Li Lu, Columbia Business 2006 - Greenwald

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after the wife's hand out what you win

for next Tuesday and there is a ball

socket hand outage that I get from how

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are you good I'm glad you're making all

the classes oh good very welcome okay

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all right this is where the course

really begins you should have a sense of

what the fundamentals involved in value

investing our water understands that we

want an appropriate search strategy

where you're going to look that's going

to put you on the right side of the

Train where you're going to be better

informed than the people on the other

side of your trade or at least making a

more extensible decision that's the

first thing second thing is you want an

approach to valuation and Industry

understanding that is what a degree of

judgment goes about how to process the

accounting information and how to figure

out the context in which the nature of

the industry and that economic model the

industry puts that accounting

information that leads to superior

valuations to the run-of-the-mill

performance of your competitors because

this industry is by its nature a

zero-sum industry beyond that want to be

good and systematic at looking at the

collateral information are the insiders

buying or selling have you made this

mistake before is this an area where

somebody with your particular makeup

should be competing and finally you want

to have an idea of either the demand at

risk the people you're going to hear

from for the next 16 sessions are all

the evidence of their performance

indicates outstanding at doing all those

things are you're implicitly or

explicitly I take no credit for that

despite the fact that some of them are

actually a product of earlier versions

of this

it is their ability to take that basic

model and build it into a way they don't

know nobody I think over the last how

many years have you been wearing the fun

eight nine years have over the last

eight to nine years has done that

significantly more successfully than our

speaker tonight who is Lilu graduated

from the business school went

immediately into the business of

bringing the hedge fund get it first for

julian robertson with extraordinary

success and a six moved on did you think

that for himself and his old professors

with even I have to admit more

extraordinary but beyond that I think

what you want to pay attention to is how

basically get support all the

developments together in his own

inimitable style and with that by the

way let me actually say one more thing

the speakers are going to hear from have

very different attitudes towards risk

and very different degrees of optimism

which our particular night out and

particularly the way in which they do

invest we lose background is having

survived as a leader of the gentleman

square protests and escape with his wife

in some sense eight he's very optimistic

and he after living with that kind of

risk I would keep that in mind as you

listen how he goes about dealing with

this environment in being a professional

investor and having to outperform all

the rest of the world

[Applause]

Hey well what Bruce said about me must

be true because my evidence is my wife

actually showed up to listen to me

tonight now I can guarantee that is not

happy in our home

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and also I really felt terrific coming

