Episode Transcript
The Finance Ghost: Welcome to episode 223 of Magic Markets. See, we promised that we would get off our “Double Nelson” last week when Moe so graciously shared the outcome of his day trading activities. He had brushed off his Covid strategy and tried to apply it to the markets this year, with some mixed results and a lot of good learnings. Highly recommend you go back to that show. Moe was great with just sharing his experiences and some of the techniques and what works and what doesn't.
This week we are doing something that we haven't actually done before, which is a bit of a dive into the Berkshire Hathaway annual shareholders meeting and some of the wonderful nuggets that came out from Warren Buffett. I've got to say, I'm trying very, very hard not to be one of those “Buffett quotes” guys, but he does make it difficult because he is just highly entertaining and obviously quite brilliant. And Moe, we're going to dovetail that with some interesting current affairs coming out of the US, some of the company news, just keep it nice and fresh. So, yeah, looking forward to this.
Mohammed Nalla: Indeed. Ghost. I mean, a great contrast, right? Last week we're talking about Moe and his trading experiments. This week we're talking about arguably one of the greatest investors of our time, Warren Buffett. Thank you for sparing us from being one of those Buffett quotes guys. There's just a lot to talk about and why I thought this was so timely is it was probably what, two, three weeks ago that we covered Berkshire Hathaway on Magic Markets Premium. If you are a subscriber, go and check that out. A great show. But one of the risks we had actually flagged in our Bear Box was succession planning around Warren Buffett.
Warren Buffett's 94 years old, and so it's no surprise that this retirement was certainly coming. But, surprisingly, I think the market hadn't priced that in because when you saw the news break, you actually saw Berkshire's share sell off a little bit on the back of that. And I was just looking at the chart, and again, maybe it's unfair to attribute all of this just to Warren Buffett's retirement, but the stock had gotten close to around $540 a share, currently trading around $513. And so that tells you that you've got about a 4% or 5% move on the news. Now, yes, some of that is just a general market correction, but that's testament to the fact that maybe the market was just pricing in Warren staying on forever. And again, that's probably foolish, but you're gonna take us through what that succession planning process actually looked like. You've got some very interesting nuggets. So let's jump right in, Ghost.
The Finance Ghost: Yeah, so the first interesting nugget is almost a nugget, almost a chicken nugget; it's actually a hot dog! There was a question asked by someone on the call or at the meeting - and look, you really get one shot maybe in your life to do this - someone asked him about a hot dog business owned by Berkshire, except unfortunately, it's actually owned by Berkshire Partners, which has nothing to do with Berkshire Hathaway. So how to really duff your one and only opportunity to ask a question to Warren Buffett, you ask him about a business they don't even actually own! And it was quite a funny answer because you could see Warren Buffett kind of scratched his head on this one. Greg Abel also said, I'm going to have to kind of defer to a friend on this. And then Warren Buffett went off on this tangent about the restaurant business. And in the time he was doing that, someone had clearly either messaged Greg or who knows how it happened in the background to say, no, no, no, this thing's owned by Berkshire Partners. It's got nothing to do with us.
So, if you're listening to this and you feel like you've fumbled some opportunities in your life, at least you didn't ask Warren Buffett about a hot dog business that he doesn't actually own.
Mohammed Nalla: He does! He does own a hot dog business. He owns Costco, right? I think they still own a fairly substantial chunk of Costco. And I say hot dog business because it's famous that Costco hot dogs have cost, I think it's a dollar fifty here, right? It's a cost $1.50 for probably as long as Warren Buffett's been CEO of Berkshire Hathaway. So technically, maybe that's the hot dog business that this person was actually talking about?
The Finance Ghost: Yeah, so it's quite interesting. I actually remember a few years ago that Berkshire had sold its Costco stock and he talked about how it was probably a mistake. Warren Buffett owned that mistake because it was actually Charlie Munger who said, no, don't do this, and he went and sold Costco stock a few years ago. So, yeah, pretty interesting one. Maybe he should still be in the hot dog business, perhaps? It was a tongue-in-cheek question, but what was not tongue-in-cheek and what was certainly very interesting is Buffett's note right at the end of the meeting.
