Warren Buffett | Charlie Munger | Howard Marks: William Green on simplicity of greatest

The outcome of inflation print, recession or no recession, is outside the control of an investor. How much credence can let us say Warren Buffett or John Templeton give to these external, uncontrollable macro data points?
You have raised such an important point there because if you look at the greatest investors, almost without exception the ones I have interviewed do not pay that much attention to macro questions because what they are saying is actually all this stuff is unknowable. Think of somebody like Howard Marks, one of the most powerful, most influential investors of our time. And Howard says, “look, I belong to the I do not know school, I do not know what is going to happen with inflation, I do not know what is going to happen with economic growth. I do not know what is going to happen with unemployment.” He says it is all too complicated, there are too many factors and that makes total sense if you think about it.

Just think about the midterm elections that we just went through here in the US. Nobody predicted what was going to happen. Everybody was saying well there is going to be a Republican wave and the Democrats are going to be crushed and in fact it has not turned out like that at all.

Think about Covid, nobody was predicting that we would all end up having to stay at home and the economy would be turned on its head because of some virus that appears to have come from bats infecting humans in China and then spread across the world. We do not even know if that is really what happened. The world is such a confusing and complex place and in a sense once you understand that, it is not that helpful actually to make predictions about macroeconomics.

One can actually focus on the micro, on what is knowable. And so the common denominator of investors like Buffett, Munger, Howard Marks is that let me value a business, let me value an asset and see what it is worth and then let me try to buy if that is less than its worth. This to me was a total revelation. Once I figured out that is what they are doing, it was incredibly liberating. One can say to one self that one does not need to play this game of pretending that we can predict the future which all of us know is impossible.

And this frees us up to focus on what is really important, which is find a value asset, try and figure out whether this is a good business, whether it is cheap, whether it is going to generate great cash flows in the future. So it is a difficult thing for a regular investor to figure out because there is no much noise, there is so much prediction around it. Suddenly you realise that it is nonsense and you have to tune it out. But it takes a degree of discernment and education to get to a point where you realise most of what people are talking about investing is nonsense, it is a waste of time. Forget about the macro, it is not that it is irrelevant, it is very important but the problem is it is not knowable, at least not to the greatest investors I have interviewed.

I figure if Buffett cannot see what is going to happen with the economy or inflation or growth rates, why on earth would I delude myself into thinking that I could figure it out.

George Soros famously said I do not like working, I do the absolute minimum that is necessary to reach a decision because there are people who amass an inordinate amount of information, much more than is necessary to reach a conclusion and then they become attached to these investment decisions. Is this a common trait that you have seen across the big investors as well? That be dispassionate and keep it fairly simple in investment decision making?
The investors I have interviewed have an extraordinary gift of simplification for looking at this very complicated world and focussing on what is most important. So one of the most famous investors I have interviewed, a hedge fund manager called Joel Greenblatt, who has this astonishing record of making 40% a year over 20 years at his hedge fund. This means that basically he turned $1 million into $836 million. It is an extraordinary feat.

And I went to interview Joel Greenblatt multiple times and one time I am sitting at his house in Hampton, overlooking the ocean and I asked Joel what is the secret? How did you do it? He said it is very simple. All it comes down to this, he said the whole game of investing is to value a business and buy it for much less than it is worth. That is it.

So this again is a very essential truth about what investing is really about. But it raises a really important question. You have to actually ask yourself a very honest question, which is do I know how to value a business? Am I equipped to play this game? So what Joel said is if you are picking stocks without actually knowing what you are doing, without knowing how to value businesses, it is like running through a dynamite factory with a lit match. He said you might survive but you are still an idiot.

And I took this very seriously because the truth is I love investing, I am passionate about the principles of investing. I am fascinated by the psychology of great investors but I do not really want to sit around analysing companies. I do not really want to sit there going through financial statements and the truth is I am not really capable of it, I can count to about seven and I have no accounting skills, I am a writer and so one of the greatest lessons that I have learned is that I just have to be self aware enough to say I am not really equipped to win this game. I should stick with games that I can play.

And so, one of the games that I can play is to outsource my investment decisions to people who are smarter than me and more rational and have more training. Another thing I can do is to say well let me just buy an index fund, a tracker fund that just invests in the stock market in a very diversified, very low cost way. That is a very good default option but I think most investors are not honest with themselves about whether they are actually equipped to win this game.

