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We Study Billionaires - The Investor’s Podcast Network
RWH027: High-Quality Investing w/ Christopher Begg
May 28, 2023
02:07:59
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Quick takeaways
- Identifying high-quality businesses and focusing on a few great ones are key to successful investing.
- Looking for undervalued stocks during times of uncertainty presents valuation opportunities.
- Evaluating businesses based on eight layers of competitive advantage helps identify great investment opportunities.
- Developing win-win relationships built on consistency and kindness is essential for long-term sustainability.
- Multidisciplinary learning and self-expression are crucial for achieving success and fulfillment in life and investing.
Deep dives
The pursuit of quality in investing
Christopher Begg, co-founder and CIO of East Coast Asset Management, discusses his approach to investing and selecting exceptional businesses. He follows an ultra-selective stock-picking strategy, focusing on buying great businesses at attractive prices when they're out of favor due to temporary challenges. Begg emphasizes the importance of patience and waiting for the right moment to make investment decisions. He also highlights the significance of continuous learning and knowledge accumulation in his investment process. Begg's focus on quality extends beyond investing, as he prioritizes quality in his personal life through pursuits such as writing, drawing, and surfing.
The enduring legacy of Ben Graham's class on security analysis
Begg teaches a class on security analysis at Columbia Business School, which has a rich history associated with investing legends like Warren Buffett and Ben Graham. Begg emphasizes the practical application of investing principles in the class, inviting successful investors, CEOs, and thinkers from various disciplines to provide students with a holistic perspective. The class serves as a research laboratory, offering different perspectives on value investing and helping students uncover their own temperament and preferred investment style. Begg's teaching embodies the philosophy of seeing investing under the aspect of eternity, understanding the whole picture, and cultivating a passion for continuous improvement.
The mindset of waiting for the right investment opportunities
Begg's investment approach is characterized by patiently waiting for opportunities when short-term clouds obscure the long-term potential of businesses. He identifies clouds as challenges or uncertainties surrounding a business or industry. Begg believes that these clouds present valuation opportunities. He assesses the probability of when, if, and to what extent these clouds will dissipate, allowing him to identify attractive investment opportunities. Begg cites examples of investing in industries like aerospace during the COVID-19 slump or companies like Meta when facing perceived threats. His focus on patiently waiting for the right moment aligns with the spear-fisherman analogy that Charlie Munger uses to describe investors.
Understanding the layers of competitive advantage
Begg highlights eight layers of competitive advantage when evaluating businesses. These include evolved mouse traps, structural competitive advantages (such as duopolies or oligopolies), monopolies, exclusive rights, becoming the Switzerland of a specific market, scale advantages, network effects, customer mindshare, and high switching costs. Begg considers a company's culture as the final layer of competitive advantage. He emphasizes the importance of reducing entropy and maintaining a dynamic approach to quality, aligning with philosophers like Robert Pirsig. Begg's focus on quality extends beyond investing, permeating his personal and professional life.
The Essence of Win-Win Relationships
The podcast episode explores the idea of win-win relationships and highlights the importance of ensuring that all parties involved benefit. This concept applies not only to business interactions but also to relationships with employees, suppliers, shareholders, the community, regulators, customers, and even competition. The episode emphasizes that anything that is not win-win is unsustainable in the long run. Developing win-win relationships requires constant communication, fairness, and looking beyond short-term gains to build sustainability and create value.
The Power of Consistency and Kindness
Consistency and kindness are essential qualities in fostering trust and building win-win relationships. Consistency ensures dependability and reliability, important factors in gaining trust from counterparties. Kindness, on the other hand, promotes goodwill and positive interactions. Both qualities contribute to creating an environment of trust and reciprocity, where counterparties are willing to go out of their way to help each other. These traits require genuine self-expression, free from ego and with a focus on collective benefit.
Multidisciplinary Learning and Unobstructed Self-Expression
The podcast episode emphasizes the importance of multidisciplinary learning in expanding one's perspective and enhancing decision-making abilities. By studying diverse subjects and incorporating different insights, individuals can cultivate a holistic understanding of the world and tap into thematic interconnectedness. This type of learning, combined with self-reflection and introspection, fosters unobstructed self-expression and the ability to paint one's own canvas. Aligning with one's own inner values and self-expression is essential in achieving true success and fulfillment in both life and investing.
Embracing the Concept of Infinite Games
The podcast episode explores the concept of infinite games versus finite games. While most people tend to focus on short-term goals and outcomes, there are outliers like Berkshire Hathaway and other successful companies that approach their endeavors with a more timeless perspective. In an infinite game mindset, there are no finish lines, and the emphasis is on continuous learning and delayed gratification. This approach allows for long-term thinking and opens up possibilities for growth and success.
Learning from Josh Waitzkin and Pursuing Excellence
The episode also delves into the friendship between the host and Josh Waitzkin, a renowned thinker and learner known for his relentless pursuit of growth and quality. The host shares how he has learned valuable lessons from observing Waitzkin's meticulous approach to deconstructing various skills, such as foiling and other endeavors. Waitzkin's emphasis on incremental improvement, world-class standards, and efficient time management has influenced the host's own pursuit of excellence in investing and life. The episode highlights the importance of structuring one's time, adopting helpful habits, and embodying qualities like integrity, gratitude, and love.
16.
The Piper Mentality With the PIPER Sounding for Persistence Incremental Progress
3min
In this episode, William Green chats with hedge fund manager Christopher Begg, who is the CEO, Chief Investment Officer, & co-founder of East Coast Asset Management. Chris is also a revered professor at Columbia Business School, where he teaches the Security Analysis class that was originally taught by Warren Buffett’s mentor, Ben Graham. Here, Chris shares powerful lessons on how to identify high-quality businesses & build a life that’s defined by a commitment to quality.
IN THIS EPISODE YOU’LL LEARN:
00:00 - Intro
03:54- How Chris Begg came to teach an investing class originally taught by Ben Graham.
10:29 - What Chris learned from his ten fireside chats with Berkshire Hathaway’s Todd Combs.
13:17 - What Buffett & Munger taught Chris about focusing on a few great businesses.
17:58 - How he finds undervalued stocks by asking, “Where are the clouds today?”
26:55 - Why he’s bullish on Meta & Google, despite an array of perceived threats.
36:09 - How he identifies great businesses by seeking 8 layers of competitive advantage.
47:13 - How to succeed through “persistent incremental progress eternally repeated.”
1:00:01 - Why investors can’t afford to ignore a company’s impact on the environment.
1:06:40 - Why consistent kindness is a potent ingredient of success, helping to build trust.
1:15:22 - How Chris gains an edge by continuously compounding his interdisciplinary knowledge.
1:32:17 - What he’s learned about the pursuit of excellence from surfing with Josh Waitzkin.
1:40:48 - Why Chris structures his workday to include meditation & contemplation.
1:50:46 - What studying Andrew Carnegie—once the world’s richest person—has taught him.
1:53:40 - Why Chris believes that the world is headed in a better direction.
Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.
BOOKS AND RESOURCES
- Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members.
- Chris Begg’s investment firm, East Coast Asset Management.
- One from Many by Dee Hock.
- Nick Sleep’s list of long-term vs short-term characteristics.
- Robert Pirsig’s Zen & the Art of Motorcyle Maintenance, Lila, & On Quality.
- Finite & Infinite Games by James Carse.
- William Green’s book, “Richer, Wiser, Happier” – read the reviews of this book.
- William Green’s Twitter.
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