Buffett’s Hitting Coach MungerThe Acquirer's Multiple
During their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed Buffett’s Hitting Coach Munger. Here’s an excerpt from the episode:
Buffett’s Hitting Coach Munger
Tobias: I’ve said this to you guys before, but I think that Munger is one of the great hitting coaches. Buffett is Tiger Woods, and Munger is his hitting coach. I think it’s important because sometimes you get– anybody who’s played any sport, you go through four stages. When you start doing anything, you’re unconsciously incompetent. You’re bad and you don’t even know what you’re doing. And then, you do it for a little bit, and you become consciously incompetent. All of a sudden, you know how bad you are. And then, through a lot of effort, you can get yourself to this point where you’re consciously competent. By which I mean, if you concentrate really hard on what you’re doing, you get it right.
But anytime that your mind wavers, you blast the ball off into– when you’re playing golf, you hit it off the fairway, you hit into the water, you shank it, you top it, something like that. You hit it fat, you just throw a big divot there, and you can’t work out what’s going on. But you get to this point when you’re very, very good at something where you’re unconsciously competent. It’s like driving a car. The first time you get in a stick, you’re moving four things at once, four limbs that wants to get through stuff, and you just don’t know what you’re doing. And then, one day you’re driving along, you realize you’re moving all four things and driving around a corner and you’re like, “Holy cow, how did I do that?”
But this is the problem, when you get unconsciously competent, every now and again, something happens and you just forget how to do something and you can’t remember, because you can’t remember how you did it consciously because you’ve been doing it unconsciously for so long. And that’s when you need a hitting coach. And the hitting coach says, “You’ve started doing this bad habit,” or something like that. And that’s how you evolve, and that’s where hitting coaches are important. And that’s my topic.
Tobias: Just got it in under the wire.
Jake: The value– [crosstalk]
Bill: I like it, man. Strong.
Tobias: JT, you got more?
Jake: I got one more.
Tobias: Let’s do it.
Bill: Real quick. I think one thing that Munger would be good at is I could see Buffett in ‘99 or ‘98 or whatever saying like, “Yo, Coke’s run too far.” I understand I’m setting Munger up to be wrong here, but fundamentally, I think this is correct. I think Munger was probably really good at saying to him like, “Who cares? Just let it run and focus on the next deal. We’ve got this huge pile of cash here. And that’s what you should focus on. Why do you need to be–” I think Munger has a lot of very, very practical wisdom that is super, super-intelligent, and maybe help Buffett sort of get to let things go a little bit more than he otherwise would have or, just to your point, allowed the athlete to flourish. I could totally see that.
Tobias: Focus on the quality more.
Jake: I think that’s really good insight. Buffett, I think, if left to his own devices is a maniacal optimizer. And my data point for that is, you guys remember the bet that he had with Protégé Partners?
Jake: Here he has some zero-coupon bond, right and it’s for a million dollars, which rounds to zero for him. It’s nothing. And he decides that that bond had run up so much, like he has to go talk to tech to get out of that bond to move it into something else. He can’t stand the fact that–
Bill: This is bothering me.
Jake: –suboptimal, right?
Jake: I mean, that’s insanity.
Bill: Yeah. It is. It’s focused on a question that doesn’t really matter. And I think Munger is very, very good at focusing people on the stuff that actually matters.
Jake: He probably told him, it’s 2015 and you’re getting a 40% dividend yield on your cost of that Coke every year. Just sit tight, man.
Tobias: There’s also that idea– I think it’s a machine learning idea where you have the local minima, and this is something that optimizers get in trouble. This is something that optimizers do. They optimize for the local minima all the time, and they just lose sight of the bigger picture that you could be doing something that’s suboptimal on a larger scale. And that’s what it’s also helpful to have your hitting coach or your third party. Your third party, who just knows what they’re doing, and looks at and says, “Yeah, you’re wasting your time there. Just forget that thing and move on to the– Don’t sell the Coke. Just keep on clipping the dividends and reinvesting the dividends.” It’s too hard to get in and out of that thing. You’re not going to be able to do it, then you’re going to pay all the tax, and then it’s going to run up and it won’t come back down for 20 years, and you’re going to be wrong for 20 years. So, just don’t worry about it.
Bill: Yeah, just let it go.
Tobias: Because he wouldn’t have bought it back.
Jake: [crosstalk] -buying back his TransDigm. [laughs]
Jake: Bill’s buying back his TransDigm from this morning.
Bill: Oh, no, no, that I’m fine with. [crosstalk]
Tobias: Would he had an opportunity to buy back the Coke? If he had sold it, let’s say he sold it optimally, would he have had an opportunity to buy it back?
Bill: Well, certainly in 2008.
Tobias: It got cheap enough.
Bill: Yeah, I’m sure. I suspect, left to his own devices, he would have probably sold and probably annoys them, but they’re bigger problems in the world.
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