Basically out of nowhere - not out of nowhere, everyone knew this day would come - but he pretty much announced that he would be retiring at the end of 2025 and that Greg Abel would be taking over the reins at Berkshire Hathaway on January 1, 2026. Now, Greg Abel has been working with Warren and the team for over 25 years. And there was quite a fun joke, as Mr. Buffett does, where the crowd reacted to the news and he said, well, you know, that was a big reaction. That was a big response. I'll interpret it positively, as opposed to people celebrating him going, which obviously is not what they're doing. Typical of Buffett.
He also noted that he doesn't plan to sell a single share in Berkshire Hathaway and it's an economic decision to keep them. So he's not just doing it because he feels like he should. It's obviously a real show of faith there in who he's handing over the reins to. But what was most interesting is that Greg Abel didn't actually know this announcement was coming, and neither did the board, other than Warren's children who serve on the board. So these are obviously adult children, clearly, because Warren Buffett is 94. But, yeah, just very interesting. It really was a bit of a bombshell at the end of the meeting, and that was how the meeting ended.
But if we look at how it started, it was the usual reminder of how they structure their annual shareholders meeting. They have a lot of their portfolio companies, they're selling their wares. And there was record attendance at this meeting - 19,700 people, that's a lot of people. That was very lucrative for the portfolio companies that were actually represented there.
Obviously all the directors were there. But he also made a fun joke about Tim Cook being there of Apple fame and how Tim Cook makes more money for Berkshire than Buffett ever did! And of course, that's just a typical Warren Buffett tongue-in-cheek comment.
But moving on from maybe Tim Cook and some of the directors and this whole thing about standing down at the end of the year, I'm going to give you just a few really interesting things that I found in the transcript of the meeting that I think are well worth raising.
So here's one on financial analysis and this is exactly what he said: “That's one thing we've never talked about here. But I spend more time looking at balance sheets than I do income statements. And Wall Street really doesn't pay much attention to balance sheets. But I like to look at the balance sheets over an eight- or ten-year period before I even look at the income accounts. Because there are certain things that are harder to hide or play games with on the balance sheet than on the income statement.”
I thought that was pretty interesting. And of course he's 100% right. If you read an earnings report on CNBC or anywhere really, what does it start with? Revenue, earnings - have you ever seen one that starts with oh, assets grew by 8%? Because I haven't.
Mohammed Nalla: Yeah, Ghost, I'm actually smiling because some vindication there. I think the new cycle, the way financial markets are orientated now is short-termist, right? It's quarter to quarter. What's revenue done, how are we growing? And that's played into how stocks are valued and just the overall valuations. We've spoken about US exceptionalism, how that's come through.
Why I say some vindication, is I like to start off looking at the balance sheet as well. I'm very conservative. I like to look at a healthy balance sheet. We always have this discussion, right? You say large cash balances is just lazy capital. You like to see a little bit more gearing than I like to see on the balance sheet. But taking that long-term view on the balance sheet is absolutely right in my view. Because at the end of the day, that's the castle, that's the moat. Are you building up that moat? How much ammo do you have to throw at things?
And why it's so relevant in this particular context is if you look at Berkshire's own balance sheet, something we discussed in our show, but it's worth mentioning here, Berkshire is sitting on a record amount of cash at this point in time. They've divested from some of their listed investments. Again, very important for those not familiar and again if you're a subscriber, go and check out the show and the report on Berkshire. Berkshire has a very large portfolio of unlisted investments and if we look at Buffett's successor, he's actually been instrumental in a lot of those firms. I'm not going to steal from some of the thunder. I'm sure you're going to discuss this, but he's been instrumental in a lot of the unlisted investments. He's not really the person that's pulling the trigger on the listed investments. They've got two very seasoned professionals that have been running that portfolio for some time. So again, that look at the balance sheet, certainly back to your original point, for me it's some vindication and again, just a subtle change on how the high frequency of data releases, earnings releases, have conditioned market professionals looking at firms. If you are a long-term investor, a look at the balance sheet and a long-term look - I look at balance sheets but I'm probably looking at around five years, there and thereabouts - Warren's going back close on 10 years. That again, testament to his role as a super long-term investor ghost.