I guess this is exactly what has played out in the crypto world as well. We have seen the recent carnage and I am sure all of us at some point of time had that FOMO moment when we try to jump into these fads. How do you differentiate between ahead of the curve trade versus a fad?
About 22 years ago, when I first got obsessed with investing and went to interview Sir John Templeton in the Bahamas, he talked to me about what actually successful investors need to understand. He said, the first thing is you have to avoid fads. You have to avoid getting carried away by herd behaviour. And he actually helped to republish a classic book that has the most wonderful title, it is called Popular Delusions And The Madness Of Crowds. This is something that has been going on since the Tulip mania back in 17th century Holland.

We fall for these fads, we get carried away and we see it over and over again. It is one of the most important things for investors to avoid in order to survive and prosper. Just to say what is the herd doing and then just to be extremely careful especially when you feel the sense of yearning, the sense of jealousy, this fear of missing out. When you feel it rising, you start to say my gosh, I cannot believe all of these idiots are making so much money overnight on crypto currencies; why cannot I get a piece of that?

I just think that is such a dangerous emotion and so I try really to stamp it out in myself. I have wrestled over and over again with whether to invest in Bitcoin and I would interview all these great investors and one of the things that Joel Greenblatt said to me is, “I do not need to play that game.” He said I do not know if Bitcoin is going to go up or down, that is not just my game. I am going to stick to my knitting, which is to buy inexpensive, high quality businesses. And that to me was again very liberating to think you do not have to play this casino game in order to get rich as an investor.

I have discovered over the years that often the slower path turns out to be much faster in the end. All those people who are approaching investing as a casino, rolling the dice, buying cryptocurrencies like Solana and Ethereum and thinking yes, I can make 30% in a week, how are they feeling now and the people who were quietly buying cheap stocks, quietly buying things with a margin of safety, the undervalued, those people are all sitting pretty now. They are all fine and so I think you just have to discipline yourself, you have to have the ability to separate yourself from the emotions of the crowd and say this actually makes sense. Do trees grow to the sky? Have people just invented this permanent money making machine where some asset is just going to go up and up and up forever. In my experience, that has never been the case. Sanity always reasserts itself.

We have seen these wild swings, we have seen the market crash, we have also seen the big layoffs etc. Would you say we are in that moment where the likes of Cathie Wood etc are seeing everything on a fire sale or is it a market where Warren Buffett and Charlie Munger would say wait, let the uncertainty die down before I take a plunge?
One of the great insights from Benjamin Graham who was Buffett’s teacher and mentor, is that you want to make the market your servant and not your master and so people who make the market their master are being yanked around emotionally by whatever is happening today. They panic when the crowd is panicking and they get carried away when the crowd is excited.

What Ben Graham said and what Buffett said is no, it is the opposite. What you want to do is look at the market and say okay, I am going to make this my servant and so at the moment, if the market is very tempestuous and there is a lot of fear and there is a lot of uncertainty about the economy, about the war in Ukraine, about inflation all of these problems, the environmental change that actually for the best investors is probably good news because that uncertainty.

That volatility creates mispricing and the best investors are not saying I know which direction the market is going because as we said before, none of us can predict that. But what they are doing is saying well when the crowd is panicked or overexcited it creates inefficiencies, it creates mispricing. Charlie Munger said an investor should really be like a spear fisherman and he says the spear fisherman is standing by the side of the stream waiting for a big fat juicy salmon to swim by and he said once in a while, the big fat juicy salmon, a really undervalued asset swims by and you spear it. And then, you go back to waiting and it may be six months before another big fat juicy salmon swims by.

So this period actually is a tremendous opportunity if you are smart to look at the companies that you really loved, that were too expensive to buy before. But again it gets back to the original problem that we discussed which is you have to be qualified to buy that, to value those assets. If you are not, you should not play that game but you can at least say that I know that the stock market is cheaper than it was before, so why don’t I put some money in an index fund and I will just keep adding to it.

I think this is one of the smartest things that any investor can do during times of tumult and fear. Just keep adding to the pot. The dumbest investors, the least successful investors panicked at the worst time and sell when there is fear in the market. The smartest investors tend to keep holding, keep buying, keep adding to the pot.

The other big misnomer is trying to time the market both in terms of entry as well as exit. I know Buffett famously says our holding period is forever. but more practically speaking, what is the best way to manage the timing conundrum?
I think timing the market is totally futile because not only do you have to be able to figure out when to get in but when to get out and then when to get in again and in my experience, you are just better off staying in.

