Compounding_of_a_Career_-_Ready_for_Upload
00:00:00.000 | Hey parents, join the LA Kings on Saturday, November 25th for an unforgettable kids day
00:00:04.960 | presented by Pear Deck. Family fun, giveaways and exciting Kings hockey awaits. Get your tickets now
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00:00:15.040 | Welcome to the Radical Personal Finance Podcast. My name is Josh Rascheitz. I'm your host.
00:00:19.440 | This is a special edition of the show. This show was pre-recorded so that it would be here for you
00:00:25.120 | while I am traveling during the last two weeks of September. I hope you enjoy it. If this is your
00:00:29.440 | first time listening to the show, please feel free to check out the archives from prior to September 15
00:00:34.720 | to see the more normal ebb and flow of the show or feel free to check back after October. But I do
00:00:40.480 | hope you enjoy this content today. Today I want to share with you briefly an article that I read
00:00:46.480 | and just have some food for thought about the value of the compounding nature of everything.
00:00:54.240 | And this is a subject that I want to explore in detail in future shows. Today I'm just going to
00:00:58.240 | share with you one example because it really made me think and I really enjoyed this article that
00:01:02.560 | I'm going to read to you. I want to give a hat tip to James Clear, who was the writer who first
00:01:08.240 | turned me on to this article. He wrote an article called "How to Read More," the simple system I'm
00:01:14.640 | using to read 30 plus books per year. If you're interested in reading his article, it's at
00:01:18.640 | jamesclear.com/read-more. But the introduction to his book, excuse me, to his article, had these
00:01:28.080 | three paragraphs in it. "Warren Buffett, the man commonly referred to as the greatest investor of
00:01:35.360 | the 20th century, was standing in front of 165 wide-eyed students from Columbia University.
00:01:40.800 | One of the students raised his hand and asked Buffett for his thoughts on the best way to
00:01:46.000 | prepare for an investing career. After thinking for a moment, Buffett pulled out a stack of papers
00:01:51.600 | and trade reports he had brought with him and said, 'Read 500 pages like this every day. That's
00:01:57.280 | how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee
00:02:04.880 | not many of you will do it.' Buffett estimates that 80 percent of his working hours are spent
00:02:11.040 | reading or thinking. It's enough to make you ask, 'Am I reading enough books?'" And James's
00:02:16.800 | article goes on from there. Well, I followed the link through, and I'm going to read to you the
00:02:21.360 | article that this came from, because this is a really interesting story, and it comes from the
00:02:26.640 | Omaha newspaper found at omaha.com, and the title of the article is called "Investors Earn Handsome
00:02:32.880 | Paychecks by Handling Buffett's Business." Before I read the article, though, I want to just simply
00:02:37.520 | emphasize to you the point that Buffett made, is that knowledge is like compound interest. It works
00:02:45.440 | like compound interest, except I believe it probably is far easier to get going for you than
00:02:50.080 | compound interest. I think a lot about compounding, because I notice that many things compound.
00:02:57.520 | If you plant—I'm getting ready to plant some new avocado trees on my property—and
00:03:05.760 | if you plant an avocado tree, that avocado tree will produce avocados for you for the rest of
00:03:10.720 | your life, or an apple tree, or whatever it is in your climate. I don't know where you live.
00:03:13.920 | But it compounds. Flowers compound on a rose bush. Knowledge compounds over time.
00:03:20.880 | But you've got to get it started working for you. So just consider, is there a way that you can get
00:03:28.480 | things compounding for you in every area of life? I'm not prepared enough today to go into more
00:03:35.440 | details on that subject, but I do want you to just consider it and think about it, because I really
00:03:40.800 | feel that's a helpful concept to apply to life and simply say, "What can I compound?" I'm going to
00:03:46.080 | read to you this news article. And I'm doing it because oftentimes if you're listening to a podcast,
00:03:51.200 | you're probably listening in a context where it's difficult for you to read. So instead of just
00:03:58.240 | saying, "Go read the article," I'm actually going to read it to you. But listen to the path of
00:04:02.560 | knowledge and consider the lessons that you can learn about good investment, good investment
00:04:07.280 | strategies, and actually what serious investors are like. They're kind of freaks of nature.
00:04:13.440 | And that said in a very admiring way. This article again is entitled, "Investors Earn
00:04:20.480 | Handsome Paychecks by Handling Buffett's Business," by Steve Jordan, World Herald staff writer.