The Finance Ghost: Yeah, absolutely right. So I did have some notes here about some of the stuff he said about the cash and treasuries balance. So let me jump to that because I wanted to do it anyway. It's perfect timing. He was obviously asked about that a lot, as you would expect. One of the comments he made that I thought was worth mentioning here, and this is exactly as he said it: “We have made a lot of money by not wanting to be fully invested at all times.” Now that's just such a great succinct way of putting it.
And he talks a lot about how they are opportunistic and they really are. I mean this is very much the Warren Buffett school of investing, hugely informed obviously by Charlie Munger over the years and the rest of the team for that matter. And he talks about how an investment track record isn't a product that you can just go and replicate. it's the old joke, we're not flipping burgers here, I can't just get exactly the same track record this next year that I got last year. We've got to be opportunistic. Sometimes the market will dish up big opportunities and sometimes it won't.
And what's interesting is someone then asked him if he's - obviously quite jokingly - holding back on this so he can give Greg a really big cash pile to go and do acquisitions. And this is just a typical Warren Buffett response. He said, well, “I wouldn't do anything nearly so noble as to withhold investing myself just so that Greg could look good later on.” So I thought that was a pretty great and very typical Warren Buffett comment, honestly.
Now, talking about that cash pile, obviously what a lot of people have been waiting to see is what did they do with the money in this quarter? You know, there was a big sell-off in the market. Did they go and buy back lots of stock? What actually happened in this quarter? Moe, they did no buybacks in this quarter. They did absolutely no buybacks of Berkshire stock whatsoever in this quarter. And it's quite interesting, he talks about the share buyback tax of 1% and he goes and says, well, this is why - and it seems so minor, but it does factor into their decision. And then he quotes how much money Apple spends on buybacks, what 1% of that equates to as a tax.
But I think what's really going on here is just their overall view on equity markets. I can't believe that a tax of 1% can make such a gigantic difference on whether or not they do buybacks. But I think what does make a big difference is even though we have seen this cooling off in equities and it's been very choppy and sometimes it comes back and then it falls away again. Equities are still relatively expensive overall and he's kind of implying that even their own equity is a bit expensive right now. And obviously there's look through to some of their assets and that's why right now they are sitting on their big cash pile as opposed to buying up their own stock, because they don't see their own stock as a bargain right now. Isn't that interesting?
Mohammed Nalla: It's very interesting. I mean, it ties into a point I wanted to make, right? And so first of all, let's maybe start off with the share buybacks because it's about keeping powder dry. And so it's telling me two things. It's telling me, yes, maybe they see the overall market as expensive. They've sold down some of their listed holdings, they're sitting on that dry powder. Arguably, I made the same assumption is that if they're not buying back their own stock, the natural kind of flow through to that is that maybe they see their stock as expensive. And again, that's something to take away. I'm not going to give away anything in terms of what we did in our detailed deep dive on Berkshire Hathaway.
But the other important point for me is that Berkshire doesn't pay a dividend. In fact, just on our premium show that we recorded this week, I made a comment around dividends. I tend to like to see a dividend. We’re covering Waste Management, that's a company that's defensive, but that doesn't pay a very juicy dividend. This telling me that if you're looking at Berkshire, remember, Berkshire are capital allocation experts. And so it's a question of, do you do buybacks? Do you do a dividend? Berkshire doesn't do a dividend. They, historically, I think, paid one dividend. Warren hated the fact that they paid the dividend. I just think he hates returning that capital to shareholders if he thinks he can do a better job of deploying that capital. And maybe they're seeing some interesting opportunities in terms of the unlisted space. We know that they have been expanding into Japan.
