Mohnish Pabrai’s Talk with the My First Million podcast on March 27, 2025

Summary

In a riveting episode of the My First Million podcast, renowned investor Mohnish Pabrai shares valuable insights into the world of investing, emphasizing the advantages that small investors can harness. He elaborates on the cyclic nature of investment opportunities and how patience and strategic prowess can lead to enormous gains over time. Pabrai stresses on the wisdom of reinvesting dividends, the boon of compounding, and picking groundbreaking stocks that defy logic with impeccable potential. Along with anecdotal tales of his own investment journey, Pabrai illustrates the significance of a keen analytical eye and the ability to recognize opportunities in anomalies. His experiences and lessons underline the quintessential traits necessary for a successful investor's mindset.

Highlights

• Pabrai explains the 'small guy' advantage in investing and strategic compounding. 📈
• An inspiring personal encounter with investment anomalies, boosting simple yet wise decisions. 🤔
• Insights into Warren Buffett's meticulous, anomaly-seeking investment strategies. 🧐
• Intriguing chess-like investing in Japanese companies through a disciplined approach. ♟️
• Pabrai's dedication to philanthropy, steering profound impacts on underprivileged communities. ❤️

Key Takeaways

• Small investors can capitalize on unique opportunities unavailable to larger investors. 🚀
• Investment arenas are cyclically vacated by successful investors, leaving soil fertile for newcomers. 🌱
• Buying and holding shares in companies like Berkshire Hathaway could yield high returns in the long run. 💰
• Investing isn't just about money—understand the business deeply and avoid excess leverage. 🤓
• Identifying anomalies in the market can lead to significant gains. 🔍

Overview

Mohnish Pabrai, in conversation with the My First Million podcast, exemplifies financial acumen through tales from his own journey in the investment world. Pabrai shares how small investors have an edge by tapping into niche markets otherwise ignored by larger investors due to capital constraints. His anecdote-rich narrative provides listeners with not just financial lessons but also encourages them to think outside the conventional box.

The discussion navigates Mohnish's diverse experience, touching upon his investing strategy that emphasizes choosing opportunities that are simple but yield substantial long-term returns. His inclination towards reinvestments is highlighted through the story of how Berkshire Hathaway's growth comes from strategic, patient investing. Furthermore, he brings Warren Buffett's investment philosophies to life with engaging and insightful recollections.

Wrapping up the podcast, Mohnish delves into his philanthropic endeavors, primarily focusing on his foundation dedicated to providing educational opportunities for underprivileged students. By discussing how investing and philanthropy intertwine to create social good, Pabrai lays out a roadmap that is not just about personal enrichment but about leading an impactful life.

Chapters

• 00:00 - 10:00: Introduction and Small Investor Advantage The introduction provides an engaging start with music setting the tone. Sean welcomes back Anish for a second round of discussion, indicating a continuation from a previous conversation or topic. Anish is acknowledged, reciprocating the mutual respect and pleasure of the dialogue. Sean mentions reading something in Anish's book, suggesting that the discussion will delve into themes or concepts explored in the book, possibly relating to the small investor advantage.
• 10:00 - 20:00: Investment Strategy and Opportunities This chapter discusses the unique advantages small investors have in the investment world. Unlike many other areas where large entities typically dominate, small investors can capitalize on niche anomalies, arbitrage, and unique opportunities that are often overlooked by larger investors. These opportunities, although small, can be highly profitable when compounded over time.
• 20:00 - 30:00: Plan A and Plan B Investments The chapter discusses the limitations investors face when their capital grows beyond certain thresholds. Initially, they can participate in investments that require smaller amounts of capital, such as $100,000 or a million dollars. However, as their capital increases to $5 million, $100 million, or more, they must seek larger investment opportunities. The need to 'move up' to larger investment arenas is driven by the impracticality of deploying large sums of capital in small increments.
• 30:00 - 40:00: Finding Great Investments The chapter 'Finding Great Investments' discusses the cycle of investment opportunities in the market. As investors grow their initial capital from 100,000 to larger figures like a million or more, they naturally transition out of smaller investment spaces. This transition opens up opportunities for the next generation of investors. The top performers in this new generation take advantage of these openings, excel in their ventures, and eventually move on themselves, perpetuating a cycle of growth and transition. The chapter highlights the dynamic nature of investment spaces and the continuous flow of opportunities for emerging investors.
• 40:00 - 50:00: Buffett's Japan Investments The chapter discusses investment strategies, particularly Warren Buffett's perspective on investing in Japan. It covers Buffett's claim that managing smaller amounts of money, such as $1 to $10 million, can yield significant returns, potentially up to 50% a year. As investment sums grow larger, strategies and outcomes tend to change. Smaller sums below $100,000 are described as having the most potential for exploration and profit.
• 50:00 - 60:00: Investing Philosophy and Avoiding Mistakes The chapter discusses the accessibility of the entire investment universe and highlights that many high-return opportunities exist, though they may accommodate only small amounts of capital. It explores the scenario of an investor with $10,000 aiming to transform it into $1 million, emphasizing the concept of aiming for 100x returns or becoming a '100 bagger'.
• 60:00 - 70:00: Personal Insights and Stories This chapter titled 'Personal Insights and Stories' explores the guidance on financial growth and mindset shifts. It delves into advice on how to transform a modest sum, like 10K, into a larger financial goal, such as a million. The narrative suggests maintaining a day job, living within or below one’s means, and strategically utilizing the initial capital along with annual earnings for better financial planning and achieving substantial growth.
• 70:00 - 80:00: Philanthropy and Duina Foundation In this chapter, the discussion revolves around investments and the S&P index. It highlights that as of 2025, the S&P index is considered overheated and not a viable investment option until potentially 2035. Instead, the recommendation is to treat Berkshire Hathaway as an index due to its significant market cap and cash reserves. This allows for solid investment despite the situation with the S&P.
• 80:00 - 90:00: Career Path and Personal Traits This chapter discusses perspectives on the current state of the S&P 500, particularly focusing on its valuation. The speaker suggests that the S&P 500 is overheated by referencing the MAG 7's trailing price-to-earnings ratios, which exceed the S&P's long-term average. Furthermore, when excluding these large tech stocks from consideration, the remaining 493 stocks within the S&P 500 are also trading above historical averages, indicating a broader trend and not just an anomaly within the tech sector.
• 90:00 - 100:00: Casino Story and Strategy The chapter discusses the challenges businesses face when their market valuation multiples become very high, implying a limit to growth despite continued success. It highlights historical examples, such as the early 2000s when only three stocks worldwide had a market capitalization over 600 billion, suggesting a recurring pattern in market behavior.
• 100:00 - 110:00: Famous Investors and Their Strategies This chapter discusses the market performance of notable companies like Cisco Systems, Microsoft, and GE, and analyzes the outcomes of their investment strategies. Cisco exhibited strong growth between 2000 to 2025 but never reached its peak market capitalization post-2000 again, highlighting a phase of excessive enthusiasm in the market. Similarly, Microsoft showed exceptional growth but faced a stretch of zero returns from 2000 to 2015, even dropping from a considerable market cap of 600 billion, underlining potential risks in long-term investing without adaptive strategies.
• 110:00 - 120:00: Investing and Macro Environment The chapter discusses the challenges and risks associated with investing in large-cap companies during market euphoria. It illustrates this with examples of companies like GE that experienced significant downturns and never fully recovered. The advice given implies that diversifying rather than concentrating investments in a few large-cap stocks (referred to as the 'mag 7') is likely a more prudent strategy.
• 120:00 - 130:00: Importance of Starting Early in Investing The chapter discusses the importance of starting early in investment, emphasizing disciplined approaches like dollar cost averaging particularly in reliable stocks such as Berkshire class B shares. It highlights the disparity between having cash ready and the actual appearance of investment opportunities, stressing the need for patience and strategic planning.
• 130:00 - 140:00: Conclusion and Reflections The conclusion emphasizes the importance of timing in investment decisions, highlighting a strategy of consistently investing in Berkshire. It uses the rule of 72 to illustrate how a consistent 10% annual return could lead to doubling investments every seven years, reflecting on the compounding nature of investments over time.

