An Infinite Conversation with Bogumil Baranowski

Three Key Takeaways from Our Conversation and His Books

2024 marked my second year of attending the Berkshire Hathaway annual shareholder meeting in Omaha, Nebraska. Months have passed since the event took place, and there has been a flurry of articles, blog posts, and podcast episodes dissecting what transpired during those few days. Those who have had the privilege of attending will unanimously agree that it is an unforgettable experience, and I wholeheartedly concur without any hesitation.

At the heart of the journey to Omaha lies the unparalleled opportunity to meet and converse with some of the most extraordinary individuals in the world of business and investing. These are people I have read about in books, listened to in podcast interviews, and tried to learn from over the years. The chance to engage with them in person, to hear their insights, and to exchange ideas is truly invaluable.

On Friday, May 3rd, 2024, I attended the Gabelli Omaha Value Investor Conference alongside some friends. During a brief interval, I had the privilege of meeting Bogumil Baranowski, an individual who commands my utmost respect and admiration.

Among my readers, some may not be familiar with Bogumil. Allow me to introduce him as an esteemed investment advisor, an accomplished author of three captivating books, the charismatic host of the "Talking Billions" podcast, a thought-provoking TEDx speaker, an experienced sailor, a licensed private pilot, and above all, an exceptional human being. After a brief encounter at the Gabelli conference, we had the pleasure of meeting again on Sunday, following Markel's brunch.

What I particularly appreciate about Bogumil is that we both come from Eastern Europe and experienced our formative years during the final decade of the “Cold War.” I was born and grew up in Bulgaria, while Bogumil was born and grew up in Poland. Early childhood to young adulthood is a critical period for shaping one’s views, beliefs, risk tolerance, and trust in government and institutions. While I lack firsthand experience of growing up in a democratic and free-market society, I can imagine it typically involves exposure to a political system that values individual freedoms, democratic governance, and capitalist economic principles. Such an environment likely fosters a culture of entrepreneurship, personal responsibility, and consumer choice, with significant political and economic mobility. In contrast, growing up in an Eastern European socialist society during the Cold War often meant living under a centralized government that controlled many aspects of life, including the economy, media, and personal freedoms. This system prioritized collective ownership and (forced) equality, often at the expense of individual liberties and economic innovation, resulting in a uniform, state-directed lifestyle with fewer opportunities for personal economic advancement and political expression. 

In our early adult years, both Bogumil and I independently crossed the Atlantic and settled in North America. After five years in Chicago, I moved to Canada, while Bogumil continues to live in the United States.

Reading Bogumil’s books has been both intriguing and satisfying, as he shares many invaluable insights gained from his years in investment management. His reflections resonated deeply with me, especially his recollections from childhood and adolescence. It’s remarkable how much of his experience mirrors my own, making his ideas and thoughts feel both familiar and profoundly perceptive.

After meeting in Omaha, Bogumil and I exchanged emails and, a few weeks ago, had a fascinating online conversation. In this post, I’ll share three key concepts from Bogumil’s books and our discussion that resonated most strongly with me.

1. It’s ok not to finish number one in the investing race. 

As Bogumil eloquently stated during our conversation, in many endeavors, we tend to remember only the top performers, such as the number one runner, swimmer or tennis player. Those who come close behind, sometimes by fractions of a second or points, are often forgotten. We rarely recall the second or third place finishers, and even less so the fourth and fifth fastest runners. Yet, these individuals are incredibly talented and far superior to most of us. However, their achievements don't receive the same level of attention as the top performers.

The field of investing is similar. The number one investor, considered by most to be Warren Buffett, attracts exceptional attention and recognition. However, there are many highly skilled and successful investors and money managers who remain relatively unknown. Despite their low profile, they have achieved impressive track records and have been diligent stewards of their clients' capital. While it may be challenging to reach Buffett's level of success, it's important to remember that substantial wealth and financial happiness are attainable for many investors with dedication and a long-term perspective. Achieving financial success is not solely about being the absolute best but about consistently making smart decisions and staying committed to your goals.

I have a friend who is more than a decade younger than me. He is an ambitious, hard-working entrepreneur who is laser-focused on achieving great wealth. Every time we meet, he shares his details about his recent achievements and the latest milestone of his net worth. It is clear that he has done better than me. My reply to him is always a sincere “congratulations” and “cheers to that.” Coming in second place in our friendly race to riches doesn’t bother me at all. Our risk tolerances differ, our backgrounds are dissimilar, and our investing styles are nothing alike. So, why even bother comparing myself to him?

What truly matters is personal growth and the satisfaction that comes from achieving your own goals. Success is not a zero-sum game, and everyone’s journey is unique. By focusing on our individual paths and celebrating our progress, we can find fulfillment regardless of how we rank compared to others. The essence of success lies in the journey, the lessons learned, and the incremental progress we make toward our personal objectives.

2. Focus on playing infinite games

In Bogumil’s books and several interviews, the concept of “finite” versus “infinite” games frequently arises. The profound insight here is that much of our focus in life is on “finite games,” where there are clear winners and losers, and the aim is to achieve a specific outcome. "Today, most of us want to win big, win often, and, most of all --- win fast! Our world has never been more impatient, more obsessed with immediacy and winning, but also... more fragile.” However, there is another type of game that can be more fulfilling and rewarding: the "infinite game." 

During our conversation, Bogumil explained that infinite games are not about winning or losing; instead, they are about perpetuating the game itself. The goal is to keep the game going, to continue engaging with others, and to enjoy the journey. A good example of an infinite game is friendship. True friendship is not about keeping score or trying to one-up each other; it's about building a meaningful connection and enjoying each other's company.