But the other interesting thing is that Warren has said numerous times that given the size of Berkshire's balance sheet, the size of the dry powder they've got to deploy, that it's really difficult finding the opportunities at a scale that then moves the needle in terms of Berkshire's overall portfolio. So for me, I'm going to be watching that dividend, interestingly enough, because I don't expect Abel to come through and say, hey, all of a sudden we're going to start paying dividends. But if they are really struggling to find those opportunities, the question is going to get louder and louder. Certainly now that Warren Buffett has moved aside from shareholders saying, well, should you actually start returning some of that capital to us rather than just sitting on this massive cash pile? Because we know that there's actually an opportunity cost of sitting on cash if shareholders feel they can actually go and find some of those returns elsewhere in the portfolio or elsewhere in capital markets, that pressure is probably something that's going to come through. Maybe not today, maybe not next quarter, but I would expect to see some of those calls start to get a little bit louder as maybe the market starts to test Greg Abel in terms of how he will take Berkshire forward.
The Finance Ghost: Yeah, there's tons of other little nuggets, obviously, about how they think and how they find these opportunities. So let me hit you with a few others.
For example, he has only the nicest things on the call to say about Japan and the five companies that they've invested in there. He's super bullish on how Japanese companies conduct themselves, how great it's been with the management teams, how they can go and find these opportunities. This is something we raised when we covered Berkshire Hathaway in our premium report. And if I read his commentary around Japan, I would only expect that to continue over time.
In stark contrast, something that they are struggling to compete with is this trend of these large private equity and alternative asset managers all emerging and trying to get involved in insurance and building out their big floats and everything else. It's making that market a lot more difficult for Berkshire to go and do further acquisitions, etc. I think there was a reference on the call that they haven't done a deal in that space in a while. And of course, Warren Buffett had some choice words for all of these asset management type firms that are trying to replicate the Berkshire model. So I'll give it to you verbatim because unfortunately it is just that good. So he says yes - this is on the question of are there people copying the Berkshire model - he says: “yes, I think there are people who want to copy Berkshire's model, but usually they don't want to copy it by also copying the model of the CEO having all of his money in the company forever.” So just another great quip there from Buffett. You know, you can copy me, but is your CEO invested basically forever? I thought that was quite an entertaining one.
Another entertaining one, Moe then I'll let you jump back in, although I don't know if you want to comment on this one. He talks about life expectancy statistics and then equates it to investing probabilities. And then he makes a joke out of nowhere - he always strikes you as just that naughty uncle at Christmas - and he basically jokes about how he tried to convince Charlie Munger to get a sex change, so he could statistically live longer because women live longer than men. And he says, you know, it didn't work. I didn't convince him, clearly, but he did do rather well for a male. So just classic, classic Warren Buffett. Now I'll hand back to you. You want to comment on that Moe, by all means, hit us with Charlie Munger sex change jokes.
Mohammed Nalla: I'm definitely not going to do that. But again, if you had to choose a quote from Warren Buffett, that's the one you're choosing, right?
I'll tell you the question that came up - his point around the CEO investing entirely in the stock and not selling down the shares, that's very relevant because Warren Buffett has maintained his shareholding over the years. Now a lot of people don't know this, but Buffett hasn't taken a very juicy salary from Berkshire Hathaway. I think it's around $400,000. Buffett is known for living very frugally. He still drives his old car. He lives in his old house in Nebraska. And again, if you look at that, the question mark begs - I know he's going to serve on the board, he's probably going to get directors fees that come through to him, I don't think Warren Buffett needs the money - but the fact of the matter is he's probably not going to draw down on the $400,000 salary either. And what does Warren Buffett do for income? Because Berkshire doesn't pay a dividend. So this pays into my question around the dividend - is there going to be any pressure? I mean, Warren doesn't have - he's at 94, life expectancies are longer in the US but 94 is really at the upper end of that, I always say two standard deviations above, I think Warren's more than two standard deviations above the mean in terms of life expectancy - it's a question mark. Does Berkshire change the strategy around income? You've got certain shareholders that have held it for share price appreciation. Not everyone's like Warren Buffett going to hold onto the stock forever. It plays into my view that on capital allocation, I would expect those questions to start coming as time progresses.