Mohnish Pabrai’s Talk with the My First Million podcast on March 27, 2025 Transcription

• 00:00 - 00:30 [Music] [Music] Anish, welcome back. Round two. Sean, it's always a pleasure. All right. I want to start with something that I was reading in your book and it kind of
• 00:30 - 01:00 smacked me in the face and it said in investing the small guy has the advantage and I love that because in everything else in life it feels like the big guy always has the advantage. So why does the small guy have an advantage in investing? Yeah. So if you uh think about it, if a us is a small guy is an exceptional investor, right? And picking through these, you know, weird anomalies and, you know, arbitrage and other opportunities that are really tiny, right? They would compound capital at a
• 01:00 - 01:30 very high rate, right? And very soon they couldn't play in that arena because that arena can maybe take a 100,000 of capital or a million of capital, right? So once they get past the 100,000 or past a million or past 5 million, they have to seek out larger pastures and they have to move up because if you have a 100 million of capital, you can't put it out 10,000 at a time, right? Okay, that's not going to work. But if you had
• 01:30 - 02:00 a 100,000, you could put out 10,000 at a time. So when they go from a 100,000 to a million to 5 or 10 million, they have to leave the small space right and so the small space now becomes open for the next generation and the best of the next generation come in and again kind of you know hit it out of the park and then they leave it for the next generation. Right? So the very tiny
• 02:00 - 02:30 opportunities are always a fertile hunting ground. You know, Buffett says that if he was running a million dollars or $10 million, he would do 50% a year. 50. Yeah. And he did right at the beginning. Oh yeah. He was he was killing it. But when you start getting even from 1 million to 10 million, it changes a lot. And from 10 million to 100 million, it changes even more. And when you're looking at sums below 100,000, that's the most orgasmic space to play in. Okay? Because there the
• 02:30 - 03:00 entire universe is available to you. And there are many opportunities where the returns are very high, but the amount of capital that can go in is extremely tiny. And those would be the kind of nooks and crevices that the small guy would play in. Right? So let let's play a game. You're my coach. You're my investing coach, let's say, and I have $10,000 and I want to turn it into a million, right? Podcast called My First Million. I want to go from 10K to a million. So, that's a 100x or 100 bagger
• 03:00 - 03:30 in your terms. What would you be advising me? How would you coach me um to think about that? How would I take 10K and turn it into a million? So, I would make some tweaks to your thinking first about the 10K. So I would say okay the 10k is a good starting point but I what I also want you to do separately from that is have a day job. Yeah. Okay. And I want you to spend less than you're earning and I want you to take the 10k and I also want you to take your annual
• 03:30 - 04:00 savings. Maybe that's 5 10,000 a year or whatever it is. And normally I would say put it into an index. Right? The index like the S&P is overheated. M we can't go there right now. Circa 2025 we cannot go into the S&P. Okay maybe 2035 we can but not 2025. So what I would do is I would treat Burkshire Hathaway as the index because they have such a huge portion of the market cap in cash and they're ready to right you know what
• 04:00 - 04:30 makes what makes you say the S&P is overheated? Well, I think that if you look at the MAG 7 in terms of just trailing pees and all of that, it's way above the S&P long-term average. But even if you ignore the MAG 7, you look at the 493 other stocks, they are also trading significantly higher than historic averages. So, it isn't just that the tech portion or the large techs are because those are exceptional
• 04:30 - 05:00 businesses. They may well continue to do exceptionally even for a while. But the thing is that when the multiples become high, it becomes difficult. You hit a kind of a brick wall. And this isn't the first time. We've seen this story play out. So for example, in the year 2000, early 2000, there were three stocks that were over a 600 billion market cap. In on the whole planet, there were only three stocks over 600 billion. They were
• 05:00 - 05:30 Cisco systems, Microsoft and GE. And we know where how that story ended. Cisco never saw that market cap again. From 2000 to 2025, company's done well. It's grown and all of that, but it was just too euphoric. And Microsoft has also done exceptionally well. But from 2000 to 2015, 15 years, zero returns. And it wasn't just zero returns. It went from a 600 billion
• 05:30 - 06:00 market cap to a 200 billion market cap before coming back to 600. So it wasn't pleasant ride. And if you look at GE, we don't need to talk about that. I mean that just imploded. You know, it never came back. So in general, investing in the largest market caps in a time of euphoria isn't a great recipe for success. Okay? I wouldn't I wouldn't want there's no book on the wall that says I wouldn't want to be all in on the mag 7 and say that's where I'm going to
• 06:00 - 06:30 be. I think that may be pushing it but I would say that compared to even the remaining 493 I would take Birkshire the 493 in the S&P. So I would just say the default currently is you put it you know dollar cost average into the into Berkshire class B shares right and you keep doing that day in day out. Now the thing about investing is that opportunities are not going to show up just because you have the cash. Okay? There is a mismatch between when you're
• 06:30 - 07:00 ready to make an investment versus when the opportunity is there. Right? So our plan A is just keep putting money into Berkshire. And if we did that, you know, the math is really simple. Even if we were doing 10% a year, right? I mean which I think is probably pretty reasonable for Berkshire rule of 72 we would double every seven years. Life is all about doubles. Okay. So now if we are doubling every year and we went
• 07:00 - 07:30 let's say we are a 20some guy with 10,000 and you go for 50 years or 49 years it's seven doubles. Okay. Seven doubles is 128. Okay, it's 128 times your money. I gave you more than 100x, right? I gave you 128x in 49 years without having to genius without doing anything. Right? So, this is just plan B, right? Where we
• 07:30 - 08:00 put the 10,000 in, it becomes more than a million, 1.33 million with no taxes paid. There's no dividend, there's no taxes, there's nothing. And we haven't even gone to plan A yet, right? This is just sitting there. Now, the other thing is that every once in a while there'll be opportunities that show up and what we're looking for is something that hits you in the head with like a 2x4. So, the best investments are ones that make no sense. You cannot make sense of the
• 08:00 - 08:30 numbers. It's too good to be true. It's just weird and all of those things. So when when these kind of unusual things come together where things don't make sense, right, that's when we want to dive in. Give me an example either from a simple example either from your own investing, a Buffett investment, a some case study of the the an example of a great investment is one that doesn't make any sense. The numbers just seem wrong, you know, to you in the moment. I'll give you one example where it was a
• 08:30 - 09:00 money maker for me, but I didn't make even 3% of the money I should have. Okay? You know, I mean, it was given to me on a platter and I blew it. I still made money, but I want to explain how, you know, usually the best ideas when you finally figure them out, they're very simple. In the year, I think this was like around 2001 or 2002, I had encountered that this shipping company called Frontline. And Frontline was a company that owned a fleet of about
• 09:00 - 09:30 75 WCC's, very large crude carriers. These are giant ships that transport crude from like Saudi Arabia to the US. And they're just huge. The entire global fleet at that time was 300 ships, 300 VLCC's. 75 of them were owned by Frontline, 25% of the market. The guy who ran and was the founder of Front Line, John Frederickson, had put the entire fleet on the spot market. So
• 09:30 - 10:00 there are two ways he could have dealt with his fleet. He could have done time charters kind of one year, threeear deals where he's guaranteed cash flows per day and all that or be a gambler, put it on the spot market and play it. Whatever the price today is, right, I'll I'll take it. So, he had put it on the spot market, the entire fleet. Now, these VLCC's, they have a cost with the crews and all of that of around $15,000
• 10:00 - 10:30 per day to break even. That's the cost to break even. And at that time, we had like the Iraq war and different things going on. So, oil demand fell a lot and there wasn't enough need for VCC's. So the shipping rates collapsed to the point they went to 7,000 per day. Okay. So now you have Front Line losing 8,000 per day times 75 ships. Okay. And
• 10:30 - 11:00 they're levered. Okay. And so basically the stock got taken out back and shot like a 90% drop. Okay. And most of it was valid because basically you know when we are making investments or when equity markets look at a company they want to see consistency of cash flows. They reward consistency of cash flows. Here what we were seeing is consistency of losses. Okay. No one could tell you
• 11:00 - 11:30 when these losses abate. So the dynamics were the stock I think was down to like $3 per share. And when I looked at it I noticed two things. Okay. The first thing I noticed is all their debt was nonreourse. Their debt was tied to individual ships. There was no debt at the parent. So basically if they defaulted on the debt of a ship, the bank could just take the ship. They couldn't really take the company could just take that ship. They take a car
• 11:30 - 12:00 loan. And the second thing I noticed was that there's a very somewhat liquid market to buy and sell these ships. So even when the rates went to 7,000 per day, the ships had dropped in price by something like maybe a third, 25, 30% drop from where they used to be. Right? So what I realized is that if Front Line got into a crunch where they were having cash problems, they could just sell three ships. If they sold three ships,
• 12:00 - 12:30 paid off the debt, they'd have enough cash left over to keep sustaining operations for 6 to nine months, they could sell three more ships after that. So, I felt like there was really no way the company was a candidate for bankruptcy. And there was really no way. And the other thing is I could I could look at the entire company and say, "Okay, what if they sold all the ships?" If they sold all the ships, paid off all the debt, you would end up with like $9
• 12:30 - 13:00 or $10 a share, you're at three bucks. So you make three times your money if they just liquidated the whole business. Right. So they were the arbitrage between the price of the stock and the net price of the assets in a distress scenario. Right. Right. So I said, "Okay, we really can't lose money here and we're going to go buy front line." So I put 10% of my fund into Front Line. Right. because I just couldn't see a way that we could lose money. Now, when these rates were at
• 13:00 - 13:30 7,000, what happens is scrapping of ships skyrockets. So, there are these Greek ship owners who have like one or two BLCCs. They're like 25 30 year old rust buckets. So, they send them to Bangladesh or India to be broken up, sold for scrap, get 10, 15 million out and go do something else with the money. Right. because that the old ships stop getting rented because they're single hull. After Exxon Valdes, everyone wants double hull ships. So when the market
• 13:30 - 14:00 basically goes weak, everyone wants to rent the double hull ships because the prices are about the same. So all the single hull ships are getting scrapped. So now the fleet went from 300 ships to about 250 ships. After a few months, the rates start improving. The oil demand starts coming back up. The rates go to 15,000. Then they go to 20,000. The stocks at 10 bucks. Okay. I sell my shares. Well done, Mon. Okay. Tripled my
• 14:00 - 14:30 money. Yeah. In in like 8 months or something. Okay. And I said, "Okay, this was exactly what I thought." Right. Rates then go to 300,000 a day. Okay. At 300,000 a day, they're making something like 285,000 a day times 75 ships. Okay. That number is like infinity. Okay. Yeah, I was trying to do the math. Just assume it's infinity. The stock goes up in the
• 14:30 - 15:00 next 3 years 80x. Oh wow. Okay. Here's stupid Monish. Okay. Patting himself on the back with the double. And I didn't even get a double. I got like 80% uh return on my money. And that was that. And so that was an example of where I did first order thinking but I did not do second order thinking. M so the second order of thinking was you know Buffett always says that the most important question to ask in investing is and then
• 15:00 - 15:30 whatever you think then you say and then what and you keep asking that and then what if I had been so smart as to ask the question and then what so you see that rates are terrible you see the scrapping you see that that fleet's going to shrink so even if oil demand doesn't come back the way it cause it's going to come into balance eventually that those losses are going to go away and then you do the next thing on 10 watt which is that when oil demand comes
• 15:30 - 16:00 back it takes 3 to four years to build one of these things. So when the rates went to 30,000 or 50,000 and all these guys can see this is a great business now. Well, when you go to the Korean shipyards who are now inundated with orders, they're going to say, "Go to the back of the queue. I'll give you a ship in 5 years." And by the way, the ship is no longer 70 million. The new price is
• 16:00 - 16:30 120. Right. Okay. Because I got more orders than I can handle. Right. So we had this dynamic if I had thought about it that once the demand became tight you really couldn't increase supply for at least 3 or 4 years. So what's 285,000 * 75 * 1,000 days? That's the minimum number of time when that price is not going to come down. It's only after 3 or 4 years more ships start getting
• 16:30 - 17:00 delivered and you start getting more balance and all of that. That's an insane amount of cash flow, right? So the thing is that there are always like you know our friend Jim Kramer says there's always a bull market somewhere. Okay. So basically if we are plan A burkshireathway plan B looking for anomalies right every so often not very often every so often you will find
• 17:00 - 17:30 something weird and we've got all the time in the world we can research something for 3 months it turns out it's not that great let it go right we got Burkshire shell cranking okay so if you look at Warren Buffett you know in his 2022 letter he said that In 58 years of running Berkshire, there have been 12 decisions that have moved the needle for Berkshire stock. Now in 58 years, he made more than three or 400 purchase decisions for stocks and
• 17:30 - 18:00 businesses. Okay, out of 300, if I take a conservative number, it's actually more than that. Only 12 were exceptional. and he said there was one good idea on average every five years. Okay, this is Warren Buffett, right, with a 4% hit rate. Okay, so basically great investment ideas are rare. We're not going to run into them every week or every month or every year.