back to this class I mean this class in

many ways is really what to meet my

career about 15 years ago at the time

actually I wasn't even as students at

business school I was accidentally

brought into a lecture I think of

basically part of this class and the

speaker has a funny name that really

reminds me of some kind of bull fail

entries anyway in the middle of this

speech listening to Warren that light

bowl kind of just went off and I figured

that I can do something in this business

and of course at the time I was a pretty

desperate you know recently escaped from

China I didn't know it anybody have a

very little you know connection

whatsoever and didn't have any money in

fact I was deep in debt and it was a

horrible he worried about how do I ever

make a living in this country and I

really didn't go up with a capitalist

culture either so and so in the middle

of his speech I thought well what he

said about investing really just so

different from my perception of a stock

market and and the more I think I've

thought about it I'm more I thought oh

well gee this may be something that I

can do now I suppose that most of you

who chose this class I understand is

very difficult to get into this class at

least it was when I was a student

it's maybe kind of a self-selected group

of people who are already somehow by is

due to all the value investing how many

of you really consider yourself a value

investor or more predisposed into

manually investing how many of you sort

of know for sure you're going to be kind

of asset management business so roughly

the same number of people who really

want to be an asset management business

have sort of a already consider yourself

as a value investor so who can really

tell me what are the one or two things

that really sort of defines a value

investor from everybody else anybody

yes chase usually right there

so another way to think that you sort of

feel yourself is more of a owner of a

business in the sentence and therefore

your fortune rise up and down with the

nature of the business a how

things to add please yeah you're sort of

you demand a margin of a safety in the

sense anybody else right right right

well that's pretty summarizer that

they're basically three attitude streak

out of the teachings of a Ben Grimm that

a you think yourself has basically not a

paper shuffle or in the sense you you

really think yourself as as owner of the

business and be you sort of you know you

you would demand a huge margin of safety

when approaching investment and see that

somehow you sort of think everybody else

is different so this this is where the

mr. market analogy come in this is three

things actually kind of a they all you

know come in to really coming from one

perception which is you know is you you

think yourself is an order of business

rather than kind of a kind of owner of a

piece of a paper and and and and you own

a small piece and therefore you really

don't control the business and therefore

a sort of is almost self-defense to

demand a large margin of safety because

whatever value you perceive them you

know to be there because he can't

control it and then because you thought

you're really owning the business and

therefore you really don't care you know

if you're older business you don't treat

that all the time

and so therefore you think that you are

somewhat different from just about

everybody else in the market participant

but then the question is we really feel

your owner of business why do you want

to be the stock market the stock market

is not created for this type of a people

is that right the stock market is a

created is a freshly so that everybody

can go in and go out is that right

anybody have a view on that one who can

tell me that

acity you think is really kind of

managed by value investors anybody have

any guests with that kind of a

perception we just talked about there's

no real study but there are a number of

attempts of a study including one

actually by a professor next door in the

law school a low a low esteem yeah and

which really kind of put it a roughly

under 5% of all asset that actually is

consistent from what we just talked

about it now you are really nod to the

majority you are actually a very very

minority and the stock market is really

not created for you it's created a for

the ninety five percent of all the other

people and that's really where your

opportunity is and that's where your

challenge is so to understand that

before I go into a management in your

business is it really short nerely

important and that's really when I

that's what I first learned when like

when I came here and listen to above it

that's one thing that's stick in my mind

and that really sort of helped me to

position where I am because I really

know by then what kind of a person I am

I think most of your challenge

especially those of you who really want

end up in the managed management

business and I'm actually tonight

primarily address to that group of

people sorry for those people that are

not you were your biggest challenge is

really to understand whether you are

that 5% of the PERT people or you were

the 95% of the majority and you might

think that because of the training

because you do this you sort of you know

intellectually or theoretically bias or

to also that small minority group of

people you'll be amazed you know how

much it would have change you know my

career is sort of a take a little yeah

twist as well I always kind of arrived

my own fun you know part of the time

when Bruce automation was Julian was

really a sort of when he invited me to

really share all of it with him because

he sort of invited a whole bunch of a

fund managers that he invested him and

also share a story

ideas and that's when I sort of get a

much better understanding of how the

ninety-five percent of other people

really operated and you know it is

tempting because you know why 95 percent

of the people don't do you know what you

guys are here try to do

despite the spectacular success of

Warren Buffett Charlie Munger why is

that anybody have a reason why is that

why there's only yes yeah what

emotionally is a very difficult but if

you think of that you know it's very

convincing that value investor is over a

long period of time really have much

much better kind of returns

you know you think that's where the

money is you know even if is emotionally

difficult you think they wouldn't change

it any other reason right right right

right we actually are very close to the

point I think that the real answer is

that's really where the money is

why that's where the money is because

the market is really created for those

group those kind of a people we're

really thinking of trading in and out

all the time and therefore that they

will pay attention to the short term and

therefore that if you put up with that

requirement that's really where the

asset is going to find you and so as a

result that's a statistic de SPECT

it's a huge different disc rumba see of

a performance of that 5% have a

spectacular return consistently over a

long period of time 95% of the money or

something close to that probably would

always reside to somewhere else and it's

if that's where the money is you know

most people would naturally would end up

there

so my first kind of a point I want to

leave with you is really to understand

who you are because you won't be tested

through all this period of time do your

future career development that you're

going to really have to really face this

to

to ask yourself whether you're value

investor you're not mad even faster now

if for whatever reason that your

personality is a build to be a value

investor that probably means that you

somehow you know genetically mutated

through out of the the process of

evolution that a are very comfortable

being in a minority which is not really

very natural to human beings you know

throughout our human evolution process

the most of us survive it because we

stick with the group in phase of large

memos that's the only way we can we can

survive and so it is really over you

know tens of a thousands of years of

evolution it really need a deeply

ingrained into the your genes but

occasionally you will find a small

percentage of people really survive

despite the fact that they really have a

different kind of a gene is almost

through a mutation process that that

group of people survived so there's the

first thing you have to really be very

very comfortable you know being very

much by yourself and therefore you would

naturally adopt an attitude you're right

not because other people agree with you

but because your reason your evidence or

right it is common sense

but of course as people said common

sense is at least a common commodity

most people don't think that way and

secondly that you would have probably

spend most of your time truly be an

academic researcher instead of so-called

a professional investor most of the time

you're going to spend as a professional

investor as a value investor not a

professional investor is really to be an

academic to be a researcher to be a

journalist actually to basically be have

insatiable curiosity to really and try

to figure out how just about everything

works because investing really the more

you know and the better of you are as an

investor and so you you just have to be

naturally interested

and occurs just about everything any

kind of a business politics science

technology and humanity history poetry

literature everything really affected to

your business basically so you almost

have to wait it you you know I don't

want to scare you don't have to it will

help you it will help you and then

occasionally you want to find a few

insight that all of those studies that

really gave you tremendous opportunities

than other people just for whatever

reason couldn't deal with either

psychologically somebody said or were

because of the limitation for the

thinking or because of the institutional

imperative of the institution that

belonged to all sorts of a different

reasons and then you go through

find out is the business that

opportunity you're given is that cheap

is the business a good business is the

management to somebody that I can trust

either because they're good or because

the external checks are sufficient and

what else is missing and that why this

opportunity presented to me so you go

through all this checklist and you feel

comfortable and then you'll just have to

really go over that last a psychological

