• “Warren Buffett said, "Charlie's most important architectural feat was the design of today's Berkshire. The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices... Consequently, Berkshire has been built to Charlie's blueprint. My role has been that of general contractor, with the CEOs of Berkshire's subsidiaries doing the real work as subcontractors." - intro

Growing Up in Omaha

• Charlie was born in Omaha on January 1st of 1924!
• As a teenager he worked for Buffett’s grandfathers local grocery store and learned the value of hard work
• Went to college at U of Michigan but dropped out two years later, joined the army air corps, and moved to SoCal where he played poker with army friends and learned to bet heavy when the odds were in your favor
• After this time he went to law school and soon became a corporate lawyer, but realized after a number of years he wouldn’t become rich selling his time in law, so he started doing real estate deals on the side and asking people what’s the best business they knew of

Charlie’s Investment Fund

• On a trip to Omaha in 1959, he happened to find himself at a meal with Warren Buffett, and they hit it off immediately talking about stocks and Ben Graham
• Charlie figured he could start an investment fund as well, and over the next decade they became best friends talking about companies like Blue Chip Stamp or merger arbs that they can both profit on
• He learned during this time the value of a great business with durable competitive advantages, as they invested in Blue Chip’s declining business but used that float to reinvest into See’s Candy
  • Also they bought the retailer Hochschild Kohn who had to keep spending money just to stay competitive yet their inventory would become obsolete → "There are two kinds of businesses: The first earns 12%, and you can take it out at the end of the year. The second earns 12%, but all the excess cash must be reinvested - there's never any cash. It reminds me of the guy who looks at all of his equipment and says, 'There's all of my profit.' We hate that kind of business."
  • “I think that, every time you see the word EBITDA, you should substitute the word ‘bullshit earnings’” - interest, depreciation aka maintenance capex, and taxes are all real costs and can separate the great businesses from shitty ones (now we see even crazier things like adjusted EBITDA or community-adjusted EBITDA)
  • he started to like businesses with a strong franchise value (ie Coca Cola), free cash flow to reinvest, low capex requirements, expansion opportunities→ businesses like See’s candy have little maintenance costs so they could take all that profit and buy up new companies with it - "When we bought See's Candy, we didn't know the power of a good brand. Over time, we just discovered that we could raise prices 10% a year and no one cared. Learning that changed Berkshire. It was really important." (Consumer monopolies own a piece of the consumers mind and can raise prices without hurting demand because they aren’t a commodity)
• Over 14 years his fund returned ~20% annually

Berkshire Under Charlie’s Blueprint

• Berkshire went from an income of $148m and stock price of $1272 when Charlie joined to $600K today: “Charlie shoved me in the direction of not just buying bargains, as Ben Graham had taught me. This was the real impact that he had on me. It took a powerful force to move me on from Graham's limiting view. It was the power of Charlie's mind"
• “A great business at a fair price is superior to a fair business at a great price” - the earnings growth and quality will compound over the years to make up for the alternative bargain price!
• “It’s the waiting that helps you as an investor, and a lot of people just can’t stand to wait” - pretty unbelievable that at times they sit on their hands and wait for years until the market gives them attractive opportunities, which is very hard to do and practically impossible for all funds - "You have to be very patient, you have to wait until something comes along, which, at the price you're paying, is easy. That's contrary to human nature, just to sit there all day long doing nothing, waiting. It's easy for us, we have a lot of other things to do. But for an ordinary person, can you imagine just sitting for five years doing nothing? You don't feel active, you don't feel useful, so you do something stupid."
• “The desire to get rich fast is pretty dangerous” → story of Rick Guerin their third partner who wasn’t patient or people like Zeckendorf who took on too many projects and too much debt until it became a gun to their head