• 18:00 - 18:30 So plan A, stick it in the index. plan B. Keep running a geer counter over everything, looking at different things, and when something doesn't make sense, drill down, and every so often, you're going to hit a motherload, right? And when you find something that's a mother lode, you peel off 10 15% of what you have in Berkshire, put it into that, let it play out, then put it back into Burkshire. Right. Right. And just you keep doing that, and now your 100x is
• 18:30 - 19:00 going to show up in half the time or less. I like that story. And I like um you know I've heard all these examples of whether it's Buffett Mer it's your investments that you've made that are really interesting but what I don't know is the process. So you you tell me the story about these ships and when you explain it I can see it just like you see it. Oh that's the opportunity but the thing I don't get is why are you looking at crude oil ships? How do I get to like how do I even know where to look? And so is what is that process for you? Do you take do you pick one
• 19:00 - 19:30 industry and look at 100 companies in it? Do you read books on 50 industries? Do you look at what other investors are doing and try to reverse engineer? Like where do you even know where to look? I'm going to lay it out for you. It's going to be so easy. But but it takes a certain temperament. Okay. So, first I want to talk about the temperament. Okay. So, if we go back to Warren Buffett when he was teenager, he used to go to the racetrack in Omaha. Axarban. I don't know whether we talked about it last time or not. A little bit. Yeah. You can tell it. But but he used
• 19:30 - 20:00 to he used to go to the racetrack and one of the things he did at the racetrack he was like 14 years old or something is after all the races had been done he'd pick up all the tickets that people had left thrown on the ground right these are mostly losing tickets right they just kind of toss them from the garbage cans he'd pull them all out then he'd go home and one by one look at every ticket he would find now sometimes a horse would come in second and the ticket was for win or place it was actually a winning ticket, but they didn't understand they were
• 20:00 - 20:30 drunk or whatever. So, he'd always find a bunch of tickets which were actually in the money, but they had been discarded. So, now he was underage. He couldn't go to the counter to collect the money. So, he gave it all to his aunt Alice, his favorite aunt. She used to go to the counter, collect the money, and give it to him. Okay? So when Warren became older, let's say when he was, let's say, 24 or 25 years old, he went through the Moody's
• 20:30 - 21:00 manual and what he was doing with the Moody's manual. And you know, uh, for nostalgia, I bought these on eBay. And when we take a break, maybe I'll bring one of these. I want you to see the Moody's manual. Okay. Do you have it right here? Yeah, they're right here. Let's grab it. Yeah. While you tell the story. Buffett was 23 years old when he This was his nighttime casual reading. This was his. So what he did now with the Moody's manual, there were a number of these that came out. So like in the year 1953, this is just railroads, airlines, shipping, traction, bruss and
• 21:00 - 21:30 truck. I don't even know what this is. Is this the earnings reports of So this is the value line of that day. Okay. Okay. So if I open the Moody's manual to any random page. Okay. What it's doing is it's got like two or three companies per page. You can see how fine the print is. Yeah. Okay. All right. you need like a magnifying glass. And so it's basically giving you a summary of every company. Right now, this is just one of them in 1953. For 1953, they were
• 21:30 - 22:00 probably about seven or eight of these books that came out in 53. Similar number in 54, 55, so on. So you're talking about a big stack of these, right? He went through the these books two or three times. He went through what he did is he read each one page by page, right? And he was looking what he was looking for he was looking for anomalies. So he used to host these MBA
• 22:00 - 22:30 students and actually he brought he brought for them printouts from the Moody's manual to the ones that he made an investment in. So he would find something like Western Insurance for example where the stock price was 15 and the earnings last year were 25. Okay, the stock is $15 a share, earnings are $25 a share, book value is $80 a share, right? Okay, that's what we call an anomaly, right? Hitting you by
• 22:30 - 23:00 the head head with a 2x4 makes no sense. He would make a list of all these companies that made no sense in the positive direction. Okay. And then he'd study them, right? And then he would make investments. Right? Now, in order for Warren to find Western insurance, he might have had to spend 14 hours a day, okay, nonstop reading these for 3 months before he finds one or two of them. But he only needs very few of them. And
• 23:00 - 23:30 Warren's mind, you know, he's he's a prodigy. So his mind was programmed to have this intense the the work never bothered him just like no other teenagers were going and collecting all those tickets on the floor and then going through each one with the optimism that I am going to find something that is basically a free lunch right and so he went through the Moody's manual and basically started
• 23:30 - 24:00 finding these anomalies and then started making investments in them and did Well, etc. Now, we have a shortcut, you know, because I know that your listeners are not going to do what Buffett did. Okay? I cannot do what Buffett did. I mean, even though I'm I I like what he does and I want to do what he does, I do not have the wherewithal and the ferocious intensity that Warren does. Almost no one does. I think that he's just a extreme anomaly
• 24:00 - 24:30 on that front. So for example, there's a website called value investors club. Okay? Now if you go to value investors club, it's free. You don't have to pay anything, whatever. If you give them your email, you can see all ideas that are 60 days or older. Okay? And if you don't give them your email, you can see all ideas that are 120 days and older. It actually doesn't matter because there's ideas and values investors clubs that are 10 years old, 15 years old. It's very difficult to become a member
• 24:30 - 25:00 of value investors club posting ideas. So it's like a curated website, right? Okay. The members have to submit two ideas a year which get a decent rating in order to keep their membership. So you have what I have found is the value investors club has a lot of brain power. It has brain power coming out of their ears. Okay? It's all free. So all someone has to do is sit down and read the writeups on value investors club. So
• 25:00 - 25:30 there may be I don't know 6 or 700 800 writeups maybe 500 writeups in a year. Each writeup may be around 10 15 pages max. Then there's comments and whatever. But what I'm saying is that it's much easier than the Moody's manual because someone is actually digesting the information for you. So like a front line, they would actually just what I just explained would just be somebody that in would explain it in like three.
• 25:30 - 26:00 You could do one of those a day. You could easily do one. Well, one one of those a day is pathetic. I'm saying even but even you said if there's 300 total, but I'm saying less than a year. It would be easy for someone without getting putting too much work into it to read four or five ideas a day. I mean, they could have a full-time job and easily do that. That's not a difficult thing to do. And you don't need to read the whole idea. What I would say is you read the first few paragraphs and see if this is something that's interesting you or not or something that's grabbing you
• 26:00 - 26:30 or not. Right? What I do is I look at every idea that's posted, right? And I don't care to really look at them right when they're posted because they actually those ideas will work even 5 years from now. Like recently I started investing in a company where the original write up was in 2021. Okay. It's 2025 still valid. Okay. And there's a lot of history of comments and all of that and what I can look at
• 26:30 - 27:00 what happened to the business last few years and all of that. So what I'm saying is that the value investors club is a way to basically it's a very good shortcut. Now what you still have to do is you should use it only as an input to ideas. Just like the Moody's manual is not telling you what to buy and sell. Once you see the idea, you do all your own work. Do your research. Do everything. Make sure it's something you understand well. Make sure it's within your circle of competence. Whether you buy into the idea or not, etc. you know
• 27:00 - 27:30 and there's a wide range of businesses. Sometimes the same business because value investors club has now been around for more than two and a half decades. So there sometimes the same idea has been written up seven eight times. So you can go and look at all of them right shows you the whole history of what's been happening with that business. And so I think that if someone is a student and wants to be like Buffett was in the Xarbon racetrack the value investors club is a great tool. And Buffett is still doing
• 27:30 - 28:00 this. So his Japanese bets. So there's another book called the Japan Company Handbook. And I'm going to bring the Japan company handbook. Okay. Okay. Sounds good. All right. Here we have it. And I'm excited about this because you hear a lot about Buffett's, you know, Seas Candy, Coke, Geico, like those kind of well-known Buffett's best bets. But as I understand it, Buffett made some incredible investments in Japan. Well, the most recent letter he wrote, there was more than a page on Japan. Okay.
• 28:00 - 28:30 Okay. So, now this book, the Japan company handbook, the good news, it's in English. Okay. And it's like the Moody's manual except that it's basically like if you look at it here, it's two companies to a page, right? So, there's like four companies on two pages. And the other thing is that it updates every quarter. So, they actually publish this every quarter. It's on the Amazon website. Okay, very simple. So, you can go on the Amazon website or the Amazon Japan website and just place an order
• 28:30 - 29:00 and they'll send it to you. So, unlike Moody's, which is no longer published, this is something you can buy anytime you want. And again, you don't need it every quarter, you could buy one of these maybe every 5 years or something. So, again, what Buffett did with this is exactly what he did with XR. He just flipped through page after page. Now, I think it was like maybe 12 or 13 years ago, Guy Spear and I were visiting Warren Buffett in his office. And actually, we weren't visiting Buffett.