Ghost, I want to ask you an important question because it's going to lead into the second half of the discussion we want to have on that show. Warren Buffett's actually always been the good conscience in terms of international investors, US investors. He's been very bullish on Japan. He's also been bullish on China. We know he's famous for being a large investor, early investor in BYD or Build Your Dreams, the Chinese EV player that's really rocking the market in that space.
Maybe two questions. One is any comments on China specifically, because he's been very vocal on Japan, but maybe less so on China. Did you see any of that coming through? And then specifically on tariffs, because tariffs are really what we're talking about in the US right now. It's the big risk flag that's going to play into what I want to discuss on the second half of the show, but maybe any choice nuggets that you picked up on those two talking points?
The Finance Ghost: Yeah. So not so much on China, I've got to say. There was someone from Mongolia who asked him how countries like Mongolia can make themselves more attractive. And I'll just quickly summarise that answer - he basically talked about just don't become hyperinflationary. When we see hyperinflation, we just don't even get involved. If there's a risk of being hyperinflationary, then we just don't go anywhere near it. And then he went on to also talk about how they would struggle to find deals of sufficient size in markets like Mongolia, which is actually a point we raised as well in our premium show - how does Berkshire keep finding such big deals to actually move the dial?
But not really anything specific around China, certainly not in the same sort of glowing way that he talks about Japan, or at least not that I specifically picked up. You know, it is quite a long transcript.
But lots on tariffs - and so I'll happily mention what he said on tariffs now, provided we can do one or two more Warren Buffett quotes before we finish off the show, because there are some other really good ones. But on the tariffs, he's basically referred to it as an economic war. He's been quoted as talking about it as harshly as that. He has this, I think, quite brilliant, comment that I wanted to quote again verbatim. He says: “and it's a big mistake in my view, when you have 7.5 billion people that don't like you very well and you've got 300 million that are crowing in some way about how well they've done. I don't think it's right and I don't think it's wise.”
Now, obviously there he's talking pretty much directly about Donald Trump and the tariffs and the approach being taken and America acting as a bully. But he also, many times in the meeting talks about how the US deficit isn't sustainable. And he also talks about how currencies have a rather nasty habit of depreciating over time. Now, this is somewhat at odds maybe with sitting on a big cash pile, so some interesting discussions in there, or even Treasuries. But, yeah, he's clearly not a fan of tariffs, Moe. There was a bunch of other stuff. He talked about how certain commodities just need to be produced in certain places. He doesn't exactly expect that lots of production will suddenly come back to America. It doesn't make sense. He's not a fan of what's going on.
Mohammed Nalla: Yeah, I think the tariff comments are important because Buffett's like the elder statesman here. Remember, he's invested through presidential cycles, he's invested through economic cycles. So I certainly hope that the Trump administration sits up and listens. I'm not going to hold my breath though, on that.
The other interesting thing is the comment around fiat currencies because I saw something where, effectively Warren is saying, he's questioning the US's role in the world. Seven billion people don't quite like you that much. That's again a direct dig at the recent administration's very antagonistic approach to pretty much the rest of the world, allies and non-allies alike.
Buffett's own investments in Japan, Buffett's own investments in China hint towards a greater global diversification. So the question for me as well is longer term, what does that currency diversification look like as well? Because I certainly don't think he's going to go out there and rush to buy fiat currencies and then just sit on fiat currencies in his cash balance. But if he's starting to see investments de facto, if you're in Japan, you have yen exposure, if you're in China, you have yuan or renminbi exposure. And so I think those are very telling because there are lots of question marks around the long-term sustainability of the US’s role as the global reserve currency. I've long said that I think it's premature calling for this destruction of the dollar as the global reserve currency. But there are steps in that direction. So just pay attention to some of those mega trends. Yeah, certainly interesting.
Ghost, I'm going to let you have a quick go at your last couple of quotes on this and then let's maybe pivot from that into a quick discussion on the tariffs. Some recent developments there that I just want to touch on in this week's show as well.
