Ben Gilbert: belief

Transcript context

…Yup. It makes sense. Investing involves risk as every disclaimer in history has told you and involves uncertainty, you don't know what's going to happen. Ideally, you want enough downside protection built in, that you'll do okay, no matter what. That makes sense, and you do want that. But Graham's way of looking at this, as we said, was I'm only going to buy things if we literally shut down the business and sold off everything on hand. We would get our money back or more. There are two problems with that, both on the downside and on the upside. On the downside, as we shall see, sometimes the liquidation value of the assets of a corporation aren't worth as much as you think they are. You can try to sell off the property plant and equipment, but if there are no buyers, or no buyers at the price that you want, well, just because it says it's worth something on the books doesn't mean it's actually worth that. That's one problem. The bigger problem, though, is that this is the ultimate small ball way of making money. Your upside is so fundamentally capped when this is how you're looking at the world. You could go to a hundred of these cigar butts or you could buy one GEICO and just hold it for 20 years, and make way more money. Yeah, it's fascinating. The way that I have been thinking about this, I think the closest analogue is basically to gross margin in an operating business, where if you're running a tech business with super high gross margin and high fixed costs, you got to spend on the fixed costs, but then you get that gross margin forever without having to change what business you're in. If you're in the business of selling lattes, then every single time you need to go and pull a new espresso. This is the stock equivalent of that analogy.…

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