barrier to basically do it so let's just

go through a couple of examples

unfortunately what I'm doing today

you know I no longer talk about what we

own so I pick up a couple of examples of

what I owned in the past you know I

started this business in late 97 and you

know along the way being through a

couple really traumatic events you know

one is sort of the Asian financial

crisis and then the technology bubble a

couple of the different things but you

know those period of a time you tend to

have more interesting opportunities

let's start with the let's go back to 98

so it was a fall in 98 and I tell you

the search that I go through are very

simple because I'm interesting all sorts

a different business I usually just get

in menus you know I got hooked a tube

annuli while I was a student here you

know every issue as it comes out I just

you know love to read the whole thing

from beginning to end because that's

really the best kind of education if you

want to have an encyclopedia knowledge

base and database

which you have to so just go through

that to page after page after page is

just enormous ly helpful and the first

thing I always check is sort of the new

low list you know that the new kind of a

low is the bloke low is a PLO is

available that we attract me more than

the new high list now this actually I

don't have any more of my copies I get

rid of that so I asked them for reprint

and the number is not right I mean I was

looking more of somewhere around I think

is a September or something

August that when the stock was roughly

around 28 so this is a 46 it's not right

so this roughly call that 28 to 30 now

you look at this one you know what is

the first thing jumps to you somebody

give me a quick read yes right yeah yeah

anything else yes right right

anything else now if you're in investors

you don't really care where it was

traded to before actually oh hi Carol I

tell you what I look for is that first

look at evaluation and if the valuation

doesn't fit I don't even want to really

kind of a go beyond it so what do we

know about the valuation yes yep yeah

that's a good point and what is the

Constitution of the book value so

everything you know every time you'll

see is a below Book value you want to

say what what's in the book what's in

the book how much is the book what

now that's simple you can just you know

call it a 28 and then you've got a what

eleven and a half million shares roughly

three hundred something low three

hundred million just to approximate you

don't have to really do all the quick

was and he'll see where it is now the

the working capital is almost a three

hundred million in a sense and of course

it was the end of the q3 and in retail

what would you know about kind of an end

of a q3 in retail is that this is really

where you know you're you're kind of a

quick encyclopedia knowledge it really

helps you all retails have built up a

huge amount of immigrants

the last quarter so you look at back to

the previous years to say what is it

normal like because is it going to

really collect a lot of a cash at the

end of the year so you say okay so

there's a 300 million it's almost the

entire book value roughly 275 million is

in the is in the working capital

everything else cancel each other and so

you'll probably collect about a hundred

million cash at the end of the quarter

if you look at the other two years so

roughly you got a 200 million liquid ass

and applause 100 million no fixed asset

and if you do you know a little bit more

study you're gonna see there's entirety

buildings real estate basically so 300

and you're treating roughly 300 million

and so 200 million is is a liquid asset

and then about 100 million is is in real

estate so you've got a pretty decent

protection on the downside so what do we

know about the earnings the cash flows

and the ones you want to really pay most

attention is basically kind of the the

pre-tax and pre interest earning the

unleveraged and you want to compare that

it was unleveraged capital that is

needed in the business against your

sense of what kind of business you're

having how much of their making give me

a quick sense how much is that well if

you're skilled it shouldn't really take

you more than one second to find that

out you got 13 percent roughly of

operating margins of 800 what 800 850

million so you get roughly 100 million

hundred ten million and what is your

deployed capital how much capital is

deployed in the business roughly

you

you wouldn't have roughly about say 200

million in the in liquid asset and then

about a hundred million in buildings and

then the 200 million of liquid has a

probably a hundred millions cash so

you'd roughly have a 200 million

deployed a capital and roughly returns

about a hundred ten million dollars so

your return on your deployed of capital

roughly around fifty percent at that

point so that's not a bad business so

you shouldn't read it I mean you start

with say you give a five second look at

me you say hey the business I don't care

you know all the other things the

business was trading roughly you know

read around the book value book that it

was pretty claim is basically consists

of a tangible

the quit asset working capital plus you

know a hundred billion real estate and

and the deploy to capital is basically

2/3 of that and and for that 200 million

you'll return roughly 100 million or so

and so they shouldn't be bad business to

begin with so next thing you check sort

of a why this whole thing sort of fall

apart at that point

sort of a missing I mean whenever you

see something like that you say wow

that's not a bet you know if I owned the

whole business remember you're always

sort of a think as yourself as business

owner if I owned this business if I

can't buy the whole business at this

price you know you probably want to own

it and it's actually is not a bad name

right most people recognize Timberland

as a brand right so what is the reason

at a time was torn out is that that was

the height of the Asian financial crisis

that all their competitor is especially

Nike and Reebok

see their sales especially in Asia

falling out of a cliff and so the whole

contingency sort of all their perils

that all the retailer's of shoes and

international brand anything that has

exposure to Asia all fall apart but what

else is going on so you try you try to

check you know what other people are

thinking about this mm-hmm you know you

you you you may not really listen to the

advice but you want to really know what

other people are looking at so you check

to see whether there's any analyst

report it turn out there's no enemy's

report nobody covered this well for a

company is doing about a billion dollar

in sales is always a reasonable company

is a big brand so why nobody kind of a

cover about this any possible reasons

you can speculate yes

which is a good or bad for you fabulous

for you fabulous for you and you go back

to see 10-15 years the good thing about

Value Line is you go back to 10-15 years

and you see whether they ever really

need to that money what did you find in

the business over the last whatever

years it's been growing the

profitability has improved dramatically

over the recent years but has always

been pretty profitable and therefore

they're neither full financial market is

very limited any other reasons

what's the ownership structure yes yes

what do you mean my family owned they

own 40% of it how much voldie control

they have a hundred percent vote

basically ninety-eight percent right so

immediately that turn off a whole bunch

of people and then you see what you know

how the investor has been basically

reacting to them in the past you can do

a quick kind of a data search and this

is what really why you know I say that a

a investor should really

investigative a journalist because we

have a journalist here I'm sure if I ask

the journalist look at this question you

know there the first thing you were to

say would it go through all of this

question I just asked

and pretty easily you confine all the

answers and very quickly and so you've

got to have a very active Eric hearers

mind and you just can't would it really

satisfy was Eddie bogus answers

otherwise you can't really be in this

business so you go and you'll find

there's actually a whole bunch of a

different shareholder lawsuit now you

have owner owns a forty percent owns an

almost a hundred percent of the vote and

those of a shareholder doesn't have a

vote and you have no analysts cover them

and there are a whole bunch of

shareholder lawsuit so immediately that

if you don't know anything about the

business if he or the 95 percent of the

other investor what conclusion you would

have jaw what will be your conclusion if

you were kind of you know a normal

mutual fund or a hedge fund trading

oriented

investment manager what would you say to

this situation now that you'll find all

this information please yep right

anything else yes right right anything

else yes

yes anything else you guys are not

skeptical enough what would you really

worried about ooh that that management

might be milking money from the company

might be manipulating their books

because they control everything there is

virtually no there virtually no

constraints on what they do and the fact

they're a whole bunch of a lawsuit it

tells you they're complaining about

something right so what do you do next

what do you do next well yes that's one

thing anyway out what absolutely you

download every single piece of the

document of the court cases every single

case and read them from page

and that's why I was saying that if you

don't have a curious mind if you just if

you just want to do it because you want

to make money out of the chances are

you're not going to do this you have to

really figure that I just you know I'm

just so curious is what's happening this

this doesn't add up and you have to dig

every single thing as you read

everything as I did the first apart it

takes a less than you know a couple

minutes you look at that one you say

that's really wanted

there'll be all the questions you read

it leaves you to all of that so upon

possibly find all the cases I can find

you know all the cases really it would

be one thing actually there's basically

one complaint is just multiple filings

that you know somebody really say well

they used to provide to some guidance

and they didn't deliver and the investor

get pissed off and so the order also get

piss off you can you know vividly see

