Todd Combs Q&A Transcript // 2023 NFM Podcast

"When Warren [Buffett] and I talk about stocks ... it’s 95-99% qualitative, qualitative, qualitative."

On May 3, 2023, Berkshire Hathaway investment manager (and GEICO chief executive) Todd Combs joined NFM’s i am home podcast and spoke for over an hour about his investing career. Over the past few weeks, I transcribed (and lightly annotated) his remarks for posterity and future study.

A few notes:

• My main focus is accuracy and readability.

• I summarized some of the questions to save space. All of Todd’s answers are transcribed verbatim.

• I added footnotes with additional information at relevant points. Hopefully, these will prove useful to readers.

• The full transcript is available to all paid supporters. Free subscribers have access to the first 2,500-ish words. (That’s longer than the typical Kingswell article.)

  • I’ve tried to do my best to ensure that no one feels short-changed.

So, without further ado, here is the transcript of Todd Comb’s appearance on NFM’s i am home podcast…

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NFM: I wanted to start with your Berkshire Hathaway origin story. It seems like there were two main points on your journey to there. The first was when you were at Columbia and Warren came and spoke [to your class]. You didn’t meet him at the time, but he said to read… Is it 500 [pages] a day or 500 a week?

Todd Combs: A week. I definitely want to clarify that. (Laughs) 500 a day is a little over the top.

NFM: The second is when, years later, you did that cold call to Charlie Munger. Can you talk about both of those stories and how that happened?

TC: I’ll start with the first one. I didn’t really meet Warren because, as you said, he came and spoke to Professor… [There’s this] legendary value investing professor at Columbia, Professor Greenwald¹ — who’s this larger than life figure. He’s now since retired a couple of years, but it was the pre-eminent value investing course anywhere.

In the first half of the class, he would talk about value investing. It would be case studies — Bud vs. Coors. He didn’t do this, but it could be GEICO vs. Progressive, GM vs. Ford, etc.

Then, in the second half, he would have — over twelve or fifteen weeks — legendary speakers come in. It was everybody from Marty Whitman and Michael Price and Seth Klarman — and, then, he’d always finish with Warren. There were, I think, about 65 of us or so in the class in the value investing program.

That would have been the fall of 2001, because I graduated in ’02. So I think it was the fall of ’01 — right after 9/11, if I remember correctly. [Warren] came and spoke and you’d fire away with questions just like he does at the annual meeting. The very last question, I remember that, was that somebody said, “How do you spend your time?” He had brought in this rumpled, accordion folder — it was a complete mess, it had papers everywhere spewing out of it — and he said, “Well, I read newspapers and this and that.”

[The questioner] had a follow-up of, “No, how do you actually really spend your time? You can’t read twelve hours [a day]?” And he turned around and picked this accordion folder up and he said, “I just read. I read and the compounding of that knowledge accrues over time because it never goes away. There’s no decay rate.” He said, “What is this, about 500 pages or so? Each and every one of you can do it. It’s free. But most people don’t because they get distracted.” And he used his Socratic method, then, to go into why focus is so important.

And, from that day forward, it really had a huge impact on me. It was a real epiphany for me. I almost took it like a challenge. He definitely didn’t mean it as a challenge, but I took it that way. Like, “You know, I’m going to start doing this” — so I started from then. At first, I was very meticulous about it, like counting the pages and everything. But, now, there’s only one or two things I’m [still] reading today that I had started back then because you evolve and so forth and so on. But it’s still about the same amount, give or take.

NFM: You actually took action.

TC: Yeah, and he meant it that way. You can either approach things actively or passively and I think a lot of people can take it passively. Probably a lot of people that were there that day — they certainly all remember Warren, I don’t know how many would actually remember that comment — [but] how many actually acted on it? I don’t know.

There was a lot of fame around this “10,000 hour rule” that Malcolm Gladwell made famous², but actually it happened to have been a Florida State professor, K. Anders Ericsson, that came up with that. But the real point wasn’t the 10,000 hours — people became kind of stuck on that. To me, the point was active vs. passive [learning].

Whether you’re learning to play golf or you’re trying to get better at running or cycling or investing or whatever you’re trying to do, if you do it actively vs. passively, you pull those things forward and you create a tighter feedback loop on your mistakes and your learning process and it becomes more iterative. That’s what I took away from it, at least.

NFM: So that changed your trajectory on how you thought about yourself and how you read and educated yourself.

TC: For sure, yeah.

NFM: Then, the cold call [to Charlie Munger]. Tell us about that story.

TC: I started my own fund³ in October of ’05. I had run it through the Global Financial Crisis and I was pretty fried. We had done quite well, but it took everything out of me. I was working 100+ hour weeks, sleeping at the office, etc. Part of my dream was always to run my own investment partnership — and the process and the journey of going through that and doing it yourself. Painting your own portrait, so to speak.

I had done that — and I had lived in dog years during that Global Financial Crisis. Everyone did, to be clear. It wasn’t just me. In those five years, there were amazing ups and downs throughout the whole thing. And we did quite well⁴ — but, as I said, it took everything out of me.

