TIP764: The Art of Buffett w/ Tobias Carlisle
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this engaging conversation, host Stig Brodersen sits down with Tobias Carlisle, founder and managing director of Acquirers Funds, to explore his latest book "Soldier of Fortune: Warren Buffett, Sun Tzu, and the Ancient Art of Risk Taking." The episode delves deep into three of Warren Buffett's most misunderstood but masterful investment decisions, revealing how ancient strategic wisdom from The Art of War can illuminate modern investment principles. (02:03)
- Main Theme: The discussion centers on reframing Buffett as an industrialist rather than an investor, using Sun Tzu's strategic principles to decode his seemingly contradictory deals including General Re, BNSF railroad, and Japanese trading houses that defied conventional investment wisdom yet proved extraordinarily successful.
Speakers
Stig Brodersen
Host of The Investors Podcast and founder of TIP Mastermind Community. Stig has been studying financial markets since 2014 and has conducted over 180 million podcast downloads, focusing on analyzing the strategies of self-made billionaires and their most influential investment decisions.
Tobias Carlisle
Founder and managing director of Acquirers Funds and author of multiple investment books including "Deep Value" and "The Acquirer's Multiple." Carlisle runs the ZIG and DEEP ETFs and hosts The Acquirers Podcast. He's recognized as one of the most detail-oriented value investors, known for his quantitative approach to finding undervalued companies and his deep analysis of Warren Buffett's investment strategies.
Key Takeaways
Defense-First Strategy Creates Offensive Opportunities
Buffett's General Re acquisition in 1998 exemplifies Sun Tzu's principle that "you defend first" before attacking. (02:03) When Berkshire's stock was overvalued at 3x tangible book value and heavily concentrated in an expensive Coca-Cola position, Buffett used this apparent weakness as strength. By acquiring General Re's bond portfolio through a stock deal, he diluted his equity risk while gaining defensive ballast that protected Berkshire during the dot-com crash when Coke's price halved. This strategic defense later converted to offense as bonds rolled off into cash for reinvestment at attractive prices.
Understanding Long-Term Secular Trends Trumps Short-Term Metrics
The BNSF railroad acquisition appeared to violate Buffett's preference for capital-light businesses, but Carlisle reveals the deeper strategic thinking. (27:28) Buffett recognized the irreplaceable geographic footprint stretching to the Pacific, the shift from Atlantic-European trade to Pacific-Asian commerce, favorable tax changes allowing accelerated depreciation, and regulatory structures ensuring reasonable returns. Despite appearing to earn only 6% on assets in a zero-rate environment, the combination of these factors created a 10% regulated return with eventual dividends of 12-13% on invested capital.
Victory Without Conflict Through Patient Positioning
The Apple investment demonstrates Sun Tzu's concept of "victory without conflict" by waiting for opportunities to perfect themselves rather than forcing outcomes. (36:28) While activists like Einhorn and Icahn battled Apple's management over cash deployment, Buffett waited until the conflict resolved and Apple began systematic buybacks. He then invested $40 billion when the company had transformed from a technology business into a consumer products franchise with unshakeable customer loyalty, benefiting from both share buybacks and iPhone upgrade cycles for a 4x return.
Align with Natural Forces Rather Than Fighting Them
Buffett's Japanese trading house investments exemplify working with rather against structural advantages. (56:04) These centuries-old conglomerates offered single-digit earnings multiples, 6-8% dividend yields, and access to global commodity infrastructure impossible to replicate today. By financing the positions with 0% yen-denominated debt, Buffett eliminated currency risk while earning $700-800 million annually in positive carry. The philosophical alignment between Berkshire's long-term approach and Japanese corporate culture created additional business synergies beyond the financial arbitrage.
Internal Scorecard Enables Contrarian Excellence
True investment mastery requires developing what Buffett calls an "internal scorecard" - measuring success by private standards rather than external validation. (16:36) This principle allows investors to execute strategies that appear contradictory or misguided to outsiders while maintaining conviction in long-term outcomes. The General Re deal exemplifies this perfectly - criticized for derivatives exposure and Coke concentration, yet the strategic portfolio rebalancing and defensive positioning proved prescient when markets crashed.
Statistics & Facts
- Berkshire's Coca-Cola investment, originally 1/3 of assets at $1 billion, grew 14x over 10 years by 1998, becoming nearly $3 billion of a $5 billion enterprise value. (06:53)
- Burlington Northern's rail network is valued by independent analysts at $100-200 billion, while Buffett acquired it for $44 billion total and only spent about $19 billion net after using existing shares and stock consideration. (32:07)
- Over 100 years of stock market history from 1926, smaller stocks in the S&P 500 have outperformed the largest 100 stocks by 0.8% annually compounded - a substantial long-term advantage that reverses during boom periods like 1991-2000 and 2015-present. (83:25)