00:04:25.600 | Warren Buffett's decision to hire two investment lieutenants is paying off for Berkshire Hathaway,
00:04:32.160 | and it's paying off for the two younger money managers too. Todd Combs, 42, and Ted Weschler,
00:04:38.240 | 51, are expected to receive bonuses exceeding $50 million each based on their investment results in
00:04:44.880 | 2012, evidence that they and Buffett made the right choices when they connected. Notice that
00:04:51.360 | they are receiving bonuses in excess of $50 million each. Now, how did they get there?
00:04:58.480 | Listen to how. Weschler and Combs had admired Buffett long before meeting him,
00:05:02.800 | and both actively sought connections that led to their hiring.
00:05:06.320 | Both actively sought connections that led to their hiring. Also, in an interview for the book,
00:05:14.320 | Buffett said hiring Combs and Weschler happened because of, quote, "a lot of good luck." Quote,
00:05:19.920 | "Like Woody Allen said, 95% of it is just showing up," he said. "That's what happened with Berkshire.
00:05:25.040 | That's what happened with the people. And once you get them, you've got them for decades to come.
00:05:29.680 | And people do want to join us." Buffett hired Combs in 2010 and Weschler in 2011 as part of
00:05:37.200 | Berkshire's succession plan, which calls for splitting his job into three parts, a non-executive
00:05:42.800 | chairman, a CEO to handle acquisitions and the care of executives who run Berkshire-owned businesses,
00:05:48.320 | and a small group to invest Berkshire's money. Today, Combs and Weschler each manage about $5
00:05:54.320 | billion out of Berkshire Hathaway's $88 billion in investments. Their pay package is no surprise.
00:06:00.640 | Both were high-income investment managers on their own before joining Berkshire. Buffett has said
00:06:07.040 | they would be paid salaries of about 0.1% of the money they manage, which would be $5 million a
00:06:12.640 | year based on a $5 billion portfolio. They also receive, quote, "performance pay" of 10% of the
00:06:20.480 | amount their investments grow beyond gains by the Standard & Poor's index of 500 publicly traded
00:06:25.920 | stocks averaged over several years. In his latest report to shareholders, Buffett said investments
00:06:31.920 | by Weschler and Combs in 2012 were more than 10 percentage points higher than the 16% returns by
00:06:38.240 | the S&P 500. "They left me in the dust as well," Buffett wrote. If each managed $5 billion and had
00:06:46.000 | 26% returns, their performance pay would be $50 million, with one-third paid in 2013, one-third
00:06:53.360 | in 2014, and one-third in 2015. Part of their pay also depends on the other's investing success.
00:07:00.720 | That kind of compensation wasn't on Combs' radar when he first saw Buffett in person.
00:07:06.480 | He was among 165 students in a Columbia University investing class.
00:07:11.840 | Combs didn't meet Buffett that day, but says, "I still remember it like it was yesterday."
00:07:16.320 | One of the students asked what he could do now to prepare for an investing career.
00:07:21.520 | Buffett thought for a few seconds and then reached for the stack of reports,
00:07:25.600 | trade publications, and other papers he had brought with him.
00:07:28.240 | "Read 500 pages like this every day," said Buffett, or words to that effect. "That's how
00:07:34.400 | knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee
00:07:41.040 | not many of you will do it." Remarkably, Combs began doing just that, keeping track of how many
00:07:47.200 | pages and what he read each day. Eventually, finding and reading productive material became
00:07:52.800 | second nature, a habit. As he began his investing career, he would read even more, hitting 600,
00:07:59.440 | 750, even 1,000 pages a day. Combs discovered that Buffett's formula worked, giving him more
00:08:07.520 | knowledge that helped him with what became his primary job, seeking the truth about potential
00:08:12.720 | investments. After graduating, Combs worked as a bank regulator and in the pricing department
00:08:18.000 | of Progressive Insurance, and five years later, he began running Castle Point Capital,
00:08:22.960 | a private investment fund in Greenwich, Connecticut, where he lived. His road to
00:08:27.120 | Omaha began when he met a money manager from Australia who was going to California to see
00:08:31.360 | Charlie Munger, vice chairman of Berkshire and a confidant of Buffett's. Combs remembers thinking,
00:08:37.440 | "I'd like to meet Charlie someday." Not long afterward, Combs was headed to California and
00:08:42.720 | called Munger's office, figuring it was pretty unlikely that he would get to see Munger.
00:08:47.120 | To his surprise, Munger offered to meet him at the California Club for breakfast.