• 29:00 - 29:30 We were there to have lunch with his assistant. Right. So, what had happened is that Guy and I got to know his assistant Debbie really well when we were setting up the lunch with Warren Buffett. Right. I have this picture of uh so there's a picture of you with Warren, which uh we you know, somebody gave me. That's right. Sure. But then there's you with this woman and I was like, who's this woman that he's taking? Oh yeah, that's Debbie. There you go. This is Debbie. That's Debbie. Yeah. So Debbiey's awesome. How did you get to know Debbie? So anyway, so so Debbie is awesome, right? So now I told Debbie,
• 29:30 - 30:00 listen, it would really be great if Guy and I could take you for lunch. So she said, "Look, when you come to the Berkshire meeting, uh, Fridays are crazy in the office. All these celebrities coming in, all you know, Jamie Diamond's there, everyone's there, right?" So she said, "I can't leave the office on Friday." But but she said that if you come on Thursday, I can go to lunch with you guys on Thursday. I said, "We got nothing to do." Yeah. You know, we can be there on Thursday. No problem. So, we started going to Omaha. So, we'd get there Wednesday night and then Thursday
• 30:00 - 30:30 we'd meet Debbie for lunch, right? And this went on for several years. And what I realized after a few of these was lunch with Debbie turned out to be better than lunch with Warren. Okay? Because I would tell Debbie, I said, "Debbie, between us girls, can we talk?" She He'd say, "What do you want to know, Moish? Ask me anything." Okay. So, I would I would get the most, you know, peculiar habits that Warren had, like
• 30:30 - 31:00 how does he go through his mail and how does he do this and how does he do his email? All these different things. And, you know, she'd lay it down for me exactly kind of how he did things. So one year we were going to have lunch with Debbie and we go to Omaha, go to the Berkshire headquarters on Thursday and when Guy and I get off the elevator on the 14th floor, Warren is standing there. So I thought maybe he's there to like he's going out somewhere, you know, taking the elevator, but he had come to meet us. So you know, think about a Fortune 10 CEO coming out to the
• 31:00 - 31:30 elevator, right? To meet a couple of yo-yos he doesn't even have an appointment with. Okay. So, he tells me, "Oh, you know, would you guys like a tour of Burkshire Headquarters?" So, we're like kind of surprised. We said, "Warren, if you want to waste your time giving us a tour, we're all in." Okay. So, he takes us around, shows us his Coke fountain and all the different like stocks on the board and a lot of paraphernalia there that he's going through, explaining a lot of history and whatever. Then he takes us into his private office, right? And I see the
• 31:30 - 32:00 Japan company handbook. I see this book on his desk and I knew before I went there that Warren was actually into the Japan company handbook, right? And I had actually just gone through it. So I said, "Oh, Warren, you know, I've been going through this as well." And I said, "Can I just mark some of the ones that I think you can just go straight to?" Okay. Instead of flipping every page. So you know, he's very skeptical of the whole thing. You know, go ahead, Mon. Do whatever you want. Right. So I'm taking his I took his copy of the handbook and
• 32:00 - 32:30 I'm dogearing the pages that I thought he should look at. Right? So I told him, you know, Warren, it just turns out that most of the good stuff is at the back. He said, that's always the case. All the good stuff's always in the back. Okay. So we went through that and I marked the Japan company handbook. And so when Warren made these investments, I think he started buying it in 2019, I believe around then when he was starting to buy the five Japanese trading companies, right? And do you know why he did that? Like is he normally just looking at
• 32:30 - 33:00 different countries? He found them in here. And the reason he did that, so let me explain how nobrainer the total no-brainer nature of that bet, right? Okay. So these five Japanese trading companies had 8% dividend yield. Okay. So they were paying a 8% dividend. It was very cheap. Japan has the index has not gone anywhere for like 30 years. And Warren actually got a insane return on these.
• 33:00 - 33:30 So what he did is he borrowed the entire amount in yen at half a percent a year. And it was not a small amount. It was like 5 billion. Yeah. Yeah, he put 5 billion but he borrowed the 5 billion at half a percent the whole thing in yen in Japan right so now he's bought Japanese companies paying dividends in yen which he's bought in yen right the dividend coverage is 16 times his interest payment so he put no equity right and
• 33:30 - 34:00 he's instantly making 7 12% on 5 billion which is like you know what about 3504 400 million out of nothing, right? It's just coming to him. Now, what happens is because these companies are so cheap, in about 3 or 4 years, they all doubled in price, right? So now the 5 billion has become 10 billion. Okay? The equity that went in is nothing. So it's infinite return. They all raise the dividend. The
• 34:00 - 34:30 dividend based on the original purchase price is about 15%. Okay? And then after that, what he did is he increased the bet. So he was under 5% of all of them. He's now approaching 10% on all of them. And he met the companies and he said, "Look, I'm obviously not an activist or going to take over the business or any of that. Are you okay if I buy more?" They said, "It would be an honor to have you as an investor." Right? I mean, he flew to Japan to Tokyo with Greg Abel and
• 34:30 - 35:00 he's in some penthouse suite in some hotel in Tokyo and he's very old, you know, like past 90. So they came to see him in in his room, right? They came one by one and he met all five companies and then he flew back. So what I'm saying is that that bet is the same as the exarban bet. It's the same as those bets with the Moody's manual. And he found it in here. Your core philosophy, right? Your core philosophy is heads I win, tails I don't lose much. Yeah. And so what I'm saying is anyone could have looked at
• 35:00 - 35:30 the Moody's manual, could have looked at the Japan company handbook and if anyone had looked at it and had a couple of viewpoints, you know, he viewed these companies as companies like Burkshire, which they are. These are, you know, Mitsubishi, Maru, Marubini and all these guys. These have been around for decades. They're very exceptional businesses, great capital allocation, smart people, pro-shareholder, all of that, right? And so basically Warren found
• 35:30 - 36:00 motherload where he could put 10 billion. This isn't even like something where you could put 10,000 or 100,000. This was it could it could accommodate 10 billion at spectacularly high returns, right? And so basically I think it's a matter of how hungry are you? It's the same as any entrepreneur, right? I mean basically anyone who starts a business or whatever they got to go all in you know intense passion 18 hours a day allin very strong belief it's the same thing here if you truly are focused on
• 36:00 - 36:30 it you can do very well I mean the universe is going to conspire to help you with whatever your passion is it's just a matter of whether you want it so you know one of the things I think is is interesting is uh Mer has this philosophy of inversion right so instead of here's why we should invest And this you've said before he was looking for the 60-cond answer of why not to invest in a company, right? And I think that if I take that lens, I say, "All right, if I'm here today and I'm want to be a
• 36:30 - 37:00 better investor, I think one of the things instead of here's all the things I need to do, it's here's all the things I need to don't. What are the things I need to not do?" And I think you have a a list of some of these. So, for example, one of the don'ts is thou shalt not use Excel. Yes. This surprised me cuz I thought I don't know it's a lot of modeling and advanced financial analysis, but I think you you think it's not that. Well, let's look at Buffett's Japan investments. He hasn't turned on a
• 37:00 - 37:30 computer for investments ever. Did Debbie tell you that, by the way, does he use Excel? Well, he does not use Excel for sure. Okay. He uses his computer now. He uses Google and all that, but he uses his computer mainly to bridge. I mean, Warren wouldn't be caught dead using Excel. Okay. And uh well because the thing is that he's looking for things that hit you in the head with a 2x4, right? So when he's going through a Japan company handbook or a Moody's manual, there is no Excel needed. What will Excel help you with? When the earnings are $25 a share and
• 37:30 - 38:00 the stock is $15, you don't need Excel, right? Okay. When dividend yield is 8% and you're borrowing at half percent. You don't need Excel, right? Okay. In fact, if you need Excel, it's an automatic pass because it means that there's something complicated there which is not fitting in. Did I need Excel for Front Line? No, I didn't need Excel for Front Line. I mean, I look up the liquidation price of the ships. I look up the where the ships are at. I look at all I mean, the thing is all
• 38:00 - 38:30 these things are very basic numbers. You don't need Excel for it. And so you know recently I was talking to a friend of mine looking he's looking at some international stock exchange okay this international stock exchange trades at a trailing PE of like 30 okay it's growing at 15 20% a year very rapid growth okay 60% of revenue is profit okay and as they grow that 60% might become 70% because they got operating leverage so
• 38:30 - 39:00 if you just forward 2 or 3 years the P becomes less than 10. Okay, there is no need for Excel, right? You can just do it all in your head. Okay, it's got $10 of her earrings today. It's going to have $12 a year from now. 14 $15 two years from now. Maybe 17 or $18 3 years from now. Stocks at $30. Now, when you're at 18, you're already at a 15 multiple,
• 39:00 - 39:30 right? you already cut it in half but it's growing by that time it may be trading it should be trading at even more than 30 times earnings so the stock may be at like you know 6 or 700 by then right just the math of all of that so what I'm saying is that if you can't do the math in your head it's an automatic pass because that means there's something complicated so another important thing is you should be able to explain your thesis of a stock in about
• 39:30 - 40:00 four or five sentences is to a 10-year-old. Okay? And if you can't do that, it's a pass. You can't sit down with the 10-year-old with an Excel spreadsheet, okay? They're not going to like you and they're not going to be interested, right? Okay. So, basically, we, you know, Einstein used to say there's like four levels of intelligence. Smart, intelligent, genius, simple. Okay. The highest level of intellect is simplicity. Right? And
