What's on Your Mind: "Discipline Is Addictive"

[00:00:00] Hey, Justin. How are you? Hey, Ram. I'm doing well. I'm doing well. Happy Friday. Happy Friday. It feels like Thanksgiving was a month ago at this point now. It does. We are technically in December, so it was last month. We are. We're in December. New holiday season. I got the Christmas music going on. It's a lot happening here.

But Charlie Munger passed away. Two days ago. And, Byron Wing passed away a month ago, a legendary investment strategist. Sandra Day O'Connor passed away as well. So for all those legal minds out there, that was a sad loss. I think Sandra Day O'Connor was a jurist for sure. But you've spent a lot of time talking about Warren Buffett.

Obviously Munger is his business partner. So maybe share a little bit of your thoughts on Charlie and the lesson you learned from him. Sure. [00:01:00] First off, it definitely had a felt effect on me. You read someone's writing and you have an access to how they think. And he led his life with a wit and wisdom.

And I tried to learn as much as I can. In fact, over the last six months, I don't know how many posts I've actually done about. Warren Buffett and Charlie Munger. Even last weekend, Thanksgiving, I wrote about what are world class business models. And that was inspired by taking what Munger calls mental models and then applying that to the world and generating different ideas.

That approach and framework, I think is many lessons to learn from, we could do a whole show on it. One I'd call out is the importance of psychology and the importance of temperament over analysis. And [00:02:00] yeah, I think that's a great one. Temperament, but also resilience. Resilient.

Charlie Munger is a story of resilience. I didn't know the details of. But when he was pa when he passed, a lot of people, and a lot of stories came out that added a lot of nuance and depth to my understanding of his life. Obviously, he's most famous for Berkshire Hathaway, and he's 99 years old, so he's had a long life, so rewinding the tape to when he's in his 30s is far beyond the likelihood.

The span of Berkshire Hathaway or any of my intimate knowledge of his capabilities, but I was struck by the story of resilience that I learned and read about, which was that actually at age 29, after serving in the war, he ended up divorcing his first wife. That had been married to for eight years. A year [00:03:00] later, his eight year old son was diagnosed with leukemia, terrible disease at any time in history, the medical advances that we've made in the decades since then are tremendous, especially for childhood leukemia.

A year after that, His son passed. So at the age of 31, this person who 68 years later ends up dying as a revered investor and a billionaire dozens of times over was broke, really in a deep state of despair after having lost his son and lost it. Divorcing his wife and to think about the resilience that one must have to go from that place to where he ended up.

It's really, it's a, It's inspiring. Absolutely. The psychological resilience is a, it's a core part of investing. He always conducted himself with a sunny, optimistic [00:04:00] disposition about the United States as well. And he refactored his life multiple times, like you, Justin, he was also a former practicing lawyer.

Who then became an investor. I think there's another lesson there on the power of twos. Great organization. How about that? Look at say Apple, Steve Jobs and Steve Wozniak. That's one. Microsoft, you had Bill Gates and Paul Allen. Thank you. Paul Allen. Oracle, you had Larry Ellison and Ray Lane. The power of twos are a magic number.

Twos come up a lot in philosophy as well, in concepts like duality and balance. I think my prior first startup, actually, before startups were even like a word. You can call them startups back then, you're just trying to build a business. I worked with we're building a subscriber strategy.

And I had an engineer who [00:05:00] did own the engineering and won the strategy design and testing and focus and specialized and got a lot of stuff done like you and I are doing here too. It's the same, it's how many of the power of twos. Yeah, said complementary skill sets are really important. No, no one person can handle it all or know it all.

With shared values, right? There's another point that Charlie Munger and Buffett, by the way, they're both remote too, right? So Munger lived in. In L. A., Pioneer Decentralized Management, Decentralized Leadership. That, that they did. It's incredible. So if you had to share one piece of wisdom that you took away from Charlie Munger, his teachings, what would it be?

I might have to give you two or three, because they interact. Just at the power of two. So let's go. I will summarize. I'll summarize as best I can. If you pull one prong, they interact with [00:06:00] other prongs. Okay. So number one is capital allocation. So what Berkshire does is they're not only assessing opportunities and Public markets, but they're also comparing that to the 80 hold, the companies that they own, including See's Candy, insurance companies, each of those companies, like Dairy Queen has a project, those projects have NPVs.

So we're looking at a broader set. And the third option is buying back their own stuff. That's one. So capital allocation. They're also doing a carry trade. They're borrowing debt. They're AAA rated, but they borrow debt. That debt is non callable though. It's not like a margin loan. They have non callable debt and they get tax deduction on that, interest expense deduction.

And they borrow, they invest in these businesses that throw off a lot of cash flow, have a high return on equity. So they're doing a spread. Capture, like a bank actually, [00:07:00] with a couple terms of leverage, but they own quality businesses. And the third part of that is let's call it business at a long tail of cash flows.

It's not about the next three years. These are holds forever businesses. Simple rule of thumb is, will this business be here in 50 years? The answer to that is yes. It's a good chance. It's a Charlie Munger, Warren Buffett business. He's candy. They bought for 25 million. They thought they overpaid. Charlie Munger talked Warren into buying that.