The Finance Ghost: Yeah, perfect. I'll go through it a bit faster than I was maybe planning to. And the one that I thought was – there’s just so much to get through and it's all so good - so he has this particularly great point around how he learns about businesses, especially private companies. And I think it's worth mentioning.
He talks about how when he was very young he would go and visit various companies all over the country and this was before they had investor relations departments. He has nothing nice to say about investor relations departments because he wants to meet the CEO, he wants to talk to the person running the business. And he said almost every CEO would see him because they figured they'd never see him again - and they were right, generally, he's very clear on how he spends his time. And he said he would always ask these CEOs two questions. And the first thing he would do is he would go in and he would say, well, I just want 10 minutes of your time. And then he talks about taking an hourglass, sticking it on the desk of the person that you're talking to, and then turning it the other way and letting it go for those 10 minutes - we won't ask him how he uses an hourglass to measure 10 minutes, maybe he had a special hourglass made.
But the point is, his argument would be, look, I'm going to leave in 10 minutes unless you ask me to stay. So he shows them that he's going to respect their time. And then the question that he asks them first is if they were stuck on a desert island and they had to only own one of their competitors’ stocks for 10 years on that island, which one would it be and why? And then interestingly, second question, if you have to short your entire net worth while you're on that island, who would you short and why?
And he said the reason is because managers will talk very openly about their competitors, but they'll be quite cagey about their own business. So if you just go and talk to everyone in the industry, you get the truth about each business. You just get it from the other person as opposed to from the CEO of that business. Now obviously when you are Warren Buffett and everyone takes your calls and you can go and meet with these CEOs, that's a very nice luxury to have. The rest of us can only dream of such a life. But I think it's quite interesting. It's a pretty cool way to just think about asking questions differently to actually get to an outcome, which I've got to say was something that I particularly enjoyed about that.
He also talked about AI. He makes this kind of off-cuff comment where he says, well, I would never trade even everything that gets developed in AI in the next 10 years for Ajit. So there he's talking about the exec who runs the insurance business. He's basically saying, “I would take the human every time and I'm not kidding about that.” No AI will ever replace him. We'll certainly have to see if he's right.
And then, Moe, I'll just finish off this review of what Warren Buffett had to say with a question that I think was just really good. He was asked for his advice that he would give young investors, and I think what came through really well there is just his love of people, which kind of talks to his AI point as well. And his advice was very much centred on making sure that you associate with the right people. He says your life will make progress in the direction of the people that you work with, admire, and that become your friends. And that's certainly been a lesson that I've learned, I can say, in my adult life - the hard way a few times. I've become quite militant on curating my social circle rather carefully. And I think it was nice to see advice like that coming through from Buffett because I think he's 100% right, for what it's worth.
So, yeah, just a lot of really, really good lessons, I guess, coming through from this. It feels like it's a mix of psychology, basically, and financial statements analysis. But that's what Buffett is known for, and that's why he's so loved, is because he is just this very wise person. And half the questions from the audience are people begging basically to meet him. And for an hour of his time, it's just never going to happen. He's just too busy and too important and too famous. He would love to do it, but it's just not possible because that's where he is in his life, just how incredibly busy this man is. I mean, you can imagine, he gives this example: someone says to him, I just want an hour of your time. And then he replied and said, imagine if I gave an hour of my time to all, you know, how many tens of thousands of people attend this event. I'd have no hours left. And it's so tongue-in-cheek, but it's so true.
Mohammed Nalla: He wouldn't even have hours left if he just gave 10 minutes of his time. You know, use that same hourglass, the ten-minute hourglass. That's a famous one.
The Finance Ghost: Yeah, his ten-minute glass.