• 40:00 - 40:30 so we have to and and the other thing about investing is that you have to have conviction. It's very difficult to have conviction if you keep needing need to go back and look at your Excel model, right? You need it in your head. So Buffett never needs to go anywhere. It's in his head. He knows what the dividend yield is. He knows what he paid. He knows what the yen is. He knows all of that. It's pre-programmed. You don't need to think about it. I have another one. So on the don't pile. So we have uh don't use Excel. Don't over complicate
• 40:30 - 41:00 it is really what that means. And the second is um leverage. So don't overleverage. And I think the the story here that I like is there should be a third bust on this on this uh table next to us. Somebody's missing that was an original partner with them. Yes. Can you tell that story? I think his name is Rick. Yeah. Rick Goran. What happened to Rick? Yeah. Yeah. Yeah. Yeah. What can we learn from Rick? You know. Yeah. So actually Warren Charlie and Rick Guran used to do deals together and they were all independent doing their thing but
• 41:00 - 41:30 they used to share ideas and sometimes they'd go in together. So Rick Goran was based in LA and he was good friends with Charlie and later became good friends with Warren and they had for example you know I think Rick found blue chip stamps for them and I think he also might have been the guy sees Candy contacted and so on. So when I met Warren for lunch and then you know after the early '7s we never heard about Rick. He kind of fell off the radar. So when I met Warren for lunch I asked him just a very innocent
• 41:30 - 42:00 question. I said Warren what happened to Rick? You know used to be three of you and then we never heard from him after that. And Warren said that Charlie and I knew that we would get very rich and we were not in a hurry. And he said Rick was in a hurry. So Rick was always using some leverage and then when the 7374 downturn came that was a very intense that was a crash in slow motion basically. Okay. Over a 2-year period
• 42:00 - 42:30 the stocks went down like more than 40 50%. It was a big draw down and Rick got margin calls and Warren said that when he got the margin calls I bought his Burkshire Hathaway for $40 a share the stock that's now 700,000. Right. So Rick was forced to sell it at a time when it was probably the worst time to sell, right? And so then Warren actually went one step further because he's always trying to add value of these lunches and all that. So he says to me and Guy, he
• 42:30 - 43:00 said, "If you're even a slightly above average investor and you spend less than you earn and you use no leverage, you cannot help but get rich in a lifetime." So the same thing we went through when we started the 10,000 to a million. Okay, we're not using leverage. We don't even need to be above average. Okay, you I mean above average in a sense you bought Burkshes. That's that's above average. That's good. But you don't need to be a genius, right? And if something shows up on the radar like the
• 43:00 - 43:30 Japanese bets or front line or something something else, you can make that bet and that would hopefully help your returns. But if you didn't do any of that, right, you would still end up okay. And so what happened later which was funny is that in 2009 I became friends with Charlie and then I started playing bridge with him and Rick was his bridge partner and so you know I went from like I didn't know where Rick was to meeting him every week and I remember
• 43:30 - 44:00 one time so we used to play bridge at the LA country club which was those are some great years and I remember one time we'd always meet for lunch in the dining room and the All of us would eat lunch and then we'd go play bridge in their bridge room. So I was sitting and the other two guys hadn't shown up. I was sitting on a small table for four and Charlie and Rick were in front of me. I said you know you guys think this is just some lunch. Okay. I said this is an iconic moment. Okay. And these two guys
• 44:00 - 44:30 are amused. Some Indian guys like you know big fan of theirs whatever. I said this is such an iconic moment. I cannot even imagine that this is true that I have Rick Guran who I thought disappeared and he was such a he's such a fantastic guy and I have Charlie. So I said you know you guys did all these deals together and is there some deal that you did that stands out something interesting and I don't know whether we talked about it last time. Did we talk about the nurse? Uh no I don't think we
• 44:30 - 45:00 may not have talked about the nurse. So anyway, so I said, "Tell me about some of the good times in the ' 60s when you were shooting fish in the barrel after the water had been run out." Okay. So they look at each other and Rick tells Charlie, "Why don't you tell him about the nurse?" Okay. So Charlie says that they Rick actually found that there was this business where the owner had died. The there was a kind of crazy maverick entrepreneur. And what this guy had done
• 45:00 - 45:30 is he had invented additive kind of a a fluid that you could put into your engine in your car and it would plug any leaks. Okay? So you just put in your in your engine whatever and basically if there was like a oil leak or something it would just seal it up and it wouldn't really interfere with anything else. And what the guy used to do is he'd go to like auto repair shops with his gun, shoot a hole in his engine in front of them with his gun, then he'd pour his
• 45:30 - 46:00 thing. Wow. And he that's how he built What a salesman. Yeah. He was incredible. Crazy maverick. Okay. And that's how he built sales. Okay. And then he has a heart attack and dies. Okay. And the business, you know, this guy was a great inventor, but the business was all upside down with a lever this and that. a lot of issues. And so Rick told Charlie that we should take control of this company. And he said that if we take control of the debt with
• 46:00 - 46:30 the banks, we'll own the business because equity really is not worth anything. So they bought up all the bank debt at pennies on the dollar. But then there was a twist. So the guy had a mistress, okay? And the mistress was this nurse. and his wife found out that he had a mistress after he passed away because he made the mistress the executor of his will and the wife was going to inherit the business. But the two women were very upset with each
• 46:30 - 47:00 other. And the nurse, as Charlie was describing it her to me, was she was this blonde, large breasted woman. And the guy had borrowed I think about $80,000 from the wife's aunt in his business. And so what Charlie told the widow is look we want to be fair to everyone. We want to pay your aunt the
• 47:00 - 47:30 80,000 full face value of the loan even though they're buying everything at less and we'd like to have your blessings to move the business business to us so that no one's really upset about it. Okay. And the issue was that two women were not interested in doing anything to help the other one. So Charlie decided to meet the nurse at the California club, which is a very kind of, you know, blue-blooded place. And he'd always go there for lunch. He'd have his table. That's a place where I met Charlie the
• 47:30 - 48:00 first time. Kind of a lunch club. So he invited the nurse to meet him for lunch so he could kind of basically get a calm down, smooth the feathers, and get the deal done. So, she came straight from work and she came in a nurse's uniform and her nurse's uniform was about three sizes too small. Okay. So, when Charlie said when he was having lunch with her, this blonde in this nurse's uniform, the rest of the members in that
• 48:00 - 48:30 club thought Charlie is meeting some porn star. Okay? And they couldn't believe Mr. Munger, one of our most distinguished members, is having lunch with a porn star. Okay. And anyway, Charlie said, "I was able to smooth things over regardless of what all the members were talking about. We were able to get the deal done." Okay. So, anyway, that was one of the funny stories. Rick Rick and Charlie story. Yeah. So, anyway, but but these guys, I think they had just a a blast together. But, you
• 48:30 - 49:00 know, I what ended up happening to Rick? So, he didn't get back into Bergkshire or he did later. He did later. I think Rick was an extremely good investor and of course he had suffered a big you know kind of draw down and taking two steps back in 7374 but I think when he passed away a few years ago he owned most of the Daily Journal. He had a large take in the Daily Journal and I would guess Rick was worth hundreds of millions of dollars. So he he done just well no problem. He he was doing fine. One of the other don'ts that I like is uh I
• 49:00 - 49:30 don't know how you say it but you say like don't cut your flowers and water your weeds. Yes. uh which I think is about diversification and growing up it's always you know diversification is the smart way to invest. So explain. Well, if you go back to this comment that Buffett made in 2022 in the annual report that he had one good idea every 5 years, right? Total of 12 ideas in his whole 58 years running Burkshire. The flowers are rare and the weeds are caught. By the way, is he just being
• 49:30 - 50:00 self-deprecating or is that real? That is real in the sense that so he has not had loers. He hasn't had many investments that have gone to zero. There have been a few that have gone to zero. The one that pains him the most is Dexter shoes. We can talk about that if we get to it. But for the most part, when he's not done well, it's flatlined or done low returns. But these dozen or so positions have really been out of the park. Okay, they've been spectacular. So we know that the flowers are rare and
• 50:00 - 50:30 the weeds are plentiful. Okay, that's just the nature of investing. And so what is very important which was very important for Burkshire is not to cut those 12 hours. This is one of the mistakes I made through most of my career is I have repeatedly sold good businesses because they appeared expensive and I was always wrong in how expensive they were. They were actually far less expensive than I thought they were. So it's almost always
• 50:30 - 51:00 a mistake to sell a great business just because it looks fully priced or overpriced. So focus more on the quality of the business than the valuation. If you find yourself in a situation where you have ownership of a very good business, leave it alone, right? Let it do its thing for you. You um last time when we did did the episode, my favorite maybe my favorite story was the uh the Seinfeld story. Oh yeah. And so we actually uh brought you a little gift.