When I look back on my investing career, I think the biggest mistakes I made when I was overreaching, when I was in hurry. For example, I had a few opportunities to invest in private companies. I used to live in Hong Kong and I had this opportunity to invest in a private company that had amazing technology. I got super excited, I felt like I was special, I was part of the rich, important set that got access to this stuff and I lost most of the money that I invested in that private company.,It was just an absolute disaster. In fact, this happened two or three times and I think things that have worked out better for me on the whole is just when I was much more patient, when I put my money in a fund.

I have a friend, Guy Spier, who runs a fund called the Aquamarine Fund and I wondered for something like 20-22 years and I said to him this is a 40-year investment. I am not saying this is an advertisement for my friend Guy. I am just pushing myself to try to be long term to try to say that in a culture where all of us are more and more impatient. We are getting dinked by our phone messages and Twitter and Facebook constantly. The real super power is to be able to defer gratification and say no in the short-term culture. I am going to think long term.

Warren Buffett is not a great fan of wealth managers. He famously talked about it in one of his AGMs where he said that 1% to 1.5% commission that you pay to a wealth manager compounds to a big sum over time. How do you circumvent that then?
One reason why I own something like Berkshire Hathaway, which I am not mentioning as a recommendation, is because there is no management fee. Buffett and Munger have set it up so that they are being paid a salary of $100,000 a year to manage this enormous company. So they are not making money from you, they are making money with you. This is a really important thing is to ask yourself. What are the incentives of the person managing my money? Is there incentive just to make money at my expense in the short term? Are they gouging me with high expenses or is their interest aligned with mine?

One of the biggest clues to whether their interest are aligned with you is the fee structure. It is also whether they are honest about their mistakes because a lot of people in the investment world are busy spinning and marketing and telling you how brilliant they are. What is amazing if you go to Omaha for the Berkshire Hathaway annual meeting is that the very first thing Buffett and Munger always do is tell you about the things they got wrong.

I remember going there one year and Munger was saying we completely failed you by not buying Google and he said we also messed up by not buying Walmart. What he says is we need to rub our noses in our mistakes. That is a totally different attitude, no self promotion, no marketing, no gouging with high expenses. They are just trying to be honest and transparent and that is a very precious thing. When you find somebody who is really honest, who is looking out for your interest, that is such a precious thing.

How are the marquee investors looking at India at the moment?
My friend Guy Spier has been heavily invested in India for years and he goes with Mohnish Pabrai who is a very close friend of his and who I write about extensively in my book. He visits India and I get to hear the reports every time he comes back. Guy’s impression from his most recent trip a weeks back was that there is just tremendous long term opportunity in India. He is much more knowledgeable about this than I am. He says that it is a country with a young growing population, that it is going to be the largest English speaking economy in the world which gives tremendous advantages to long-term investors in the country.

He also points out that there is a tremendous disadvantage for foreign investors like us as it is much harder for us to tell which are really the great companies, which are maybe less clean, where there is a risk of fraud and where they are really looking out for your best interest and where they are not.

Guy said he feels like his friend Mohnish has a much greater advantage as somebody who knows the market. So, I think it makes sense for your investors in India really to be heavily focussed on Indian stocks. You have a great advantage over people like me or Guy. That said, I also think it is really important to diversify and there is a classic bias in investing the way behavioural economists have shown.

Investors tend to invest at home, they tend to feel like they should just invest in their home country and that is great but what happens if your home country was Russia or Ukraine or Cuba? You really want to diversify and so I just would encourage anyone who is a serious long-term investor to say yes I want to be part of the Indian economy, I want to benefit from this extraordinary growth from the extraordinary improvements in infrastructure from the fact that there has this tremendous advantage of being a democracy with a huge English speaking population which means it is such a key part of the global economy.

But at the same time let me also diversify because one thing we have seen in the last couple of days with cryptocurrencies melting down is you never want all of your money in one place as Templeton said to me many years ago. Why should you be arrogant enough to think that you can pick the one country, the one fund manager, the one asset class? He said, be a little more humble and diversify.

What he said to me is you should own probably five or six funds that expose you to different areas of the market and always keep an eye on diversification. When you look at an economy like India and think I cannot lose here as it is an amazing long-term bet because we just do not know, we do not know what the future holds. Imagine if you had all of your money in Chinese tech stocks and you were thinking gosh this can only go up because we know that China is an amazing growth economy and it has such advantages and tech is such a great place to be! But Chinese tech stocks have been a catastrophe in the last year. So just diversify.