his defense you can get a sense of his

personality by reading those document he

said you know what I'm not gonna do this

anymore

I'm not gonna talk to the street I'm not

gonna give any guidance I don't need a

damn dollar from anybody else the

business is wonderful okay so that

remove a big cloud so the next thing

what do you do well if they really run

this run this way the next question is

okay maybe there are not crooks but are

they good managers how do we know that

other decent people how do we know about

that

how do we go about to find that what do

you do

sure anything else you can do

how do you know either personality yes

good idea

great what do you call what do you tell

the neighbors what do you just say go to

hell

you'll hung up but most people will tell

you what go to hell but it's nice try

anything else yeah that's right there

was no Google back then but that's a

good idea

now you want to the point is you got to

really go

no I says again again you know just

happen to have a journalist here but I

always view this job as investigative a

journalist

most people who have build businesses

also have a big personality

have a history you can go to audit never

leave the trail of evidence of what kind

of person they are and what they have

done how they deal with the different

situations it is not that difficult but

you have

most professional managers wouldn't

really consider that as a part of the

business but I'm telling you you're the

5% if you end up to be the 5% maybe

you're not but if you try to be that 5%

that's what you do you go to see their

community you go to the Church of

synagogues and you goes you know you go

visit everybody you sort of get yourself

to be part of that and you introduce

yourself to all their friends and

families and neighbors don't just call

them go there spend a few weeks there

it's worth it it's worth it just to

spend as much time you can possibly be

to try to find him find what he had done

to his a community what does neighbors

and friends tell about me to say about

him that tells you more about this

personality and you want to find the

family dynamics this fellow actually

only graduated high school never really

wouldn't have a college relatively

simple guy but a nice decent guy has

been very philanthropic go to synagogues

but not terribly devoted

but a more interesting thing has a son

who actually went to business school as

well it was actually my age at the time

was in the mid 30s early to mid 30s and

as the time already assumed to be a CEO

of the company so I did all the things

that suggest to all of you I did it

further and I find that what this Suns

all the board of the Father and the sons

on and I find a one of the board the

site of a song actually is a run by a

friend of mine so I invite myself to be

on the board

so I join on the board along with the

son and would become very close friend

and then I really know in that family is

turnout this is one of the most Anna

marring family I've ever met there are

people of the highest integrity they're

wonderful and they also happen to be

brilliant businessman so after all of

that and the stock actually still

trading right around 30s and so that's

sort of you kind of answered you sort of

an oh you know did I miss anything you

sort of a same probably not I didn't

miss anything

the other 95% just don't know or their

industry imperative does not allow them

to do anything about it so what do you

do at that point what do you do by how

much you want to buy let's suppose we

have $100 what

why how much is that 200 okay well I

like to talk to this class because you

guys are not polluted it yet now if you

go to join the fund the first thing

people were to tell you is oh gee don't

do anything more than 25 basis points

and then your goal is maybe 50 basis

point and you do one percent as 100

basis when they use a basis point so

every number sounds big you know boy

we're gonna do 50 basis point there's a

big deal that's what is it like that's

what is it like so keep your innocence

because right now what you're thinking

is the common sense think about how much

effort you put in together stem thing

right think about how good it is you

have virtually no downside you're

treating roughly about five times and

the next thing I did is I actually have

been to all the different store to see

why in the last few years the margin

improved substantially it's turned now

there was a fad going on in the in the

especially in the inner cities that all

the little kids want to have you know

the Timberland shoes and jeans and poor

the things that you know all the store

manager tell you they couldn't really

get enough stock and you look at how

much of their international business

which is actually in shoes in in Asia

less than 10 what they make out of that

less than 10 10 percent out of the 10

percent of the 27 percent so you

calculate all day you say that all of

them are gone you're losing money so

what it reduce your earnings by less

than five percent so I put a shitload

anybody know what happens afterwards in

the next two years I mean you guys all

have the internet you can check right

away really you should do that yes sure

that why do you want to listen to all

the you just do whatever you want

to do as I said you know you're right

not because other people tell you to

agree with you we're right because you

need to do that you need to check on

that all of those things should come to

you in no less than five minutes

otherwise you're just not a good analyst

if you're not going to handle you never

be a good investor seriously so you have

to at least technically train yourself

to be very very proficient with all of

that well the next two years this damn

thing went up seven times and the truth

of the matter is doing all those time it

was a propellant of our earnings and so

you do all this time you still did not

have any risk it's not like you're

hiding you know writing some technology

company after they doubled tripled you

expose yourself to a huge amount of

attacks it was an ever more than 15

times earnings never but if you treat

them from five times to you know to 15

times and the earning who's been growing

in that period of time 30% a year I mean

they're that up that add up and the

other

Gover as a CEO and he had the entirely

different ideas about how to run a

company

it was very articulate it's one of the

most articulate person ever met

Stu is so he doesn't mind to talk to

general analyst he initiates not earning

guidance but analyst meetings and the

first immediate guys who you know how

many people showed up it was him me and

another analyst three people three

people and the last analyst when I sort

of a woods kind of you know somewhere in

mm you know mm the room is just

absolutely filled with nearly 50 60

people

a major street burger house kind of

initiate some kind of a cover issue so

that's no I know when I have to sell so

everything anyway let's go back and say

hey you know time kind of flipping this

is sort of a year and a half ago yeah

because that's really when the lawsuit

occurred they did have a period of a

time well they do have a misstep at that

point because their product wasn't right

they bake they build their business

really on the reputation of this kind of

water proof that they're the first guy I

would really come up with his counsel

water proof and so they did you know

sort of mix the Sun and mix it signals

of both water proved to shoes and non

waterproof tissues and any marketing

that was a mistake

that was a mistake and he confused the

market and it confused the integrity of

their claim and they suffered but even

with that year the revenue pretty much

has still gone up I mean they have a one

year of a blemish most of the time they

have executed their business quite

brilliantly yes it does

that's why do you really buy anything

afterwards you don't have to you already

bought everything of 28 you know did you

know when they go up you don't you just

have to sit your ass on it don't have to

do a damn thing

that's good thing about really buying a

good business the business take care of

yourself I mean has a chase set your

writing up and down with the bow is with

the strength of the business and it yes

actually normally than a couple weeks I

mean all of those surprisingly it

doesn't take all that long but but when

the things happens you just have to

really give up day and night into it day

and night into it that's why I'm glad my

wife is actually here so let me know all

this missing pie what I was doing you

know the opportunity like that don't

come very often so Winnie when it comes

you have to seize it you have to do

everything complete but you have to do

it fast and that's why you have to train

yourself all those time and you don't

have to do a damn thing plug things into

a bank that's okay you don't have to buy

anything but when opportunity comes you

have to jump on it and that's what I did

when you finish all of the things it

doesn't take all that long but you take

intensive work for a short period of

time

yes well I'd like to read that one

mostly because is in itself is a good

activity I don't have to find anything I

learned then I'm curious about all

businesses and that's why when the

opportunity to come within a few second

you can tell you can smell it how can

you really develop their smell the only

way to do that is just reading page

after page and value line is

particularly good because it really puts

you know all sorts of a different datas

and all sorts of years you're not just

one year and so that's the you know

easiest way for you to really learn a

whole bunch of different businesses yes

I would really keep that confidential

but I shitload of okay let's go back to

a year and a half ago okay so this is a

fall and you know this thing come from

this book I mean this you know you know

this is you know this is like a stop you

know standard pour well you know every

every you know every broker has a book

in every country give you you know one

page summary of every company you know

it's just you know SMP has a book for US

companies and which I use but I prefer

to use value line as I said because of a

US company just give you more

information and for other countries they

don't have value lies you go with this

okay so I just flipping on that one at

that point you know there's a one page

you know jumps on so that's the page so

what people can tell you about that page

yes right what do you mean by cheap well