It's returned 2 billion in capital. Wow. It's an ADX return. They fully depreciated that. They probably got a negative carrying value for this asset now at this point. So those are some highlights. It's a, it's an extraordinary, and the other lesson would be that. World class businesses are exceedingly rare.

There's not many businesses that actually meet the criteria of being world class, meaning you're not overly exposed to the business cycle. You have [00:08:00] quality customers. You're a consumer staple. They tend to invest in consumer staples exactly, Coca Cola, Wrigley's, right? And the ability to pass through inflation with that.

And these are also a lot of confectionery products. What people can habits and rituals around them. So I think those are some highlights. I have a thread on this at a more detailed level, but I think those are the core principles and how they interact with each other. Oh, that's a fascinating. I love reading what you write.

So big admirer. Thank you. So let's talk about psychological resilience. Then you had a great story about the winner of a wrestling competition. You mentioned. Yeah. Yeah. This was interesting. So I don't really watch collegiate wrestling. I do love watching sports on television, but it just happened to be on when I was getting ready to leave [00:09:00] from where I had spent Thanksgiving.

And as I was packing, I saw this match. It was Iowa state versus Iowa, which if you're into wrestling and I know a little bit, you I know that the Heartland that region of the country, wrestling is really serious, sold out arena for a college wrestling match, and this wrestler who, One in an unexpected fashion in his weight class against a more highly ranked opponent was being interviewed afterwards by one of the on the field on the mat reporters, whatever you want to call it.

And he was asked how he did, how he prepared and why he felt he had success. And it was really interesting. He didn't talk about years of effort or specific tactics or strategies. He just said, I had a really good week. I was really disciplined this week. And [00:10:00] that brought me into this match ready to succeed.

And then he said a line that stuck with me. He said, Discipline is addictive. And he just stopped and walked away at that moment. And I was just blown away by that idea. Yeah. Mic drop. Exactly. I was not a wrestler. I had some friends that were wrestlers, incredible level of effort goes into kind of preparing for those matches and getting ready physically, like cutting weight, whatever those things are, but the discipline cuts across lots of things, whether it's. A sport or a different sport than wrestling or other facets of life. What I thought was interesting is the idea of that virtuous cycle, that when you are disciplined, in one area of your life, you're likely to be more disciplined in another and you see the power of it.

And so it becomes something that is addictive. I'd never thought of that concept of discipline being addictive. But it resonated with me. [00:11:00] I love it. I love it. It's its own mantra. Discipline is addictive. You can wire your dopamine circuits to the concept of discipline and it's powerful. You're right, and wrestling requires mental toughness, I've talked to a few wrestlers, I never wrestled and they always say it's a mental game, and, wrestling is biblical, it's in the Old Testament there's people that have, Jacob wrestles Divinity, God, whatever you want to call it.

Wrestling is you're feeling pressure. And I had dinner with Steven McBride, who's a friend, the company, and also an investor. We have similar views on certain ideas and some of the conductors. We had dinner a few weeks ago and we're talking about how do you build resilience as an investor?

And this is, during like the drawdown period and, it takes patience and it takes discipline. And I said, what's the first idea that you go to, to build that? [00:12:00] And he said, weightlifting. I had the same idea. That's what I do with that CrossFit, right? Yeah. And Tommy who we spoke to last week around his 5MEO DMT, he is a, is also into weightlifting.

I hope that all my kids, boys and girls, Can take a deep interest in lifting heavy weights, not to put on like a record number, but what it means for having physical pressure. That you have to push against and how that translates into building mental strength to push back against the adversity in the world like Charlie Munger must have developed that skill after the incredible adversity that he had experienced.

Yeah, no I love that concept. I do the same thing for my children. I have a. basement gym I call the pain cave and it is it's where I spend [00:13:00] most mornings. I'm up early. I lift three days a week or so and do other cardio other days, but I was actually funny that you mentioned kids. I was talking to my kids about this.

Just this week when I was dropping him off at school and I'm still recovering. I had the flu right before Thanksgiving and I had a few issues with my son getting the flu and my dog got into a pound of Haribo candies a few days before that. And so She ended up at the emergency bed. Long story short, I had a week of terrible sleep and the flu capped it off.

And so I'm still like bouncing back from that physically. And I felt it in my workout. I felt it when I was like two thirds of the way through a weightlifting workout. And I told my kids this, that I was laying down on the mat. After two thirds of the workout, I [00:14:00] wanted to quit. I really did. It was already like 6 20 in the morning.

I was like looking at the clock thinking, am I going to be able to finish this before I need to get up and get ready? And it would have been so easy to pack it in. And that moment happens in lots of things, like you're writing a long. Email. And you're like, ah, finish it later. Or you're working through a project.

You'll deal with it later. Or you've got to have that tough talk with, your spouse or your sibling or something. And you just put it off because you don't want to have to do it. And so it's difficult stuff, but the act of doing it repeatedly in the face of a challenge makes it easier to do it in the future.

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