• 51:00 - 51:30 Oh, that's great. So So this is a portrait of what a great investor looks like. Oh, that's great. Yeah, that's beautiful. You can just He can watch paint dry. Putty. Putty is awesome. So I got this for your uh for your wall. Yeah. Like they break up at the end of the flight out of nothing. Exactly. And and you know, I think Munger has this great quote where he basically says like, if you so happen to find yourself in ownership of a of a wonderful business, Yes. go find something else to do. Yes. Like your job is to is to stop
• 51:30 - 52:00 inactivity. Yes. Is is what gets rewarded. Yes. Whereas as an entrepreneur, activity always got rewarded. And I think that that's a a big mindset shift, you know, I've tried to make as I as I think about investing versus operating. Every time I'd meet Charlie for dinner, which was probably every two, three months, and I'd play bridge with him, whatever. Almost every at every single meal, one common area of discussion was Costco. Costco came up at every almost every meeting of mine with his. And we would spend at least 30
• 52:00 - 52:30 minutes on some nuance of Costco. It's like, you know, the meme of uh guys nowadays, you know, once a week they think of the Roman Empire. Yeah. Charlie's Roman Empire was Costco. He's thinking about Costco. I think he improved was and you know I love going to Costco right so in fact my partner and I we basically have a date night at Costco probably once every 2 3 weeks right and basically it's hot dogs with a free drink that's $150 each and then one slice of pizza for about six bucks we're done okay and we're really happy and
• 52:30 - 53:00 what I notice is so I'm sitting in the food court with her right and I always marvel I always marvel at this when I'm sitting in the food court I look at the store where we have the registered and we see the whole store behind us and I especially see all these loaded carts and these very happy people right walking through getting to the end exit right and I also see a lot of Indians right I see a lot of Indians who have
• 53:00 - 53:30 like fully loaded and you know the thing what Costco's done is they are selling the Indian yogurt di okay they are selling the Indian clarified butter ghee they're selling the basmati rice. I mean there's so many I mean if I were to go to like Edison New Jersey Costco I think it'd be all Indian food or Indian stuff but even in Austin which is not a like Indian centric community they've nailed it you know they've nailed it so well and I just every time I go there I marvel at the incredibleness of the moat
• 53:30 - 54:00 you know where basically they are doing public service and that's why Costco does so well is so much of the benefit goes to the members and That's why Charlie, I think, was always in love with it. Speaking of uh kind of value investors club, did you ever see there's this viral PowerPoint deck called The Resilience of Costco. Did you ever see this going around? I haven't seen that. It's one of the best decks I've I've ever seen. And it's by this guy. He's an anonymous guy and he just analyzes
• 54:00 - 54:30 companies and he wrote this deck on how like, you know, he he basically makes this argument. He's like, you know, retail has been going down and blah blah blah and Amazon is going this way. But one company has been an incredibly resilient. He goes Costco and he basically points out, you know, the beauty of the Costco model where they're selling the goods I think for 10 or 15% of Yeah. They have a they have a maximum markup of 15%. And I I'll give you one story for example that they were these Levis jeans normally they're going for like $30 $40 a piece and they came
• 54:30 - 55:00 across a very large kind of lot that they could buy, you know, tens of thousands of jeans for $9 a piece, right? And so Costco bought the entire lot and some of the managers were telling the senior management that even at 25 it's a great deal for our in for our if we priced it at 25 they would all fly out and Jim Sagal told them that it's not going to be priced 15% above what we paid. They priced them at 10 10 bucks
• 55:00 - 55:30 and in two days they were all gone. Right? So they left a lot of money on the table. But it's that trust that got built because of actions like that, right? And so people have this incredible loyalty and love for Costco. And you you mentioned the $150 hot dog. He's sort of maniacal about not raising the price. Is that symbolic or what do you make of that? You know, well, so what they've done, if you really study the dollar50 hot dog, is they backward integrated. So they used to have a vendor, they built their own plant, they
• 55:30 - 56:00 manufacture themselves. They've tried to take out all the costs they could possibly take out. Now, it's probably could be losing money, right? But you know, how much can they lose on that, right? And so Jim Synagal said that's a sacred cow. We are not going to change the price on that, right? And the members appreciate it. You know, in fact, Costco raises its membership fee every 5 years. The last time they didn't raise it for like seven years. just they
• 56:00 - 56:30 didn't need to do that, but they said we're making enough money, we don't need to do this, you know, and so I just think that on so many levels and I think it it's it's that kind of a business a large extent because Charlie was on the board. I think Charlie wouldn't even say it to me, but he improved that business and they wouldn't have even have realized that he's improving it. He's not an activist, but you know, he would have given them these
• 56:30 - 57:00 small suggestions here and there and over time that just kind of cascades on itself. Yeah. What's his style? Cuz you knew him. And when you know somebody, it's very different than reading about somebody or hearing about somebody or hearing what they say publicly. You you pick up more just observing somebody in their their day-to-day interactions. Was he um you know very blunt in his suggestions? Was he very good at getting people to to to think it's their idea? you know, what was his style in terms of influence? Yeah, I mean, I think Charlie
• 57:00 - 57:30 comes across as having a kind of a lot of rough edges, if you will, a very blunt person, but I think what I was surprised both with Warren and Charlie is they have very warm and tender hearts. It's a actually beautiful people when you get past the exterior to some extent to protect themselves. they have this kind of exterior but if you get into kind of the inner circle where you can get past that it's a wonderful
• 57:30 - 58:00 person now at the same time he calls the spade a spade right but I think that when they're interacting with CEOs or interacting with people who are running businesses for them they understand really well that the person needs to have the freedom to build the sand castle they want to and they give them that freedom, right? And they don't second guess when they think they're making a mistake, etc. But if they are asked for different inputs,
• 58:00 - 58:30 they'll in a very kind of careful way give you their the kind of path that they might want to go down, right? And take it from there. So actually the managers are very motivated because they're very empowered. They don't feel that someone's looking over their shoulders or and to a large extent the managers do well because they don't want to let these guys down. Tell me about the difference between risk and uncertainty. Yeah. Well, that's an important concept to understand because Wall Street gets confused between the two. And in fact, when Wall Street get
• 58:30 - 59:00 confused between the two is where the greatest opportunities lie. Okay. So, we talked about front line. Front Line was an example of a situation where uncertainty was extremely high and risk was very low. Right? What Wall Street is looking for is certainty. Okay? So, if we look at a company like ADP, you know, they process payroll, right? I don't know, they've had some like 50 years of
• 59:00 - 59:30 non-stop growth because, you know, your payroll, your running payrolls is going to keep going up. Your cash flow is going to go up. It's all in a straight line. That's beautiful. And Wall Street will reward you extremely well for that. Whereas, if you look at a company like Frontier and it's priced accurately, it'll be priced for euphoria. It'll be overpriced. Okay. Because they love that. That's what they're looking for. On the other hand, that's their type. Yeah. I mean, that's music to the ears. On the other hand, if a company exhibits
• 59:30 - 60:00 high uncertainty, it will be taken out back and shot, right? And those are where the opportunity lies. So one of the cues to look for is this a business with low risk and high uncertainty. So when you run into these companies you're looking at you know looking at value investors club etc. It's something to keep at the back of your mind is that is this a high uncertainty business and is this a lowrisk business? The combination of
• 60:00 - 60:30 the two. And when you get to the combination of the two, low risk plus high uncertainty equals high rewards. So, usually you're going to be that's a that's a deep vein to look into. I was looking at your portfolio and you have this company you invested in Turkey that's like a coke bottling uh company. Would you say that's a good example of of kind of the risk and uncertainty mismatch or how would you describe that one? Because once I heard the story, I thought, man, that makes a
• 60:30 - 61:00 lot of sense. That that clicks. What was it that what was the clue that that sort of tipped you off or what concept would that one fall under? We actually made money on it, but we exited. Okay. And the reason I exited is that the Coke bottler basically had a parent company which was the dominant beer bottler in Turkey and several other countries. Their largest operations were in Russia where they had their number one market share 50/50 joint venture with Ambev and Russia has effectively
• 61:00 - 61:30 nationalized that business. I see. And I think they did it because they were somewhat upset with Erdogan about something. So they went and did that about his support for Ukraine or something. And when that happened, it became went in a too hard pile for us. It I I couldn't actually explain the too hard pile. something I stole from you last time. It's a warrant thing. We'll get to that in a second, but basically it was something I couldn't handicap. So, we were sitting at a gain and we have this event take place. I get to get
• 61:30 - 62:00 my bet back with some added return and we close it. I said, "Where do I sign?" Right. Right. I can go find something else to play with. But the two hard pile is actually a physical box on Warren's desk. Okay. And so actually if you Google it, if you just Google Warren Buffett too hard and whatever and look for images, that image will probably pop up. Okay. So he has a box on his desk which he calls too hard and he says that 99% or more of investment ideas that you
• 62:00 - 62:30 encounter should go into that box because we're not going to be able to figure it out. So one of the things to understand is that if there's 50,000 stocks in the world, we are not really going to understand more than a few hundred of them at the most after quite a while of studying them. So most companies that we would encounter should go into that box. Okay. So it's the one of the important things
• 62:30 - 63:00 in investing is humility. humility to understand. I mean, Warren has no issues with the humility to know that he doesn't know most things, right? That most things are not going to be able to be figured out or handicapped or any of that. And we don't need to. If you can understand a very small sliver of things and you know when those things get overpriced and underpriced, that's all you need, right? You don't need anything else. There's um
• 63:00 - 63:30 a a guy who owns a bunch of real estate but like in a very small area. Yeah, that's John Ariga. Yeah. What's his story? Because it sounds like it's it's a good example of this a very thin circle of competence but he knew the pricing and was able to So John Ariga was a billionaire. He passed away maybe like 2 three years ago pretty recent and his daughters married to Mark Andre. That's right. Yeah. You know so it's billionaire to the power of billionaire. Okay. So anyway, uh John Ariga basically had a very narrow circle of competence. He didn't understand most things, but he
• 63:30 - 64:00 only invested in real estate within 2 milesi of the Stanford campus. Okay, that's all you usually just write around the campus. And if you walked with him around the campus, every single building, he could tell you the full history of the building, when it was built, what the current value was, what the rents were, who the owners were, and what the history was, right? He knew that about every building. And what he did was That's incredible. Oh yeah. But you know, so he was an inch wide and a mile deep. And that is a really good
• 64:00 - 64:30 trait for an investor is to be very narrowly focused. Right. Right. Now what Johnga did is he ran generally speaking a very underlevered portfolio. He his portfolio always not much debt. when the downturns came, he aggressively bought up because all these distressed properties around I mean this is the most prime real estate you can think of other than Park Avenue or something. Okay. And so he would just buy these
• 64:30 - 65:00 things up when everyone was getting foreclosed and bankrupt and go to the banks and buy it from them and all of that and then you know get them all leased and fair value and all of that. again take the leverage down and again next down cycle again the same thing and he he stuck to that. So the thing is he didn't wander into oh let me go to Mountain View and do it okay or let me go to and California and do it. He didn't do all that. I mean he basically oh let me invest in tech or something.
