TIP635: DEEP DIVING INTO THE WARREN BUFFETT WAY

W/ ROBERT HAGSTROM

01 June 2024

On today’s episode, Kyle Grieve chats with Robert Hagstrom about reflections from Warren Buffett’s early investing mistakes, why GEICO’s insurance float has been setup so perfectly for use by Warren Buffett, why low turnover portfolio’s outperform other options, why looking at stocks as abstractions is such a powerful mental model, how Warren Buffett has made thinking long-term into his own competitive advantage, a detailed history on modern portfolio theory, and why it’s so pervasive today, why investors should focus on certainties in their investing strategy, and a whole lot more!

Robert Hagstrom is the Chief Investment Officer at EquityCompass, and the Senior Portfolio Manager of the Global Leaders Portfolio. He currently serves as the Chairman of the SAM Investment Management Committee. He was formerly a portfolio manager for Legg Mason Capital Management. Robert has written 10 books. The Warren Buffett Way has sold a million copies and is published in 18 different languages.

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IN THIS EPISODE, YOU’LL LEARN:

  • Details on Warren’s mistakes on Berkshire Hathaway (textile mill) and subsequent mistakes with the Dexter Shoe acquisition.
  • Why low turnover portfolios tend to outperform.
  • The characteristics required to outperform the market.
  • Why you can outperform the market over the long term while underperforming the market 50% of the time.
  • The importance of thinking of stocks as abstractions.
  • How Warren Buffett has evolved his investing methods while staying true to his deeply held principles.
  • Benjamin Graham’s two most influential concepts Warren still abides by today.
  • Why we should spend our investing time thinking about business rather than macroeconomics.
  • The history of modern portfolio theory and why it’s so pervasive today.
  • The single most important characteristic that has produced so much of Warren Buffett’s success.
  • And so much more!

TRANSCRIPT

Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

[00:00:02] Kyle Grieve: Robert Hagstrom is one of the most knowledgeable people on Warren Buffett that I’ve had the pleasure of chatting with. While all of his books on Warren Buffett are must reads, it’s hard to top his most iconic book on the Oracle of Omaha, The Warren Buffett Way. Robert recently released the fourth edition of the book and he added many great insights into the latest edition.

[00:00:20] Kyle Grieve: I wanted to break down some of the book’s most valuable and essential concepts for listeners of the show. So we dove deep into Warren Buffett’s first error as an investor and how that has affected him today. We looked at how Warren repeated a mistake on the Dexter shoe acquisition and the consequences of that mistake.

[00:00:35] Kyle Grieve: Since Robert has so much knowledge of Berkshire stock, I wanted to find out why other insurance businesses don’t leverage their float like Berkshire has. We also touched on some of the outstanding research on outperformance, especially as it relates to portfolio turnover and concentration. Robert brought up one profound point about Warren Buffett.

[00:00:52] Kyle Grieve: Warren looks at stocks as abstractions. And Robert went into some excellent details about why this is such a decisive advantage that Warren has deployed over the years. Another aspect of investing that has always fascinated me is how investors can have so much success beating the market while also failing to beat the market 50 percent of the time.

[00:01:10] Kyle Grieve: Robert has done some outstanding research into this area using some of the greatest investors from history and we got into some details about why short term underperformance can be so powerful as long as we look many years into the future. Another theme of this conversation is how Warren has upended the status quo in the investment industry to his advantage.

[00:01:28] Kyle Grieve: The industry at large pays so much attention to things like interest rates, macroeconomics, geopolitical risks, treasury yields, and other factors that Warren’s aware of, but doesn’t spend too much time thinking about. Robert would say that Warren spends most of his time thinking about the businesses he owns, not the macroeconomic trends out there that may impact his businesses only on short time horizons.

[00:01:49] Kyle Grieve: if you enjoy learning from Warren Buffett and why he thinks so differently from the investing industry, you’re going to love this episode. Robert does a wonderful job of breaking down many of Buffett’s strengths and weaknesses and provides very useful advice that any investor, from novice to expert, can use to become a better investor today.

[00:02:06] Kyle Grieve: Now, let’s jump right into this week’s episode with Robert Hagstrom.

[00:02:13] Intro: Celebrating 10 years and more than 150 million downloads. You are listening to The Investor’s Podcast Network. Work since 2014, we studied the financial markets and read the books that influence self made billionaires. The most, we keep you informed and prepared for the unexpected. Now for your host, Kyle Grieve.

[00:02:39] Kyle Grieve: Welcome to the investors podcast. I’m your host, Kyle Grieve. And today we bring on Robert Hagstrom to the show, Robert. Welcome to the podcast. 

[00:02:46] Robert Hagstrom: Kyle. Great to see you. Glad to be back. 

[00:02:49] Kyle Grieve: So I first got the chance to chat with Robert back in October of 2023, and we had such a good conversation where we just talked about a bunch of your books, some that did relate to Warren Buffett and some others that did it.

[00:02:59] Kyle Grieve: So I was excited when I got my hands on a copy of the fourth edition of the Warren Buffett way, which we will be going in depth on today. I want to kick off the conversation by discussing some of the lessons from Buffett’s first ever investment, which was city services preferred. So this investment taught him the importance of one of his greatest attributes, which is patience.

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