if you really think about you your owner

don't think about per shares okay so if

you just treat yourself from now on

they'll think about per share numbers

think yourself as an owner so give me

what is the market cap

come on it's simple come on and I

thought you guys all did a homework did

you anybody did homework not a one hand

raise your hand if you did it homework

one hand how the hell you're gonna make

in this business one head you did a job

good tell me what is your what is a

market cap okay no anybody else it's

very simple what is the ratio between

cream 1 $1 what yes just divide by a

thousand

so do that right now what is the market

cap what 87 million roughly about $12

roughly about what five and a half

million shares how much is that don't

use that one don't use it you know use

your could've do you know get used to if

you want to read a lot of company you

know there's a lot of a company this one

okay each page it should take no more

than five minutes and the only way to do

that is don't use those calculator just

get yourself into more of a mental

little things you can really look at

those things it immediately within five

minutes you get a pretty good summary of

the basic financial data so don't use

all of that tell me the numbers twelve

five and a half million

okay so sixty-seven million dollars if I

take five ten million doesn't kill you

what is their earnings last year

give me the kind of pre-tax number

come on you guys you're the Columbia

Business School

class you're the elite you expect to

make $150,000 as a base what do we

people pay you for what well how much is

that

give me the protector knew how much is

that pre-tax earning just to read a few

lines before it's College what is a net

income

12 as the six months double that and the

year before is what 24 mln pre-tax 31

million you're treating had a sixty

million dollars of market cap roughly

about two times

what's your working capital what's your

book value what is a book value come on

come on you guys have work to do this is

not good

Bruce I don't know what you're teaching

them come on

divide by a thousand is 236 million it's

simple 230 million dollars in book sixty

million market cap 25 million that

earnings of 31 million pre-tax earnings

how much is what is the constitution of

the book value

how do you really go about to do this we

have to probably go to the basics okay

who can tell me how do you really do

those things quickly just as an analyst

what do you say about it when people ask

me with you

how do you really within five minutes

tell me the basic sort of structure

financial in this company how do you go

about chase n

how about yours are roughly perfect

simple what are you using businesses use

some fixed asset as I'm working capital

that's it and the goodwill Z can really

not account on that but that's it that's

what you need to operate a business

that's what you mean by owner if your

owner you look at something like that

you should be able to tell right away

and if you can't do this well that's

bruises / fault I shouldn't really

afford to go I mean that's a pain take

you who you would learn right oh okay so

now here is the basic thing you've come

out of this one okay so this one is not

a gave you a whole bunch of a different

information right it tells you roughly

is traded a sixty million dollars in

market cap it has it roughly about

thirty million dollars in pre-tax

earnings and it has about 70 million

roughly 180 million dollars in fixed

asset come up with 100 to 140 or so

million in Book value so what does it

tell you what do you do next

you look at that one took you five

minutes you got this what do you do next

well how do we know it's cheap we think

it might be cheap but you're not

conclude it's not conclusive yet you

have to you have to go you know next to

find out and what exactly what is their

earning what is the book what is the

Constitution the working capital what is

you that in the fixed

right now I'm just basically using

common sense a common logic I mean this

is something you have to really think

you don't have to go through any you

know this is sort of a you're still kind

of a you know savable if you will if you

that's why all my employee ever had

really never went to business school and

never worked to free

kind of established many management firm

and some of them never had accounting

because I find it easier to tween them

that somebody who did clear it hasn't

really demonstrated here I mean if

you're sort of a goes through if they're

teaching the right way you should be

able to tell right there right away what

it is okay so we did some work and it

really takes enough know time of the 70

million in current asset you know how

much is it's all cash

Security's treatable securities of 180

million over the hundred eighty million

so-called a fixed income

well they recorded they owned a hundred

percent of a hotel they recorded a

thirty million is a book

they also own thirteen percent of a

department store we should record on the

book of thirty million it just so

happened that department store is next

page so is easy for me to find I turn a

pager on a violin depart the store I

discover it it is roughly had a market

cap of a six hundred million so thirteen

percent roughly gave me what what

roughly eighty million so the book can

really enter estimated the value by

another fifty million and they also all

three cable companies MIT 10 percent ish

and they also a whole bunch of real

estate and next I look at it that

department store they look at boy it has

exactly the same profile they're

treating roughly around the cash and

security they own about two three times

of their earnings and the Oh whole bunch

of a different asset turn out they're

the second largest cable operator as

well and the next thing I learned is

this department store really function is

more like a hotel it's not a department

store that we understand here they don't

take any inventory it basically provide

is more like a shopping mall and they

charge you to buy taking a percentage

off the top line of all the merchants

sell their stuff there okay so you edit

it all up here is what you have okay

you're paying sixty million dollars you

have a seventy million dollars in cash

this is no debt seventy million dollar

in cash you have another 100 million

your stock

as how much was that 170 million you

have a 30 million dollar is a hotel the

value hasn't been changed over the last

ten years and real estate in Korea has

it gone up dramatically over that same

period of time I went to career and look

at the hotel I look at all their

department stores and looks quite decent

to me

I check the recent transactions of all

the things in the neighborhood they all

indicate me and that value is more like

a two three four times of what is on the

book but supposedly I take it on the

book supposedly taken on the book let's

add another 150 million how much we have

right now roughly three hundred twenty

billion oh so which I paid a sixty

million and besides I'm earning of about

thirty million dollar a year what did I

miss

what did I miss

yes good question what about it

any evidence oh that could happen

right

terrific point absolutely a great point

anything else

great point anything else right anything

else what the liability because of

lawsuit you know what kind of a lawsuit

it could be lost to found a customer

that could happen to any company right

your reason that specifically for this

company or any company anything else

that's so far I haven't heard anything

about local market as if the only thing

I would really bother about those are

foreign investors what about the local

market

what about what other investors is

seeing and looking and thinking

good point look at it that's why I give

it to you I thought you're gonna do it

yes

what's that absolutely and how much is

it owned by the insiders well you don't

have a variance about 50% you've got a

whole bunch of different things against

you you also have a whole bunch of a

different thing than really in your

favor you have to go through all of it

each one and think rationally carefully

you have to add to that list of the

attitude of the local investors the

other people were buying because there's

nobody from foreign that really owned

this damn thing if you check that so you

go through all of that and we don't have

time to go through all of that

but you should and then you'll come up

with a solution I mean come up with your

decision as I have now I sort of own it

and what happens to the stock since well

again nobody's have any competitor

whenever you can check ok so I'll have

to charge that that a printout directly

from Bloomberg one is that the

department store it was treated around

to somewhere on 22

last I checked and went to about a

hundred and then and this one star was

12 last their check is there on 70 or

something each went up about five six

times

anyway well I give a couple of examples

just tell you that this type of approach

is not natural to an investor it's not

natural to you however if for whatever

reason you come to the conclusion that

you yourself your personality somehow

fit into this mutated gene pool that

this is something that you might really

and be looking to do the only thing that

I can add to that is that there's a lot

of money in it as has been completed

been repeatedly proved by people from

Ben Graham to buffin and everybody else

and I have been the probably just most a

grateful to this class to Bruce and

actually many years of before I came to

business school I took that class and

really changed me fundamentally but one

thing you do have to do is you got to do

it I mean that's why I was somewhat

disappointed if it would you know the

amount of work you put into places I

tell you I made hundreds of a thousands

of dollars just taking this class just

listening to the 14 15 people but it did

a lot of work I'm telling you you can

make a lot of money if you're really

into this not only just listen but do it

and we don't you guys you know how much

you spend you know coming to school here

how much you spent

what is the tuition as a board and all

of that stuff what is it now what

seventy altogether well you need at

least to make it that up I mean you

should at least of $70,000 back right II

you also have a two years you're not

making anything you gotta make that up

how do you make it up this is a terrific

way to do it and so that's sort of kind

