David Rosenthal: belief

Transcript context

…Yeah. Well, okay. Let's take this as the moment to dive a little bit deeper into why Buffett doesn't like tech stocks. Because it's so in our culture today that he sort of is not a tech investor. It's worth unpacking it a little bit. He did have this interesting observation, I think it was in the late 90s, that we're going to talk about the dot com bubble here. There aren't any internet companies that have ever hit a hundred million in a year in profits. I have no proof that it could possibly exist. Warren is investing, not speculating. A lot of people will take offense to me saying that a lot of technology investing, especially in the early stages, is speculating. But the fact is, very early on there's no revenue and there's certainly no profit, so you can't possibly do investing in the classic sense of valuing the business today at a discount to its future cash flows. Speculating in a risk managed way by putting your money in great people, going after markets with promising futures, the sort of secular tailwind argument. In fact, Buffett has a very particular way that he thinks about valuation, that is highly sensitive to how certain the future is. He's willing to pay up for very certain futures, which is why he values the brand so much. And if you think about this as like an expected value equation, where you have two components, the value of something, if it happens and then the probability that it will happen. Buffett is happy to pay for things with a modest value, but a high probability of it happening. But it's not his style at all to make bets on low probability, very high potential value plays, like would be an Amazon or something that you're sort of talking about, David, when you reference this incredibly, nimble, rapidly adapting world. Where the chess boards are constantly rearranging and you sort of need to make a bunch of high beta bets. Yup. Totally. I think the problem is that, now, we'll get to now, later in the episode. But the world has just evolved to the point where, like, that's the way the world works. There's so much change, and it's so constant that even Amazon, even Apple, even Microsoft need to be thinking that way. And if you don't think that way, you can be Coke but like Coke’s value has only 3.5xed in 25 years. Those are the businesses you're going to get. Our friend, Andrew Marks, who's a great VC at TQ Ventures. He's actually known Warren and studied him for basically his whole life. He told me that, I think the best way to put this about Warren that I've ever heard, is that Warren was the world's greatest status quo investor. As long as the future was mostly going to look like the present, Warren is a savant at that type of investing. The future for Coke is mostly going to look like the present for Coke. He knows how to value that. He knows that they're going to recover from New Coke. He knows that there's an opportunity internationally, he can invest in that, he can see that. Right. So you're saying that, of course, the business will change, and evolve, and grow but the chessboard...…

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