• 65:00 - 65:30 He didn't do any of that. He stuck to real estate. That's all he did and he did it extremely well and he died a billionaire. One of the important things about that story is we don't need to know many things about many things. We need to know a lot about a little. That's the important thing. Know a lot about a little, right? So like for example, if I'm looking at front line, I should learn everything I can about shipping. I should learn everything I can about oil shipping, about tankers,
• 65:30 - 66:00 about the history, who makes them, and every nuance about them. Right? The deeper I go, the better it's going to be for me, right? Okay. I shouldn't be spending time next week on airplanes, okay? Just leave it alone. Like one by one by one, right? You know, and like I was talking the other day at a older older gentleman like 70 plus investor, really good investor and he was telling me, you know, he's had an investment for a long time in this aircraft leasing company called Aircap. That's a very
• 66:00 - 66:30 good business. And again, if you spend time in that industry and business, you would understand the nuances and kind of take it from there. But it's very important to be willing to go deep. And that's why the value investors club that can get you going. You can read the annual reports and the history and just keep going deeper, right? Why do you think most people don't do that? Because you when I hear that, I think, ah, there's a blueprint. You're not going to do exactly what he did. That was a a one play. But the blue the blueprint of he
• 66:30 - 67:00 was smart enough to into it like hey I think this area in California near Stanford is going to be a good area for me to be in. So generally I pick a good good wave and then not over lever. Yeah only take leverage when you know basically when everybody's fearful get greedy. When everybody's greedy be fearful. So he did that and to just say I'm going to go deep and in this two-m radius I need to become super knowledgeable and I don't need to get distracted by everything else and I'll
• 67:00 - 67:30 hold forever. Right? Like that's a blueprint. Think about it. I think it was Nick Sleep who has this this quote. He said the best investors are entrepreneurs who never sold. So if you think about entrepreneurs that's what they are. They are John Aria right? So if I look at Sam Walton, Sam Walton is John Arriga. All he did was retail. All he did was visit competitor stores. He never bothered anything else. So Sam Walton, founder of Walmart. Yeah. I mean I mean tell tell
• 67:30 - 68:00 me more about him. We can Well, so Sam Walton, I mean he said that there is no human who has ever lived or ever will live who has spent more time in competitor stores than me. Okay? whenever he'd go on vacation with his family and they were passing a retail so he said I'd be back in 20 minutes and he'd go and what is he doing in there what what did he do he so I'll give you an example so even with his managers because he would like to visit all his stores and all that but he would see a
• 68:00 - 68:30 competitor store sometime he'd go in with three or four of his managers one time he went into this store and his manager says to him that was such a badly operation And Sam says to him, "Yes, but did you see the candle display? Did you see how fantastic that candle display was?" So his perspective was, "I can learn from losers." Okay, I want to learn that spark that's there in something that's a total loser. Right? So he was going in now one time in
• 68:30 - 69:00 Brazil in this this retail store, they find this older guy flat on the ground. They call the paramedics. It turns out it's Sam Walton. And what he was doing is he was measuring the space between the aisles and he didn't have a tape meas with his body. So he laid it down. He laid and you know the space between the aisles is a very important data point for a retailer because you're going to either waste square footage or be too narrow and the people want to
• 69:00 - 69:30 enjoy the experience. So you have to get that right. Right. And so he was in Brazil saying how are they doing it? Am I 3 in too wide in Walmart? Am I 3 in too narrow? what am I what's going on here? Right? So that was this was a game of inches. That's who Sam Walton was. And in fact, Walmart has not innovated at all for at least for the first 20 25 years that Walmart ran. Everything came from somebody else who was already a competitor. They took
• 69:30 - 70:00 a lot from Sears. They took a lot from Kmart and then they killed them. Right. Okay. And they kept learning from one competitor after another. So Sam Walton actually used to say, "I'm not the smartest tool in the toolbox. I'm not a smart guy, but I'm a learning machine. I'm going to keep at this and what others have become." So, you know, it's very funny. He goes and visits Soul Price, the founder of Price Club, which eventually leads to Costco, right? And
• 70:00 - 70:30 he looks at Price Club and he says, "This is fantastic." And he creates creates Sam's Club, right? And Costco was also taken from Bryce Club. So both Sam's Club and Costco, they would not have existed. So Sam's Club is Sam Walton. I didn't know that. It's part of Walmart. Oh, I didn't even know that. Oh, yeah. It's part of Walmart. And it was it was completely cloned from Price Price Club, which was a predecessor to Costco. Right. So Soul Price who was an incredible entrepreneur someone goes to
• 70:30 - 71:00 him and says you know no one has had more impact on retailing than Soul Price because Soul Price influenced Sam Walton in a major way and he influenced Jim Synagal the founder of Costco in a major way. I mean these are the pillars and then these two companies influenced Amazon. Right. Right. So it's all coming from Soul Price. So someone told Soul Price, you know, you are like the father of retailing in the US and actually globally. What do you think of that? He said, I wish I'd worn a condom.
• 71:00 - 71:30 Too good. That's amazing. Yeah. And the thing is it's amazing. He was in fact in fact what what's actually in his son's book. So good. Yeah. So, so Sam Walton is Yeah. But I just want to say that, you know, this book, this is a very good book and it's out of print and it's hard to find, but I think that it's one of the best books on retailing. And so, for
• 71:30 - 72:00 example, some of the things that Costco does, Costco pays 50% more than Walmart pays its employees. So, the entry-level people are making 50% more. Okay? Hasn't hurt their profitability. In fact, soul prices view was similar to Henry Ford's view that I want the people who work in my stores to be able to shop in my stores. Just like Henry Ford said, I want my workers to be able to buy my cars. You know, at that time there were cars were automobiles were for the rich. And Henry Ford said, "No, I want them
• 72:00 - 72:30 for everyone." Right? So, he wanted to drop the price and and uh so I think at at Costco the lowest wage is like 20 bucks an hour, you know, like when you're starting out, whatever. And then they have tuition reimbursement and all kinds of other things. And they get a lot of productivity out of their people because of that. You've got these books here and we're sitting in your we're at your house. We're in your library. You've got I how many books do you think you have in here? This is a thousand books. A few thousand. A few thousand books. Um you this I mean just to set the scene so
• 72:30 - 73:00 that your office your computer's over there. Yeah. We're surrounded by a cave of of books on every topic. So I see I see some business books over here. I see investing books. You got you just brought a retail a book about Soul Price, the founder of Price Club from over there. There's science I think on that wall. This What is this door go to? What? What is this? That's my bedroom. That's a bedroom. Okay. So, you you live in the library essentially. And you nap every day, I think. Absolutely. Yeah. So, we're both nappers. Napping is a
• 73:00 - 73:30 great great Massively underrated. Yes. Um what's your case for napping? I have mine. What's your case for napping? Well, I just get tired in the afternoon. Whatever. You know, that's very simple. Okay. I've been I've been so used to napping that if I don't nap, my productivity goes down. And so I I actually don't like to work, if I'm not productive. And and what I find is that even if I, you know, lay down for half an hour, 45 minutes, it's I'm re-energized, right? And I think for the work I do, I need to be allin. Yeah. So
• 73:30 - 74:00 I can't I actually can't do this work if I'm tired. Yeah. There's a uh this athlete um Conor McGregor and they asked him about his training schedule and he said, "You know, one of the big mistakes I made is that I was always trying to train all the time. I wanted to come to the gym three times, four times a day. I thought that's how you win." And the his coach was basically you're like a light that's always just dimly flickering because you never turn off and therefore you can never turn on and be as bright and as effective as you could be. And this flickering dim light, it's not doing you any justice. And so I've used
• 74:00 - 74:30 that in my own model of like where's my light right now and if I need to just shut it down briefly 30 minutes an hour whatever it is to come back full brightness. That's that's the well Jeff Bezos you know he said all decisions important decisions in the morning and he's very particular he needs a solid 8 hours at night and he leaves work at a normal time right but he says that they don't do the important decisions in the afternoon right it's the first thing in the morning because he wants the highest energy levels and in fact what I also
• 74:30 - 75:00 try I find my best work is in the morning I'm curious about your style because I came over to your house once and you were you're very calm. You weren't like it didn't seem like you were on the clock. You're moving from one meeting to the next. Uh didn't there was not a big bustling team of analysts and junior people and and it didn't seem you seem like you keep a pretty clear calendar. Um is that intentional? Do you think that's is that just what you like or is that effective? Well, in the business I'm in, if I can find a couple of things to buy in a year, in the case
• 75:00 - 75:30 of Buffett, one thing to buy every 5 years, right, I'm doing well. And so this is not a situation where having some packed schedule or whatever. I think the thing is that this is a case where you're taking in a lot of information but there's not much action right and so you're basically trying to improve your metal models. you're trying to understand more about the businesses that you already own and I'm going through like you know value investors club and sum zero and that sort of thing and just looking at what else is there
• 75:30 - 76:00 and sometimes I find amazing idea whatever and then now then there's a deep dive right and then that might take a while I was reading something interesting so in our first episode we talked about your how you got started you were actually an entrepreneur first and then basically you said this great thing you go I realized that as an entrepreneur maybe 3 to 5% of my brain power was on strategic decisions, really clear thinking, you know, coming up with the right answer, and then 95% of my time was blocking and tackling. And you're like, as an investor, it's great cuz that 3% becomes 95%. Uh I'm just
• 76:00 - 76:30 it's just about clear thinking and making the right strategic move and not uh I don't have to busy myself. But one thing I thought was cool was uh I read that you took some personality test or you got some analysis done on you that basically helped you you know they sort of told you your temperament is for single player games. What what is this? I I didn't understand what what you did. Yeah. So this was kind of accidental that happened and I think it turned out to be one of those great things that happened in my life is that in 1999
• 76:30 - 77:00 actually I was at a crossroads where it was very clear to me that the business that I had built my IT business I had lost interest in it and I had become a lot more interested in investing and it was a difficult time because I had like 170 people in the company who thought I'm motivated and I can't fake it right You know, so very accidentally I was with these two industrial psychologists and they basically did a 360 on me. So
• 77:00 - 77:30 they had me take a bunch of tests. They talked to my direct reports. They talked to my friends, family, spouse, so on. And they built a kind of 360 view of who I was. And then they gave me what I call my owner's manual. And I think everyone should have their owner's manual. Like it comes with a appliance you bought. Yeah. I mean it's it's you know we show up we don't have a owner's manual and each one of each one of us is programmed differently. So what they said is look the way a human is his traits likes
• 77:30 - 78:00 dislikes and what passions they are that is hardcoded at the age of five and that is not going to change from the age of five to the age of 95. Okay. You might try to so so you cannot change traits. You can try to change behaviors but you cannot change traits. Traits are between your genetics and the first five years of life hardcoded. So the good news is and you we see this right? So once we figure a person out like we get to know