of my last point I want to make is

the only reason I've come back and

really so I don't really talk about our

holdings anymore this is actually we

don't hold any of those two stocks

anymore the only way I do that is

because all that you know when I came

here

prior to business school and didn't do

in the business school you know most

people's do talk about names and I

benefit hugely hugely just by listen and

actually do it that's the difference and

it back then that was more than you know

10-15 years ago I made you know roughly

hundreds of thousands in one stock is

more than a hundred thousand back then I

think our cause was also a little bit

lower than the seventy I think I mean it

was I can't remember what was but but it

was a lower and but that's professor you

were into this class for this class is

different from any other classes because

there's no theory all

everybody's telling you is what works is

what works and if they don't tell you

that one well asked them they should

well yeah maybe they should but I did

okay

so this

sort of you you guys have a terrific

opportunity we'll be able to bid all the

poisons that got into Bruce's class and

if you don't really use this thing shame

on you

you've got to do it I mean those are

things really there is so much gold in

it that little pages the little books

those value lies all of them you've got

to use it you've got to do it I mean

you're young you have energy you know

what to lose there's nothing to lose yes

yes go ahead

well the most couple K so if your

analyst okay I always tell my Alice I

only need two things from you and if you

want to be analyst you need to be

analyst of course before you become a

good investor you want to provide

accurate and complete information

accurate and the complete most people

failed on both score big time and you

just have to go to that extra length you

order to get it done

if you can't succeed on that one you

can't succeed it succeed in this

business because most of the time you're

gonna stand alone basically against just

about everybody else and if you're not

really confident about what you know and

you're confident about your prediction

what other people know or don't know you

can't possibly be putting that kind of a

money when the things go into a free

fall when it looks like are you're

really losing all your money when

everybody else is laughing at you all

the smart guys so you must be able to

first to do accurate and complete and

the second thing in this business okay

most of money are not made on those

stocks I was just talking about your

biggest amount of money you're gonna

ever make is not from that those are

things really get your brain

and guess your basic business go and

give you the basic returns they do not

provide you outsized return even if both

stock went up five six times they do not

give you the outsized returns if you're

a value investor in the truest de sense

okay so there are two coos coos you mean

you can do with the Tweedy bronze you

can do the Ben Graham's or you can do

the buff and longer type which is more

of kind of what I'll interested in if

you want to be that one your return is

it going to come from a handful no more

than no more the number on the two hand

your entire life of maybe 50 years of

tremendous insight tremendous inside

you're gonna gain and no other people

have how do you really build that

insight there's no other way other than

basically continuous curiosity intense

curiosity continue as a study for your

whole life anything that works yeah

well I everytime I failed all those the

three scorers I made a mistake

time I didn't really get accurate

information I made a mistake completely

information being a mistake I do not I

thought I have it inside it was an easy

mistake every time I find all three

scores I've made a mistake and they're

plenty well on the big batch and I ever

made

yeah I don't recall we ever made a

mistake I show on the big bed now my

biggest a mistake actually is not making

a couple bed

because mistake I made is that during

the course of micro

that you know I had a spectacular

returners but I couldn't read any money

because every time I go out to talk to

people people basically said what the

hell you're talking about

I want a monthly I want a to weekly I

want a weekly returns I want you to go

up you know in a down market that's what

I wanted I want you to be a bank

accepted yield it better well and you

were hash fun aren't you anyway so but

that's you know I couldn't really what

in the end I sort of there was a couple

you know a couple years not

yes okay I'll do some of those

commissioner stuff I'm moving into

Julian Robinson's

learn from the best practice of other

hedge fund managers

somebody else kind of work on the

shorting all of that you know

essentially is sort of useless things it

turned out to be and are you sort of

busy in my cell with all sorts DaVinci

because if you're in shorting you just

have to treat there's no other choices

because you know you're upside 100

percent your downside is unlimited you

have to treat and so so you really and

your your your mentality changes and

what you can't no longer really you you

basically kind of put yourself into the

well what Charlie says about kind of if

you're doing things like that he was

just as if you you know bonder your

hands behind you in that ass-kicking

game like that it's true it really is

true and that was the period of time

that I probably have the biggest

opportunity of company that I have an

absolutely insight management that I

know that a treating below cash and it

subsequently went up fifty to hundred

times and I missed it I couldn't really

bring myself into it it doesn't really

fit into this monthly all this a

that was the biggest biggest mistake I

made is not how much money I lost it was

how much money I forgot I make I lose

money of course I do I do make mistakes

from time to time and usually you made a

mistake here when you haven't really

quite a finish all your work but you

like it you know enough so this is a

timber well you know at 28 awesome but I

haven't finished all the work and I said

on itself the probabilities with me and

but I added a lot long with the whole

process

well sometimes you know as you're sort

of finding more and more you prove your

face is wrong by then you lost twenty

thirty percent you sewed it okay so

you're wrong take the mistake run you

know move on but as is with you if you

buying stock at it with a sufficient

margin of safety the probability is with

you so if you do that long enough and

with you know relatively small amount of

bed of course you haven't know

everything then you're okay you're not

going likely to lose a lot of money but

if you can't really bet on the things

you know and you know you have inside no

other people have it and that's the

biggest mistake I cannot forgive myself

for making that mistake know if I still

might have a chance to do that yeah no

seriously you go through your life you

may not have no more than five ten

inside and you develop that one over

many many years with study some of the

things I'm doing really I find myself

doing that fifteen years ago

a study of the American company and now

fi the Asian counterpart and I find the

valuation that I like I find I can

really bet but I study that business for

fifteen years in between I know

everything about that industry and what

really make that business ticks you need

to have that kind of insight you order

to really

you can really swing with conviction and

if you cannot do that either

psychological or because you're

ill-prepared you just will never really

make any real mana money I mean you go

through either you do what Ben Graham

does with Tweetie Braun does it mean

you're gonna have your 10 15 percent a

year and you're likely to do much much

better than most of the professional

managers the 95 percent of other people

but you're not going to make the outside

return the Buffett have have been able

to achieve and you may not have that

opportunity throughout your life why

should be easy opportunity of that kind

that gives you a hundred thousand ten

thousand times their biggest ideas it

really give them ten thousand times

opportunity if done ones your life your

said why that could be why should I be

easy but definition they're not and you

require a whole bunch of a different

factors to come together you know what's

really Charlie would have called it what

is it term a lot of lot of pillows him

you've got all sorts of a different kind

of the things working on the conscious

level that subconscious level dislike

psychological political whatever you got

a whole bunch of a forces working

together you got a huge wave behind you

and you were the one who were the only

one who have the insight and is willing

to bet back to buy some complete

accurate information and a huge insight

and that's what you were sort of really

drives me in this business this exciting

is utterly exciting and you've got to

learn everything you know my interest is

just you know I started with the physics

mathematics and it got in true with

economic history law politics

I like everything I'll be interested in

everything and that's what you need it

you might need models or from biology my

wife has a PhD in biology and actually

I'd you know I learned a lot from her

over the years and actually some of them

helped my University except she didn't

know that's maybe why she's here to

check but anyway so you could have

learnt you have to learn from everything

you have to be intensely curious about

everything and occasionally you're gonna

stumble into one big opportunity new law

you still have plenty of things like you

know the timberlands the Hongdae you

know department store Asian is you're

gonna find those opportunities from time

to time give you a few times return

that's not bad yes not bad yes

depends you know there will be probably

there's ever she said meaningless

because the opportunities are different

you know there might be years you don't

really have a lot of opportunity and

then there might be years you have a lot

of opportunity it just sort of it all

depends on what really become available

to you but one thing I guarantee is they

don't really come in steady pace I don't

really have steady kind of once a month

once a week type of idea I never had

that throughout my career back into the

times you know when I started this thing

15 years ago when I was at Columbia at

the time I was undergraduate student

