00:42:38
plays the long game. He didn't chase
00:42:40
shortcuts. He didn't fall for shiny
00:42:42
gimmicks. He built slowly and steadily
00:42:44
because he knew the compounding effect
00:42:45
of trusts was just as powerful as the
00:42:47
compounding effect of capital and time.
00:42:50
He said, "You can't make a good deal
00:42:52
with a bad person." And in a world
00:42:54
obsessed with metrics and margins,
00:42:56
Buffett reminds us that the most
00:42:57
important assets are invisible. It's
00:42:59
your word and your reputation and your
00:43:01
ability to be trusted. Not necessarily
00:43:03
sexy things. Certainly, they don't show
00:43:05
up in quarterly reports, but they're the
00:43:07
bedrock of everything that Warren
00:43:08
Buffett built at Bergkshire Hathaway.
00:43:10
And if you want to play that long game
00:43:11
with money or with people or with your
00:43:13
career, you'd be wise to follow his lead
00:43:15
because reputation doesn't just protect
00:43:17
your downside, it opens doors that
00:43:19
spreadsheets never could. So, Warren
00:43:21
Buffett, thank you very much for the
00:43:22
lifetime of immortal lessons. Thanks for
00:43:25
tuning in to this episode of Personal
00:43:27
Finance for Long-Term Investors. If you
00:43:30
have a question for Jesse to answer on a
00:43:32
future episode, send him an email over
00:43:34
at his blog, The Bestinest. His email
00:43:36
address is [email protected].
00:43:39
Again, that's jessevestinterest.blog.
00:43:43
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00:43:54
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00:43:56
for Long-Term Investors. Personal
00:43:58
Finance for Long-Term Investors is a
00:44:00
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00:44:03
entertainment. It should not be taken as
00:44:05
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00:44:06
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00:44:08
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