Mohammed Nalla: The ten-minute glass. That approach in terms of what stock would you short or tell us about your competitors - I like that because in Magic Markets Premium, we do a Bull and a Bear Box every week. You've got to force yourself out of your comfort zone. You've got to force yourself into out the box thinking. And that question is very much the out the box thinking. So some playthroughs in terms of our approach in terms of a Bull and a Bear Box. And my only question there, Ghost, is between you and I, who's Buffett, who's Munger? Certainly neither of us are as successful in our investment journey yet. I say yet very loosely.
The Finance Ghost: I think you scoped us out with your day trading, Moe. I think you've taken us into hedge fund land rather than Berkshire Hathaway land.
Mohammed Nalla: Yeah, I'm neither Munger nor Buffett. I'm gonna try and respect our listeners’ time. You've only left me, like not even five minutes. And so I'm gonna turn that five-minute hourglass around.
The Finance Ghost: You're competing with Buffett here for insights, Moe. It's a big hurdle to get over.
Mohammed Nalla: I know that you're a Warren Buffett fanboy, so we've permitted most of the show to actually just go into Warren Buffett.
The Finance Ghost: I'm becoming one. I've actually actively tried to not be that guy. And I've got to say, the more of his stuff you read, it's just irresistibly good. It just is.
Mohammed Nalla: Late to the party, Ghost. But it's never too late. Ghost, what I want to discuss very quickly as it's topical because everything with the Trump administration is topical, and that was that earlier this week, Donald Trump announced 100% tariffs on movies produced outside the country. Now, why is this even vaguely factoring into our thinking is we've covered stocks like Disney, we've covered stocks like Netflix. But the movie industry, yes, it's very important. Hollywood is very important to the United States. And if you look at the overall market share, in terms of just how much money goes into the production of movies, I saw a number out there of around $250 billion annually that's going to be spent on producing content. So that is a big number.
But the question mark is how realistic is Donald Trump's approach of 100% tariffs on any content produced outside of the US? Now, why is this relevant? Why are we even talking about this? One of the key points behind our analysis of a stock like Netflix was the fact that they were investing increasing amounts in terms of global production, global content. You see this on Netflix. I don't know about your Netflix, but if I look at my Netflix, I see a lot of global content. And I like that because it gives me a nice global perspective on the world. Squid Game, for example, great example. That's Korean content. We would never have seen that if it wasn't for Netflix's approach in terms of generating global content.
But now the important point is that Netflix has grown very strongly globally by reaching agreements with other countries to produce content in those jurisdictions. And so a question mark here is that if the US imposes these tariffs, will that flow through to a player like Netflix? What does that mean for their growth in international markets? We know international has become a substantial chunk of Netflix overall subscriber numbers. I think it's actually larger than the US exposure. That makes sense. It is a big global industry out there.
And so a couple of key points that I want to just touch on. Again, in the interest of time, I'm not going to go into all of the stats. I had a nice kind of set up here. We can maybe save this for another show. But the point is that the US film industry actually has a trade surplus with the rest of the world. If you look at that, I think it ran around $20 billion there and thereabouts, and that's a surplus. So it doesn't really make sense for the US to look at 100% tariffs on content that's produced outside of the US because they are already the biggest winner in the space. It's Hollywood. We know about Nollywood, we know about Bollywood, but the US has really been cleaning up in the space. And so the question is, does this kind of move actually harm the US industry, film industry, more than it actually helps them?
Another very interesting point, and I'm going to land on this as again, my last point is that the world is moving. And the most important thing here for me is if you look at China, China has actually released a movie in 2025. It's called, I think I'm going to call it Ne Zha. I think that's how you say it. It's called Ne Zha 2. And this film actually broke box office records in China. It earned over $140 million in just three days. It then went to over a billion dollars by February 8th. It was released earlier this year and its eventual threshold was $1.4 billion. So it is the highest grossing Chinese film of all time. And it's actually animated, I haven't seen it yet. I'm certainly keen to go and check this out, but I haven't managed to find it on any of my very Western streaming platforms.
But this is telling you that China is increasingly digesting its own domestic content a lot more and their overall box office revenue is large. They are looking at building out that industry. So maybe Donald Trump's attempt here is to try and stifle it.