when I bought

um I think through all to that maybe

five six years of what I was in school

at college Law School in a business

school maybe I haven't maybe three four

big ideas then really pay off big and

you know how do you average that out and

then afterwards you know I get a little

bit better you know the things about

this progess you progressively get

better and better and better

to the point you look at page like that

it takes you in a couple minutes to tell

you right away whether something could

jumps out you can smell it when you see

something so you get better and better

and better so you might actually have

more opportunity or the market is just

not cooperating and you don't have a lot

of opportunity a good ideas

a year ago was by that's okay but I do

not want to a whole year goes by where

as I did not learn anything I do not

establish a good inside well at least I

thought it was a good inside or destroy

the inside I thought I had you want to

go through every day and learning

something it's a good mental discipline

to have and a year goes by you have to

learn a great deal well I wrote a book

and it gave a little bit of advancement

and somebody paid a small amount of

money and they bought the movie right

for that and but my negative in my war

net worth is a negative because you have

a whole bunch of borings but I have cash

and so that was pretty good

you know on balance you know my net

worth I mean is a cash is just couldn't

really offset it at that but I do have

cash so I was very very lucky in that

regard

well I wouldn't say there's only two

divisions all of the things you list

that's all searching ideas okay so when

I read a biologies and when I read

physics when I read history which is

really one of my favorite things it's

all searching ideas or I do business and

when I when I find an idea I want to

read it but if I find an idea that are

actionable say if I kind of one of those

things jumps out that's all I do

okay if I don't have I do the other one

and then the rest of the time is

basically with my kid and my wife we got

two little one little girl is one and a

half and three and a half and they're

really just you know I learn from them

too because to see how human cognition

really developed which is enormous ly

important when you try to really figure

out you see in my checklist is okay is

that cheap is that a good business who's

running it what did I miss you know I go

through all the checklists when I go to

the hooter what did I miss that is

hugely important understand psychology

to understand human cognition and no

other places is better than really

observing how humans develop those

cognition from early on and that's why

actually you know playing with my two

little girl is really helped me

tremendously as investor so I guess it's

all work

anything and in addition to all of that

I would also add one more thing okay so

you know I said there's a three things

distinguish value investor okay so

you've got business owner mentality you

have a different to time horizon

you demand a huge margin of safety but

he's all come from one thing which is

sort of a your business owner and you're

cautious business owner you can't

control the outcome of the management

therefore you demand a compensation it's

almost self defense of a margin of

safety and then because your business

owner you tend to be long term but they

all the same now people would ask me

okay if you're a business owner okay why

the hell you double with the stock

market stock market is now it's min is

not min for the business owners it means

for the people who can treat that was an

attraction of a stock market that's one

ninety five percent it would never buy

into this idea because if everybody's

supposed to everybody this would never

happened because of human nature but

supposedly a hundred percent of the

people all are you know value investors

would therapy a stock market no hell no

who would it by IPO we thought I appeal

where is the stock market come from

whether we're the secondary market come

from and Eve everybody demand a huge

margin why anybody would have sell to

you so that's why I started the lecture

by basically saying that you are

basically you you know you're not belong

to the stock market and there's but you

have to always always understand that

perspective and therefore to position

yourself properly and don't get carried

away but if you're really really truly a

business owner then you will be

attracted naturally sooner or later into

owning businesses and that's why Buffett

really left it monger left it each of

them runs a partnership for thirteen

years and they buy businesses run a real

company

or if you're really kind of you know

into that money if I do become sort of

private equity but that's more like a

real bit

in a sense but there was a evolution but

as long as humans

eval universe with that kind of

perspective to always find something to

do something profitable to do in the

market does not mean there's not

designed for them one is that the people

designed for a fundamentally flawed the

people that basically they're attracted

it because they want to treat and if you

want to treat you're bound to make a

mistake you're bound to really get your

emotions carried over there's a fear

greed or whatever the other emotion in

between you're bound to make mistake and

so when that happens there will always

always be room for guys like yous

you know supposedly you are that kind of

that 5% they will always be opportunity

for you okay

what's that that's a very interesting

question I evolved over that question I

used to have a philosophy if I don't

want to buy at that price myself that

was used to be my philosophy and I find

myself evolving a little bit from that

one because occasionally I find the

business a finite insight that I just

like the business so much I all of a

sudden find myself being a real owner

but basically saying somebody tried to

tempted to really get me to sell because

the price is very good you know the sort

of us it's not something I'm willing to

buy put it that way to that price but my

Hong tree this the probability is with

me that over the next ten years

and better and better and that's really

the law of a distribution of a good

businesses though leaders take a

disproportion amount of capital and in

certain industries that advantage the

huge advantage

and that's when I really began to think

okay so now you got to do a different

calculation okay you sell a you won't

may not be able to find another

opportunity to buy it back and be you

have to pay huge amount of tax because

at that point assuming you were right

you already accumulated a giant amount

of the tax which you have been borrowing

from government interest-free

essentially if you don't sell you're

basically borrow your leverage in your

position by a margin of a thirty percent

or something I mean in my case will be

fifty percent if you by the time you add

twelve percent and this you know stayed

all of the other stuff is like you know

you're forty fifty percent so you're

leveraging your position forty to fifty

percent interest free and it's not a

call upon and it's indefinite loan from

the government to you and so if you can

think and the business will be able to

deploy that capital and it returned that

roughly you know it's not even fifteen

percent is super business I usually find

is a fifty to 100 percent return on the

play the deployed capital and they were

able to deploy that boy that mathematics

get very very interesting very quickly

now the caveat for that one is you have

to be confident or reasonably confident

to be able to project that long and I

would say there's only a handful of

opportunities your entire lifetime

you'll be able to project that far off

if your investment banker all you do is

really project into infinity and that's

you know is a

everybody else know is a you

don't know you can't really project for

the next day

how do you know you can really go to you

know assumption of the next five years

and after another another five years and

infinity terminal Valley all the it

means nothing it means absolutely

nothing however I predict if you are

good if you're spending your entire

lifetime study you might be able to come

across over a course of a 50 years

career maybe five to ten opportunities

in which you can confidently project

with overwhelming odds next ten twenty

years at that point it'll sell

why do you want to self you've got a

government really lending your money 40

percent and compounded interest free and

it would have never really kind of asked

the money back and you can really

project in the business that deploy in

the capital in the order of 40 to 100

percent a year and also very tax

efficient and that's what you do that's

what you do because we don't have that

none of the businesses are really fit in

that category they're not that kind of

business I do have some business in my

portfolio they really kind of belong to

that category that I was just talking

about that's why I'm not talking about a

business of love that kind and you have

to really look for this you have to find

that at a vendor should they'd

established oh well whatever the reason

they established is getting stronger and

a stronger and stronger will be some

examples like that could be some an

example somebody studied us yes give me

example ok anybody else anybody else

give me some examples I mean that's

really where we're that's sort of you

know why the business school really kind

of a cause you of this much this is why

it may need you you you really get into

the frame of mind at least a habit of a

thinking about those things what really

make one business more successful than

the others what is their advantage why

they're making more and more and more

and more money as some is just doing

less and really go up and down why is it

have you discovered any business and by

the way the only way you can find that

is a by studying the ones we already

established yep is ethany Oh

what's that what really make for those

Moors at Marlborough more than the other

brands okay there's a good one

that's something but I really prefer but

and they also

that's a good one why's that

hey what's that

what yep

are you agreeing with all these so

they're basically reciting the portfolio

but yet other result has a grid I hope

you'll read to agree with that

the rosada have a great yes I do agree

with that but I want you to read a comma