Investing can also be viewed as an infinite game. There are no real winners or losers in the traditional sense. While some people may have more money than others, that does not necessarily mean they are "winning." The goal of investing should not be to accumulate as much wealth as possible but rather to make sound decisions that will help us reach our financial goals.

When we see investing as an infinite game, we can become more relaxed about our decisions. Our goal is not to win some short-term race but to make choices that will be beneficial in the long run. This perspective encourages patience and resilience, allowing us to navigate the market's ups and downs with greater ease.

Of course, there will be fluctuations in the market, but these are not as significant as they may seem. If we have done our research and are confident in our investment strategy, we will be able to ride out the storms and remain focused on our long-term goals.

Bogumil pointed out that the beauty of infinite games is that they offer endless possibilities for growth and exploration. By embracing this concept, investors can open themselves up to a world of opportunities and experiences that would not be available otherwise. Here, I would like to include a quotation from Bogumil’s latest book, "Crisis Investing," that struck a solid chord with me: “There is something liberating, eye-opening and empowering about seeing investing as an infinite game. If the primary objective is to keep playing, and the only way to keep playing is to have the resources to do so, not losing it all takes priority over everything else.” 

3. On Holding Cash

Many of the greatest investors have vastly different views on holding large amounts of cash in their portfolios. For instance, François Rochon is always 100% invested, while Warren Buffett, the chairman and CEO of Berkshire Hathaway, is currently sitting on more than $270 billion in cash. Additionally, Ray Dalio, a billionaire and legendary investor, proclaimed in 2020 that "cash is trash." However, in 2023, he changed his opinion, saying that "cash is good." Personally, I have always been perplexed about how much "dry powder" to have in my portfolio. My biggest concern is the loss of purchasing power of my hard-earned dollars.

In Bogumil's latest book, “Crisis Investing”, one of the essays is titled "The Ultimate Argument for Holding Cash." In it, Bogumil makes a solid case for the advantages of always keeping a portion of investments in cash. Please note that by “cash,” I’m not referring to physical dollar bills stored under your mattress or large amounts in checking and saving accounts. Instead, I mean cash held as available capital for investing purposes, which includes funds in short-term certificates of deposit (CDs), Guaranteed Investment Certificates (GICs), Treasury Bills (T-Bills), high-interest savings accounts, and other similar investment instruments.

In his essay, Bogumil presents a compelling argument that holding cash during market downturns offers significant strategic advantages. By reducing stock exposure during the late stages of a bull market, investors can maintain a cash reserve that becomes a powerful asset when markets decline. This cash cushion allows investors to avoid the deeper losses experienced by fully invested portfolios during significant downturns. Furthermore, the cash reserve enables investors to take advantage of lower stock prices during market corrections, potentially leading to greater gains as the market recovers. Historically, portfolios that maintain cash reserves can rebound more quickly and achieve superior long-term performance compared to those that remain fully invested through market declines. Overall, managing cash through down markets helps mitigate losses, capitalize on buying opportunities, and enhance future returns.

Wealthy individuals often maintain a cash buffer that exceeds their monthly expenses to seize opportunities. This strategy goes beyond mere savings, signifying a mindset of readiness for investment. In a sales-driven investment world, where brokers push ideas for cash utilization, individuals should consider the value of patience. Waiting for an opportunity allows for the accumulation of wealth over time. Warren Buffett exemplifies this approach, holding significant cash reserves despite his insurance business. Patience enables investors to seize opportunities when they arise, leading to substantial long-term gains.

Identifying quality businesses is a common goal among investors. However, it's essential to recognize that the most sought-after stocks often trade near their all-time highs unless unusual circumstances occur. Therefore, waiting for a more favorable price becomes crucial.

A simple exercise involves examining the 52-week range of a desired company. Investors might be surprised to discover that companies they admire have traded at significantly lower prices within the past year. This knowledge highlights the advantage of waiting for market corrections or panics, which present opportunities to acquire quality businesses at discounted prices.

The public market offers a unique advantage in this regard. Unlike private markets, where business owners may be unaware of temporary valuation drops, public market fluctuations can lead to significant price swings in quality businesses due to missed earnings or product delays. Investors with the right temperament can leverage these fluctuations to their advantage, acquiring exceptional businesses at attractive prices.

In summary, wealthy individuals prioritize cash reserves and embrace patience as a key investment strategy. By waiting for opportunities and capitalizing on market corrections, investors can acquire quality businesses at discounted prices, leading to substantial long-term wealth accumulation.

Many thanks to Bogumil for his invaluable collaboration in the writing of this piece! I hope you enjoyed reading it and that it sparked your interest in exploring more of Bogumil Baranowski’s remarkable writing and insightful interviews on “Talking Billions”. To delve deeper into his work, please consult the bibliography at the end of the article. For further engagement, you can explore his website, podcast and YouTube channel through the links below:

https://www.bogumilbaranowski.com/

https://www.talkingbillions.co/

https://www.youtube.com/@talkingbillions

That is all for today! Cherish every moment, enjoy life and prosper! Until next time! 

Pavel (PK)

Bibliography:

1. Baranowski, Bogumil K. Crisis Investing: 100 Essays: Lessons from Managing Family Fortunes through the Global COVID Pandemic & Beyond. Independently Published, 2023.

2. Baranowski, Bogumil K. Money, Life, Family: My Handbook: My Complete Collection of Principles on Investing, Finding Work & Life Balance, and Preserving Family Wealth. Independently Published, 2019.

3. Baranowski, Bogumil K. Outsmarting the Crowd: A Value Investor's Guide to Starting, Building, and Keeping a Family Fortune. Independently Published, 2015.