I will leave on one last point here and that is the rationale behind Trump saying 100% tariffs. And I quote him here, he says there's this concerted effort by other nations to actually build their own content and therefore it's a national security threat in addition to this everything else, it's messaging and propaganda. So I laugh because there's not much self-reflection here. The US arguably has executed that soft power so well over the last several decades they've exported US culture to the rest of the world. And so maybe we're seeing cracks here.
I liken this to the fact that when Trump was actually saying if the BRICS currencies go and look at an alternative currency to the US dollar, we're going to hit them with sanctions and so forth. It's showing me chinks in the US armour. This comment around tariffs on movies is showing a chink in that dominance that US cultures actually enjoyed over the last several decades.
I'm going to pause there, Ghost. Not much of an impact on the market. We saw some pressure on Netflix, Paramount Global, a little bit on Disney as well - as the announcement was made, that pressure came through in the pre-market trading session and then subsequent to that yesterday you actually had a decent showing. Those stocks actually erased any of those losses on the day. But let's see because again we've thrown another wild card into this tariff mix that's actually out there. Let's watch it with bated breath.
The Finance Ghost: Yeah, look I'm trying, I'm trying so hard to stay partial and not have lots of political comments and everything else. But I mean really it is getting slightly out of control now - to your point, trade surplus, just how spectacularly dumb are these tariffs going to be? So what is a foreign made thing? Is it shot somewhere else but it has foreign actors? What if it has a US actor? What if it has a US director but they went and shot it on a desert island somewhere because there wasn't somewhere suitable in the US? I mean it's just, I don't know, I'll just stop there. I think it's clear how I feel. So we will spend our time focusing on intelligent and wonderful life forms like Warren Buffett and learning from them. And I personally will avoid just listening to the class clown and his trumpeting from the back at all times and hoping that he either just gets bored or everyone gets bored of him and life can just somewhat go back to normal, because it has been a bit daft.
Mohammed Nalla: Mid-terms Ghost. Let's watch mid-terms. About 18 months away. A lot of people saying that Trump might actually lose a lot of support during the mid-terms. If not, I can just tell you it's going to be a very, very long four years.
My key takeaway here is let's blend Warren Buffett and the news on tariffs on foreign produced content. If Warren's keen on Japan, maybe we should all go and see what's the next Squid Game - but what's coming out of Japan, what's coming out of China? I've got to find that Ne Zha. So if any of our listeners have actually gone and seen this Chinese animation, let us know what you think. I haven't seen it. I'm keen to actually go and check this out. I don't know if it'll ever find its way onto a Western streaming platform. I don't know if I'm actually going to see that.
I know Canada's Prime Minister is busy speaking to Donald Trump today. Canada is a big beneficiary of the movie industry. A lot of movies - you think it's in New York, it's actually shot here in Toronto. I see a lot of roads closed off here in the city. That's close to me as well.
The Finance Ghost: Please don't tell Trump that, because that's his point, right? Come and shoot it in the US.
Mohammed Nalla: The Ontario premier has actually come out and he said, look, this is a direct dig at Canada. Lots of movies are shot here in Ontario, lots of movies shot in Quebec, lots of movies shot in Vancouver in BC. And so it's a direct dig at players like Canada, but also lots of movies shot in the UK. I mean, this is a globe. It's a world that we live in. You can't expect to have all of that content produced in the US and then saying, hey, look, this is China, or, hey, look, this is the UK. Let's see where that goes.
We're going to have to leave it there. I think there's a lot more I'd like to unpack on this particular topic, but let's maybe let it stew for a little bit. I've got a lot of stuff stats that I'd like to unpack. We'll save that for another show.
Let us know what you thought of the show. Hit us up on social media. It's @magicmarketspod, @FinanceGhost and @MohammedNalla all on X. Or go and find us on LinkedIn. Pop us a note on there. Our 10-minute hourglass has actually run out.
The Finance Ghost: It has.
Mohammed Nalla: And so we'll see you next week, same time, same place. Thanks and Cheers.
The Finance Ghost: Ciao.
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