something that Buffett haven't bought

something that you think of something

that it really is sort of he's already

in other words I don't want you just get

that one because you got a stand of

approval from somebody who's really

already firmly established as the

reading agency value investor

we gave me a name that he doesn't own

but also share those characteristic give

me a name

bursar portfolio okay that's a good one

why is that you're just oh you're

already kind of online

yeah what's that okay what tell me why

cellphone towers yep given all the

reason why the tower companies all

failing virtually all of them went

through bankruptcy no they came out

American tower closed there's a good one

one of my three company was American

topper but I was a student as a good one

any other one yes what Cory a rock

quarry in they

yep I find out why my yep mm-hmm good or

what any other one

hello bow to the ones everybody use go

ahead what's that why is that and what

about the competitors how many of them

are there you answer my question

anything else anything else what do you

use every day to do your research was

that a deal I okay what else you use

make sure you use computers and there's

millions of them say was a booty

materials what capital I feel

what good for and what Bloomberg was

introduced there was a bridge and

Reuters why they succeeded why Bloomberg

succeeded

sir you are interpret that they have to

looking for me so you can pretty much

track everything the only thing is that

they fail a little bit sometimes in

there we are

good answer anybody else could come up

with us well let's talk about Bloomberg

a little bit because this is something

you everybody use any other reasons you

can think of what okay okay

anything else what kind of research he

was a partner in Salomon Brothers the

bond trading department so they're their

analytics were far more detail okay okay

I switching cost-wise high switching

cost the people who use the machine of a

high opportunity cost of their time it

takes a long time to learn all the

functionality of Bloomberg for all the

offers I've heard this is the best

answer all of the things you talk about

is true but this is the really the most

important reason this is why that there

will be moment there will be in any

businesses well it reason this example

is because it's really you virtually all

business you are observe not all of them

really went through this dramatic

example but they all went through a

similar type of an examples of

transformation and sometimes something

has just happening in certain industry

that if you really went through

different industries you can almost tell

where that outcome is gonna come out

this is why you got a study this is a

fabulous case study of how you know a

company really come from nowhere going

into an industry that already half of

number of established long-established

players and somehow really began to make

it you know to little by little and a

certain point crossed a model stone

point after that that become a monopoly

where is the bridge where are the

reuters they're gone they're go

partially because partially because a

certain point exactly as you said at a

certain point anything that is a hard to

learn that is a highly highly

highly highly kind of a relied upon to

do your daily work what is your learn

that then thing you do not want to learn

that again and besides everybody else

using the same thing you have to be able

to communicate with your partners or

your colleagues anybody you collaborate

with

big business the winner takes all now

how do you really get to that point is

interesting question the suppose do you

have an opportunity to observe how this

industry evolved early on

supposedly you really observe an SC at a

certain point they have across that line

maybe it is the time when they're really

introduced them to every business school

so that you know when you graduate it

okay so you

well okay I have this one available

cheaply to me I'll learn this thing but

once I graduate going into the word I

don't want to learn that again and

everybody else are you who that whatever

is the time there will be a time that

that ayah has been crossed and

supposedly there is a public company

mostly you have a develop of that

insight that inside worth a shitload of

money

that's the kind of insight I was talking

about and that is a virtual monopoly

business and you find that again again

again all sorts of different business

this is not a little why Microsoft

succeeded real ensley over Apple when

Apple was one hundred percent of a

market share at the time when they came

in but little by little they crossed

that line so that when you'd be baited

between Apple or or Microsoft I say okay

I learned this thing because I have to

go to work and all the company that I

want to go they use

I don't have a choice do you even have a

choice today of not using Bloomberg what

is the cost of Bloomberg what is the

cost anybody know

nothing you can almost call that zero

they put some calls because they pay

themselves well what do they do do they

do research they don't do any research

what do they do they come to visit you

periodically almost every month and ask

you what do you use on daily basis

you're a traitor

you're 95% of the people uses you know

superstitious I mean if the certain

numbers works for you I look at that

number all the time active all of a

softwear for you only for you

how many functions Bloomberg has tens of

thousands does Bloomberg have a menu

hell no they don't want to give you a

menu they won't you get you individually

hooked on the two three or four or five

five six things and they can charge

who's that every day you're in the

business every treaty can redeem its

minions of again a law so you don't care

pay them a thirty thousand dollars a

year and you feel really charged with

ten percent every year more you don't

have a choice you don't have a choice

and they keep coming back to you because

they know you're a trader you're gonna

look for different things and so they

continuously to provide you the surface

and therefore you're hooked and a hooked

and a hook you're hopeless you're

absolutely hopeless beyond repair

meanwhile they would never give you a

menu but would never let you know the

cost is not a cost applies Waldo that's

why it's a fabulous business fabulous

business and then make each one of you

individually hook to one product which

cost them nothing and to the poor they

can really dictate and bully their

suppliers they pay them another all they

have is software's to get you hooked and

who gave them that information you don't

even do research they come to you what

do you need I give that to you think

about a switching from that think about

a competitor coming up with another

product that each individual you know

we're talking 100,000 profession

individually in a hundred thousand

different way how do you compete how do

you compete I don't know what do you

really why you set for I don't know

there's no menu now supposedly you know

that suppose it is a public company

supposedly you know the moment of the

inflection point do you want to invest I

would that's what I mean by either side

okay you'll study every business every

business I guarantee you

they all going through up and

I think in terms of the result as this

one but they all have more or less this

type of emit dynamics your job as a good

financial analyst as an investor as

value investor as a business owner is to

study that business all the time and

observe those trend and once you're

alive maybe

yours you'll be able to come up with

opportunity like that that is actually

available alike Bloomberg

now he's in that position of a selling

Alex he doesn't want to sell

why does that don't need his self

always I have a huge premium price they

will always be 30 times earnings but

he'll him lose a whole bunch of a lot

every time you want to sell it doesn't

need to sell that's when I really began

involved with my philosophy from if I

don't buy ourself into something that I

just said when you have things like that

you don't need to sell you don't need to

sell any other questions

oh sure any whatever questions yeah

after you making your investment right

honey mwah are you with the business and

management well it was all different you

know I've made a whole bunch of private

investment I serve other chairman of two

of them and on the board of several

including capital I kill you know I

don't when we build a capital idea we

intentionally copied the Bloomberg

business model and I'm really building

another model and then really copied the

same one for the engineers basically any

high professionals the needs of that

kind of things so you know you know all

the inside you learn can be applied for

different businesses in that case I'm

very active

none of the work a lot of the time and

the largest shareholder and a lot of

other was you know this how Native

artists are I couldn't even get a call I

couldn't even get a receptionist to

really take my call I went to their and

visit everything I so all the properties

but couldn't get anybody to talk to me a

by and large I like to know as much as I

can possibly know I want to be with

their friends

you know there's a Timberland situation

will become such a great friend the CEO

the son actually become a my investor so

that's the kind of relation I want to

have

turn Eddie but you always try it you're

always try

that everyday business decisions you can

learn you can observe you wouldn't know

the dynamic of that particular industry

at that particular moment and nothing is

constant that's the interesting about

business nothing is constant and that's

why I have to keep relearning things the

things you sort of you concluding all

the ones the analysis we just went

through with it with Bloomberg maybe a

couple years is different I don't know

what will cause the difference but it

could be and I have also there observed

you take an example of Microsoft the

dynamic is different it's no longer the

same now you got a free software it

posts a completely different scenario

every business

constant all sorts of different things

couldn't cause that change and that's

good thing that's a good thing that's

why people who is active mind and really

actively prepared and have the

psychological temperament to be able to

act when he really sees inside an

opportunity will always always have a

chance to be fabulously rich and that's

the note

[Applause]