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"So he's introduced to Warren And Warren immediately asks Bill what Bill thinks of IBM and whether they're going to do well in the future. I cannot believe we're going to get to this much later in the episode, but Warren is already obsessed with IBM. Like, my God, Warren, don't buy IBM. Previewing that, like, don't do it. Don't do it. Gates, of course, agrees with me here and is like, no, you should absolutely not buy IBM. You should buy two stocks and two stocks only, Microsoft and Intel, and you should buy nothing else and you should just hold them. This is 1991, so Microsoft at this point has about a $10 billion market cap and Intel has a $3 billion market cap. Oh my God, Gates is so deep in it, so obviously he's right here. But it is incredible that"

12:03 – 12:52

"school at White Company. That's exactly what I was gonna say. About AWS. AWS is already a thing. That is the default for startups. It has been for years to go and be the cloud provider. So what on earth? What kind of thesis does he have on IBM? Well, here's his thesis. He said, this is what he says publicly. He has been, quote, hit between the eyes by how great IBM is and how strong and defensible its client relationships are. Oh, brutal. Okay, boomer. If this is the first technology investment that Warren Buffett is gonna make, maybe it's a good thing he didn't make any technology investments. Maybe it's half a century too late. Yeah, seriously. He holds this thing until 2018 when he finally sells it. All told, he loses $2 billion, uh, in total, sells it for like around a little over $8 billion. Oh, but just like [...] worst mistake ever by selling before the IPO. Berkshire and Warren redeems everything by buying Apple Inc. Amazing, amazing. This story— okay, so here's the story. In May of 2016, as Warren puts it in the quote, quote, one of the fellows in the office who manage money, aka Ted. Yep, it's never been said whether it was Todd or Ted, but I, I think it was Ted here because Todd really focuses on financial stocks and Ted does everything else. As Warren puts it, had, uh, put some money into Apple and indeed had put about a billion dollars. Let's assume it was Ted. Into Apple shares in May of 2016. That goes well, and amazingly, Ted, Todd, whomever manages to convince"

120:45 – 127:26

"in this partnership. They buy 6 shares for $38 a share, and immediately the stock goes down to $27 a share. So not an auspicious beginning. Doris is like freaking out about this, and Warren feels horrible. It's like eating him up. So the stock does recover to $40 a share, and Warren just unloads it. He's like, great, get the money back, give Doris her money back. But it keeps going. Like, pretty quickly, the stock goes to over $200 a share. But Warren had already unloaded. This is like me and Bitcoin in 2015. Yeah. Like, this is exactly what it's like. 10-year-old Warren. If only— Ben, if only you'd learned these lessons at age 10. Ah, blew it. So I'd say the incident makes an impression on him. He says he learns 3 lessons from this. I think he actually only learns 1. But the first that he says he learns is, Don't fixate on the price you paid for something, it's irrelevant. The second is don't rush to grab a small profit, stay focused on the big long-term wins. The irony is he would violate rules 1 and 2 like many, many, many times until he was about 40 years old. So, uh, as we shall see. But the third lesson he does learn, which is that you can't control other people's emotions around money. So if you're gonna take money from anybody you need to make sure, one, that you're not gonna lose it. And he's talking about his sister here. He's talking about his sister. Yep. And two, that you need to do something to manage their emotions or their ability to affect you so that they don't freak out and cause you to do uneconomic things. You know, Warren"

37:25 – 39:04

"So he would say to Alice in The Snowball about this, about Berkshire, quote, "So I bought my cigar butt and I tried to smoke it." This is amazing. "You walk down the street and you see a cigar butt and it's kind of soggy and disgusting and repels you, but it's free and there may be one puff left in it. Berkshire didn't have any more puffs, so, so all you had was a soggy cigar butt in your mouth. That was Berkshire Hathaway in 1965. I had a lot of money tied up in that cigar butt. I would've been better off if I'd never heard of it in the first place. Oof. What did you say at the top of the show it cost him in terms of compounded opportunity capital? Yeah. In 2010, he did the math and claimed that not only was purchasing Berkshire the worst, biggest mistake of his investing career, but had he taken the money that he put into Berkshire and instead just invested it directly in an insurance company, by 2010, he figures he would have made about $200 billion in incremental returns. Ooh. But Like Steve Jobs said, you can only connect the dots looking backwards, not"

126:31 – 127:44

"they have all this cash, it's a great climate to invest, but one of the lessons that I think Warren and Charlie took away from the Salomon debacle was you don't necessarily want to be like, uh, the major primary equity holder during a crisis in case things really go wrong. You don't want to be that guy that's called up in front of Congress, you know, you really don't. So instead of making a lot of equity investments at this time, they decide instead to pursue a different strategy. They're going to make debt and preferred equity fixed income investments in companies that need capital. Can you simplify that for us? Is it like, hey, we're going to loan you money, and if we want to, then we might exercise some warrants? Exactly. And we're going to loan you money at a very high interest rate. And yeah, maybe we won't make equity-type returns, but we're going to have a whole bunch of downside protection. A whole bunch of downside protection and some warrant upside. And we don't have governance over the company. Yeah. And you're not going to call"