00:08:51.440 | I'm going to interrupt for a moment. Notice that successful people, quote-unquote,
00:08:57.440 | are often much more available than you might think. "I was terrified," Combs said. He had
00:09:02.720 | attended two of Berkshire's annual shareholder meetings in Omaha and knew that Munger often gave
00:09:07.520 | blunt assessments of people and businesses. "But we really hit it off," Combs said.
00:09:14.560 | "He was the most warm, gentle man." The two talked for hours and Munger offered to get together
00:09:20.080 | again. Combs quickly arranged to return to California. Eventually, Munger told him,
00:09:25.520 | "I really think Warren would like to meet you." Combs, of course, needed no persuasion,
00:09:30.480 | and in the fall of 2010 he was invited to Buffett's office. He arrived at 10 a.m., met people and
00:09:36.720 | talked, went with Buffett for a two-hour lunch at Piccolo's Restaurant, and returned to the office.
00:09:41.440 | "We just talked and talked and talked," Combs said. "I'll never forget it. It doesn't take
00:09:46.880 | a rocket scientist to know you've met someone very special. It's really hard to describe."
00:09:52.000 | Eventually, Buffett began talking about his plan to hire a money manager. Combs—this is true,
00:09:58.240 | he insists—started thinking about another person he could recommend, but Buffett had another idea.
00:10:04.160 | He said, "Well, I think we're kind of thinking of you."
00:10:07.440 | "Flabbergasted would be an understatement," Combs said. As the stunned Combs listened,
00:10:13.440 | Buffett talked about compensation and suggested they both think about the offer.
00:10:17.200 | Combs returned home and talked with his wife, April, about the job and Omaha,
00:10:22.640 | then accepted Buffett's offer. By then, Ted Weschler had already met Warren Buffett,
00:10:27.840 | although the two had not talked about a job. With his own record of success in hand,
00:10:32.560 | Weschler pursued the idea of working for Buffett, in the process donating $5,252,722
00:10:37.600 | to one of Buffett's favorite charities. Richard J. Weschler—Ted is his nickname—didn't expect to be
00:10:47.040 | working for an Omaha company when he came to town several years ago to attend an annual meeting of
00:10:51.840 | Berkshire's shareholders. On that visit, he blended in with thousands of others who had come to hear
00:10:56.960 | Buffett. The Buffalo, New York native first heard about Buffett's investing style in 1979,
00:11:02.800 | when he was at the University of Pennsylvania's Wharton School of Business, the same college
00:11:07.200 | Buffett attended for two years before graduating from the University of Nebraska. A friend
00:11:12.800 | introduced Weschler to Buffett's writings. "From then on, I kept my eye open for anything that had
00:11:17.760 | to do with him. It was on my list that at some point I wanted to meet the guy. He had such an
00:11:23.120 | impact on my life from afar. He really is very generous in teaching others things that he learned
00:11:29.120 | through living his life." After college, Weschler worked for W.R. Grace Company, a Maryland chemical
00:11:36.000 | company. He handled investments in New York City for six years before he and a colleague set up a
00:11:40.720 | private equity firm, Quad C Management Inc., in Charlottesville, Virginia, in 1989. "The move out
00:11:47.120 | of the city was for a reason," he said. "That was one of the real takeaways for me in all of the
00:11:51.680 | reading that I did over the years about Warren, how important it was to stay away from the noise."
00:11:56.720 | In 2000, Weschler formed his own investment fund, Peninsula Capital Advisors, LLC, managed from
00:12:03.760 | Charlottesville with a researcher and an assistant. "It was really more of a library. We really kept
00:12:09.600 | outside noise out of the place. I certainly shaped Peninsula based on what Warren had done with
00:12:14.880 | Berkshire." For example, he didn't employ a stock trader, figuring that a trader would have an
00:12:20.240 | incentive to buy and sell stocks rather than help make longer-range decisions. The fund, with about
00:12:25.680 | 60 investors, turned out Buffett-like results. An investor who put $100 into the Peninsula fund when
00:12:32.480 | it opened on January 14, 2000, would have been left with a stock portfolio worth $1,134.66
00:12:40.400 | when it closed on December 9, 2011. During that same period, the Standard & Poor's index of 500
00:12:47.680 | stocks gained 6.72%, meaning Weschler's investors did 153 times better than the overall stock market.