I had experience at that time, at Progressive, in running insurance and I’d followed Berkshire for a long, long time. I had this epiphany one day that, well, if I know insurance and having seen what Warren and Charlie did with float and so forth — that’s a much, much better way to do it. You know, permanent capital and not having to post monthly results. I loved my LPs, but not having to constantly live up to those expectations and standards and just kind of changing the dynamic quite a bit.

So that was my plan. I had some phenomenal partners that were also experts in financial services and insurance in Stone Point Capital⁵, so I kind of knew that I was going to go that route. And, then, the question was how?

I obviously had always wanted to meet Charlie — I held him in such high regard — and I was going to be on the West Coast. I — in no way, shape, or form — thought I would actually get to meet him. I didn’t have any in or anything like that. I just called and talked to his assistant for a little while. The funny thing, that I recall, is that she was really trying to vet me for what I wanted because, of course, everyone is always trying to sell you something. She didn’t believe me at first, [but] I got her to believe me.

So, a couple of days later, I was in a meeting out there — Experian, the credit bureau, was a big position of mine — and I got an email from her that said Charlie can meet⁶ tomorrow morning at The California Club at 7 a.m. My wife and I were staying at the Montage in Laguna at the time, so I went up and Charlie and I met for six hours.

NFM: Wow.

TC: It started at 7 a.m. [and] they cleared all the breakfast, they brought lunch, they cleared the lunch. (Laughs)

I really had no agenda or anything. We talked about life, we talked about family, we talked about the sciences. I remember we talked a lot about the universe. I had this book on me at the time that I read on the flight out there called Just Six Numbers and it was about how the universe can only exist in this way because gravity has to be… If you take it out sixty digits or whatever, it has to end in precisely the way that it does — or else the universe doesn’t [work]. We talked like for 45 minutes about that.

At the very end — maybe the last hour — we talked about investing. He’s like, “By the way, what do you do?” (Laughs)

I told him what I wanted to do. I had a little over half-billion dollar fund at the time, which could have been a lot larger but we didn’t take in fund-of-funds money, we didn’t have European fund-of-funds, etc.

He said, “Why?” I think that really struck him because most people, if you could be a billion or a billion-and-a-half dollar fund, you do that instead of having a half-billion. I didn’t mean for it to strike him that way, but that started a conversation around my insurance background and looking to do something with permanent capital.

NFM: Why hadn’t you done that?

TC: Why hadn’t I already done the insurance company thing? Well, a couple of reasons. (1) I was still building up my personal capital because I had worked at a fund⁷ for three years and, then, this fund for five. (2) I was building up my track record from running this fund. And, then, (3) In no particular order, I was trying to survive the Global Financial Crisis and do the best I could for my LPs. So I didn’t really have any time.

This was the spring of 2010. It was before the summer.

So we met for six hours or so and Charlie said, “Stay in touch.” I thought he was just being nice. But, about a week later, I was back in my office in Greenwich, Connecticut, and he called me out of the blue. Completely out of the blue. I picked up [the phone] — I thought maybe it was a prank — and Costco had reported earnings. Of course, Charlie’s a huge Costco fan and, so, we talked about [the earnings].

Even though I was running a financials fund, I was so into investing that I would look at companies outside of financials. So I just serendipitously had looked at their report, their quarterly earnings, that day. We talked about Costco⁸ for a little while and, then, he had a bunch of questions that he had for me that he hadn’t gotten to the first time — about investing and life and stuff like that.

He said, “The next time you’re out here, we should meet again.” One thing led to another and I met him again on the West Coast and we met at his house. And we would catch up over the phone, [too]. We probably did that a dozen times⁹ or so before, one day, he finally said, “You should meet Warren.”

NFM: Were they all marathon sessions like the six hours?

TC: They weren’t all six hours. We got ‘em tighter. We got them down to 2-3 hours or something like that.

NFM: That’s still a significant amount of time.

TC: For me, it would just fly because Charlie is just such a fountain of knowledge and a true renaissance man. He can literally talk about anything. In fact, that book Just Six Numbers [that] we started talking about, he said, “You know, they forgot this seventh thing…” Almost any book I mentioned, he had either read or read five books related to it or something like that.

I guess the important thing to note for your listeners is that — and it goes back to my original auspices for calling him — I didn’t even know why, there was no pretense as to why I was meeting him. So the twelfth time we were talking and he said, “You should talk to Warren,” I was really thinking… I had these top names in my fund, like Experian and Mastercard and Visa and so forth, that [had] a lot of analogies to names that Berkshire and Warren would own. So I was thinking all along — in fact, even up to the point that he said, “Go talk to Warren,” and when I flew out to see Warren — that they were really interested in one of these names.

Including when I first sat down with Warren. We started talking about Experian and I thought, Equifax had been on the market and he had done the Marmon deal¹⁰ and it was all part of that same thing — so I totally assumed that was the reason for all these conversations. I never felt like I was interviewing, I guess is what I’m saying. They were just conversations. We were just having intellectual discussions.