85:38 – 86:38

"I don't really care. So he goes and he meets with Stanton. They discuss the company making a tender offer to buy outstanding shares, in particular Warren's shares. And they have, according to Warren, they have a handshake deal at $11 50 cents a share. And Warren says, great, if you launch a tender offer at that price, I will sell my shares. He goes back to Omaha, gets a letter in the mail. Tender offer is announced at $11.38. $11.38. So what's that, $11.37, $11.38, something like that? Yep. So 12.5 cents [...] says screw you, I'm gonna launch a tender offer for your shares, which is so uncharacteristic for him. He starts canvassing the entire shareholder base trying to get anybody to sell him shares. He is on a mission like a man possessed that he wants to get control of Berkshire Hathaway and kick Stanton out of his company. And this is like a big-ish company at this point. I think it's something like 15,000 people work in the mills. Yeah, it's— it is not a small company. It would become a small company, but it is currently a large company. It's now a non-existent company except in name. So by April 1965, Warren gets enough shares to get himself elected to the board. The next month, he stages a boardroom coup, essentially. Also very uncharacteristic of him, he forces Stanton out and installs himself as chairman. He's won and his prize"

122:05 – 125:15

"it might actually be worth paying this price. So then what? That's about 8x trailing 12 months profit multiple. Totally. I mean, imagine that. Like, that's the offer. Yeah, that's the offer, right, on the table. So Warren, of course, he hems and haws about it, and he's like, ah, I can't do $30, but we could offer $25 million. And he— the only reason he justifies it to himself at this point is he thinks, well, they probably have pricing power because people love the candy so much. So if we raise the prices, maybe I can get comfortable with this. This is sort of the, like, brand notion that he's learned at this point of, hey, there actually is a thing that doesn't show up on the balance sheet that has value. Yep, he's starting to come around. So they do get the deal done with the family. Blue Chip buys See's for $25 million, and over the ensuing years, this little candy company delivers over $2 billion in free cash flow to"

45:29 – 46:25

"in part one to have the big reveal here. Ben, what is the unbelievable company that, in addition to GEICO, in addition to Amex, Buffett had briefly owned 5% of during his partnership days? Disney. The freaking guy owned Disney and he sold it like after what, 2 years or something of owning it when it reached its, uh, you know, what he felt was a good price for him to get out. Unbelievable. So yeah, I think it was, uh, I think it was 1 year. So in 1966, Disney had been trading at an $80 million market cap. The Walt Disney Company at an $80 million market cap. And it's not like Disney was much smaller back then. Like, it was still freaking Walt Disney, and, uh, it had the theme parks and everything. Mary Poppins had just came out and made $30 million at the box office, and the stock went down because Wall"

53:25 – 54:22

"I think we will— to preview a minute here, Warren would always say that the, uh, get everybody in trouble in a minute, but, uh, thing he liked about Coke is that the business could be run by a ham sandwich. That, like, you know, it's literally just like, you don't do it. Evidently not. I think they were probably just so bored that at least the ham sandwich wouldn't mess with the golden goose. Totally. You know, to be fair, this is the story is they ran all these blind taste tests and Pepsi had been, you know, making headway and with market share, that delicious lemony weird sweet thing they had going on. They try new flavors and one of them tests really well, people like it better than the old Coke recipe. So they literally pull the old Coke recipe off the shelves and introduce New Coke, and it is an unmitigated"

26:44 – 27:30

"if you will, uh, for short. I'm going to go pay them a visit." So he hops on the train from Penn Station, goes down to Washington on a Saturday morning, and, uh, he just shows up at the office and he knocks on the door and he persuades a security guard at GEICO to see if anyone's around who could talk to him. Warren sort of presumptuously at this time, although I guess he was signed up for the seminar, says that he's a student of Ben Graham's, and Ben Graham is the chairman of the board. So, you know, might want to let me in, have somebody talk to me. Eventually, the company's head of finance, Lorimer Davidson, is there that Saturday morning, and he's like, all right, kid, come on in my office. I'm gonna— he figures I'm gonna do like a A good Samaritan indeed. Give this kid 10 minutes of my time here."

61:13 – 62:00

"Wall Street. So the share price drops by over 50%, and analysts and people out there think the company's not gonna survive. Buffett, though, thinks otherwise. He sees an opportunity. So he and his new employees, they go around Omaha and New York and a bunch of other places, and they just start like interviewing consumers and talking to them at banks and saying like, hey, what do you think of Amex? 'Have you heard about the soybean oil scandal? The salad oil scandal? Are you still using the traveler's checks? Are you using the credit card?' And consumers are like, 'I haven't heard of this scandal. What are you talking about? Of course I trust the traveler's checks.' Um, so Buffett figures that Amex can easily absorb all of these losses even if they covered the whole thing out of cash on hand. They have over $200 million of cash on hand plus over $500 million of float from the traveler's checks business. Yeah, and this is a similar lesson that he learns from"

112:31 – 113:29

"I don't really care. So he goes and he meets with Stanton. They discuss the company making a tender offer to buy outstanding shares, in particular Warren's shares. And they have, according to Warren, they have a handshake deal at $11 50 cents a share. And Warren says, great, if you launch a tender offer at that price, I will sell my shares. He goes back to Omaha, gets a letter in the mail. Tender offer is announced at $11.38. $11.38. So what's that, $11.37, $11.38, something like that? Yep. So 12.5 cents a share less than what they talked about. And this is like— I still don't understand. I've read a lot about this. Nobody, including Warren, can really seem to explain why Warren gets so worked up about this, because that's not in his personality. Like, he cares a lot"

122:05 – 123:06