00:12:56.000 | At some point, an annual online auction caught Weschler's eye. Since 1993, Buffett had been
00:13:02.720 | raising money for the Glide Foundation, an anti-poverty group in San Francisco,
00:13:07.200 | by having lunch with the highest bidders. Weschler already was giving money to charities,
00:13:12.560 | including the Charlottesville Free Clinic, the University of Virginia's Children's Hospital
00:13:16.960 | Building Fund, the Building Goodness Foundation, Children, Youth, and Family Services, and St. Ann's
00:13:22.720 | Bellfield School in Charlottesville. Three years ago, Weschler's business took him to San Francisco,
00:13:28.640 | and he made an appointment to see Glide first-hand. "I wanted to know more," he said.
00:13:33.520 | "They were terrific. They invited me in, and I ended up spending half a day at Glide. I met Glide
00:13:39.600 | pastor Cecil Williams. I was just blown away by how thoughtfully and how carefully Glide really
00:13:45.200 | helps the otherwise hopeless. That gave me the comfort that this was not only an opportunity to
00:13:50.080 | potentially visit with Warren, but also in many ways more significantly to help out a really
00:13:55.600 | worthwhile charity." Armed with confidence in Glide's work and a checkbook built up by his
00:14:00.880 | investment success, Weschler's bid of $2,626,311 won the 2010 auction. At his request, Glide and
00:14:10.720 | Buffett kept his name secret. "After I won, Warren called," Weschler said. "He was happy to come to
00:14:16.720 | Charlottesville or to meet at a widely known steakhouse in New York City that would donate
00:14:20.800 | a luncheon for eight. I suggested, 'No, actually, it would be better for me if it would work for me
00:14:26.080 | to come out to Omaha, see the office, and instead of lunch, make it dinner.' When we actually got
00:14:31.360 | together, the only condition was that we not do it in a public forum." Buffett readily agreed,
00:14:36.400 | and two or three weeks later, Weschler came to Omaha for dinner at Piccolo's.
00:14:40.560 | The two got along handily, Weschler said. It was very natural and conversational. He spent an hour
00:14:46.400 | or more at the office, with Buffett introducing him to staff members and showing him some of the
00:14:50.400 | memorabilia on the walls. "I was interested in his story," Weschler said. "We've got similar
00:15:02.800 | backgrounds, both like business as kids, had done all sorts of active investing in companies.
00:15:08.320 | I wanted to see his environment. People's environments are very telling to me, to come
00:15:13.040 | back to his workplace and see how he functions." In 2011, he won the auction again and came to
00:15:19.280 | Omaha a second time for dinner. After that, Buffett offered him the job, and Weschler accepted.
00:15:25.360 | Have you ever thought about buying a job for yourself? Interesting, huh? Soon after,
00:15:31.360 | Weschler was at a horse show where one of his two daughters was competing when a neighbor asked,
00:15:36.240 | "Are you the Ted Weschler who was just hired by Warren Buffett?" "That's me," Weschler answered.
00:15:41.760 | "Well," the neighbor said, "my mother-in-law is a good friend of Buffett's." Turns out she was
00:15:46.320 | talking about Dr. Carol Engel, a former Omahaan and widow of Dr. Bill Engel, one of Buffett's
00:15:52.480 | earliest investors and a pal who shared Buffett's love of model trains in the 1950s and who helped
00:15:58.240 | him recruit doctors as early investors. A remarkable coincidence, but it was no coincidence
00:16:04.480 | that Buffett and Weschler could work together. As a kid, Weschler was practically obsessed with
00:16:09.440 | sports, but before long he realized he could channel that obsession into numbers and money,
00:16:14.720 | both subjects that also appealed to Buffett. "With Warren, it's terrific," Weschler said.
00:16:19.760 | "It really is all about the people you work with. To be able to kick ideas around with
00:16:23.920 | somebody like Warren, that's pretty spectacular. I'm passionate about investing." If you're
00:16:29.520 | passionate about electrical engineering and that was what really motivated you and made you jump
00:16:34.800 | out of bed every morning and you had a chance to work alongside Thomas Edison, how could you say
00:16:40.160 | no to that? And that's the article. Hope you enjoyed that. I just saw so many lessons for success
00:16:48.800 | in that and such an interesting, interesting story. That's it for today, but consider today,
00:16:56.960 | how can you put compounding to work in your life?
00:17:01.440 | Hey parents, join the LA Kings on Saturday, November 25th for an unforgettable kids day
00:17:06.480 | presented by Pear Deck. Family fun, giveaways and exciting Kings hockey awaits. Get your
00:17:11.360 | tickets now at lakings.com/promotions and create lasting memories with your little ones.