• 78:00 - 78:30 someone after 20 years also they haven't changed right and in fact my the people I went to high school with this was all pref Facebook right and I lost touch with all of them I were like in India and Middle East and wherever right and then Facebook shows up right in and now they're in their 40s and 50s right and I haven't had any interaction for them for like 20 25 years no change the guy at 18 and 48 is the same guy, right? Because
• 78:30 - 79:00 the traits are so hardcoded. So that makes it easy for us because once we figure a person out, we don't have to figure them out again. It's one and done. So what they said is that the best now the problem most humans have which I had is we don't know what those traits are. What most of us try to do is we do what they call mirroring. We look at what the world considers acceptable and we adapt our behaviors so that we kind of fit in but that can be a big
• 79:00 - 79:30 disservice. Okay. So basically what they were able to tell me is they said look you are a person they said when we look at the company you're running and we look at who you are we don't even know how you can go to work how you're functioning. Yeah. We don't know how and actually I was in pain. I was in a lot of pain and the the the thing was that I loved that business when it was just me and I loved the business as it was growing until we got
• 79:30 - 80:00 to the first 10 15 people. And then as I started growing beyond that, my life became and my job description became HR. I'm just hurting cats. I'm not a cat herder. Okay, that's not who I am. Okay. So, what they said is that that business that you have, you need to get rid of it in some way as soon as you can. And I was just thinking at that time, this was in March or April of 20 1999. I was just
• 80:00 - 80:30 thinking of starting Pabri Funds, right? They looked at it and they said, "This is perfect for you. This is going to work extremely well for you." In fact, one of them invested. He's one of the first investors who came in. He was so he put a skin in the game. Yeah. And I told him, listen, you know, I'm paying you guys 2,000 to do this. You're giving me 100,000. I really don't want to lose your money. They said, I don't have any doubts, Monish. You're going to do very well. So, I don't see any risk here. Right. And he did extremely well. And so, they were actually right because now
• 80:30 - 81:00 it's been 26 years since I've been running it and I haven't gotten bored. So, what did your owner's manual say? So, I said, don't like that. what my owner's manual basically said that well first of all they said that I had very high horsepower right and they said that I was one of the smartest guys they had come across etc which was great but they said that you are a guy who likes to play single player games you are not the kind of guy who would be happy being in a soccer team for example where you're
• 81:00 - 81:30 one of the forwards or whatever and your performance depends on the team they say you seek out games which are single single player games where you think you have some edge and when you think you have some edge and it's that sort of game, you will kill it. And actually what I've noticed is like so for example, I got banned in Vegas playing blackjack, right? Because I I got to know this story. I I figured out a system which basically beat them. Okay,
• 81:30 - 82:00 counting cards. What were you doing? And actually did it without counting cards, right? And in fact, it took the casino almost a year of watching me. So I used to go every like 6 weeks or something and they played those tapes over and over because the markers that they look for were not there. But we'll talk about that in a second. Okay. So what I'm saying is that so what are the games I like? I like blackjack. I like bridge. I like investing. And even Duina for example the Duxna Foundation that's also
• 82:00 - 82:30 a game, right? And these are that's your philanthropy. Yeah, but they're all mathematical games. Even Duina is a mathematical game because what I'm looking at is input output ratios. People think people think I'm doing all this good in the world and all that. What they don't understand is I'm a game player. Okay? And what I'm trying to do with Duana is how much money is going in and what's coming out, right? And that's the only thing I'm focused on is what's going in. And what what ended up happening with an entity like Duina is
• 82:30 - 83:00 you know Warren Buffett wrote me a letter saying that this is the best right I mean like he took the time to write the letter like this is the best okay never done that for any philanthropy that he's looked at well he did that because actually there is no nonprofit I know of that does it better than Duina and the reason is because there's a game player who's not focused on you know name and lights or bunch of fancy pictures in the annual report. We have no pictures in the annual report, you know, just like the Burkshire report, right? But it's
• 83:00 - 83:30 it's about an honest input pro output singular. So what I did is every year that we ran Duxana. Well, explain what it is. I don't even know. I I will but I'm just saying that our focus has been this year needs to be better than last year, right? It's the same as the way Sam Walton ran Walmart. He wants next year to be better than this year. So if you take a step back and say, okay, I want to give money away to make the world a better place. So the natural second step you would get to with that is I want very high returns on the money
• 83:30 - 84:00 I'm putting out. Right? So social return on invested capital should be extremely high. Now most nonprofits don't even think this way. They're all heart. There's a homeless guy. Let me help the guy. Right? They don't really do an analysis of okay what is going in and what is coming out. So I ran into this model this guy was running in I think in 2006 I ran into it where he was taking 30 kids who were very very poor in India
• 84:00 - 84:30 in in Bihar and most of these kids were coming from illiterate parents etc but they have very high IQs and he prepped them for about 10 months and he had them take the IIT entrance exam. The IITs are the, you know, the they're the best technical institutes in the world. And now the thing about the IITs is that there's about 1.3 million kids applying for 16,000 seats. It's about a 1.3% admit rate. Okay? Princeton
• 84:30 - 85:00 is about a 5% admit rate. Harvard is about 5 or 6%. This is 1.3%. And if you get into the IITs, it's basically free to attend. The government subsidizes it. So if you're a very poor person and you get into the IITs, well now Microsoft will hire you, Google will hire you, anyone will hire you, right? But getting in is expensive because the coaching is expensive. So what this guy had done is he had made the coaching free for these
• 85:00 - 85:30 very poor kids. And now what was happening is you had a family that was making $60 a month, let's say, and the kid graduates and Google hires him for 120,000 a year. Okay? I mean, you know, the the transformation and in five years the guy is making 300,000 a year, right? Right. And so that just that that and he was spending $800 per kid on the training the whole so you spend $800 and
• 85:30 - 86:00 you take a family from $60 a month to $10,000 a month. Okay. I mean what's the ROI on that? And you're going to do that for this whole lifetime and you're going to reset the extended family and all of that. It's a the ROI is off the charts, right? So when I saw that I said, "Wow, this is the holy grail." So I went to the guy and I said, "I'd like to fund you, right?" He said, "I don't want to scale. I do 30 kids. I don't want even 31 kids. I don't want to take outside money, none of that. So I'm the shameless cloner." So I told him, "Do
• 86:00 - 86:30 you mind if I clone your model?" He said, "No, this is a very good thing. I think you should clone it. It'd be great. I'll help you in any way I can." So I took his model and that's what Duana is. We basically, he was doing 30 kids a year. We are now doing a thousand kids a year, right? So we are doing it at scale and it'll be about 2500 kids in a few years and he was doing it at $800 a kid because his mom was cooking for them. Okay, I have chefs cooking for
• 86:30 - 87:00 these guys. I'm at 3,000 a kid. Okay, because we have like much better infrastructure and all of that, but it doesn't matter. you know, the 3,000. You take a again, you're taking a 60, $80, $100 a year type family a month family and you're making them part of the global economy hired by Microsoft and whoever else, right? So, it's zero to hero and so the ROI on that is hard to measure. So, we are spending Dakshina
• 87:00 - 87:30 spends about three or4 million a year. Just imagine what the output of that is, you know, when when you look at it from each family and then you and we're doing 3 4 million. We've been doing it for 17 years. So basically what we get out of $3 million a year, a lot of other nonprofits would not get out of even 100 million a year. So we actually, you know, have a footprint that is much
• 87:30 - 88:00 larger than what it should be in terms of impact. But to take it back, it's a math game. So basically, we we had two or three things that were important and that's how I looked at this. The first was the yield. So the IITs accept 1.3% of the kids who apply. They accept 70% of our kids. Okay? Now that number 70% in the first year we started was 8%. Okay? And
• 88:00 - 88:30 we had a lot of fuckups in how we were doing things then, right? All I said is I'm at 8%. It's going to be more than 8% next year, right? And I'm going to I know what the issues are. I'm going to fix those issues. We went to up to like 15 20%. Right? And then every year we looked at what was happening, how could we tweak it, how could we reduce our cost or increase that and all of that. And we kept chugging at it. And we've been chugging at it now for like 17
• 88:30 - 89:00 years. So it's just like Walmart or anything else or Amazon as any of those companies where basically you want excellence and excellence not going to come in a day but you just keep going every day. That's amazing. I love I love that model and I love how uh you basically took the skill set from a and applied it. So now what I'm doing is I have a game which puts two models together. So, one day before I die, I
• 89:00 - 89:30 want to have $10,000 left. Okay. So, basically, inheritances just don't do much, right? I mean, my kids already have they're doing well. Yeah. What is your philosophy on that? So, well, in general, large inheritances are going to do more harm than good. And, you know, basically, you don't want a person to be on an IV drip for their whole life. I mean, that's just the worst thing you can do to someone. And so Buffett has a great quote. He says, "I want to give my kids enough money for them to do
• 89:30 - 90:00 anything they want, but not enough to do nothing." Okay. Okay. So, because I am investing for a living and we have this kind of compounding going, I'm going to end up with more than I need. I mean, basically, I don't need to spend any more than I'm spending. I could not increase happiness by spending more. So, there's no point to spending more. I mean I'm very happy with the lifestyle and everything else right so everything else basically needs to get recycled but it needs to get
• 90:00 - 90:30 recycled at high returns so on one hand I have a compounding engine and a net worth that's growing on the other hand I have to give it away so God Google told me that on June 11th 204 I'll be leaving planet earth okay so you asked AI what what did you If you if you average life expectancy if you go to God Google and just say hey I'm you know 52 years old and tell me
• 90:30 - 91:00 when I'm going to die he will tell you okay and now that we have the date so what you know my birthday is June 12th just to make it poetic I've made it June 11th okay okay so we have an exact number so basically 204 means I've got like 29 years and change left right and at any kind of compounding rate it's a ridiculous amount of you know assets that get built over the time. But I want to end on June 10th with $10,000. Okay. So there's one game which
• 91:00 - 91:30 is to give it away and the other game is to make it and we need the two curves to be where the giving away becomes probably in the next few years needs to become very much more dominant. So like the 3 million a year needs to go to 5 10 15 eventually and so on. And so for me, you know, it's the same as playing blackjack. It's just a math game. These are both math games, right? And yeah, there are a lot of families getting helped and my investors are happy. And
• 91:30 - 92:00 so then that's fine. Okay. So what was your blackjack system? I'm I'm skeptical. So the the blackjack system I I don't want to it would destroy the casino. I don't want to destroy that. I mean, they would have to they would have to either change the game or something, but basically I'll give you some pointers of kind of what's what's going on here. There's a publication called BJ21 bj21.com. Okay? If you go to bj21.com and you give them a hundred bucks,
• 92:00 - 92:30 they're going to give you a PDF and they'll I think 100 bucks you get like a one-year subscription. They're going to update it every month. It gives you the odds of every blackjack table in North America. Okay. So, for example, if I go to the win Las Vegas, right? The win I guess has a bunch of different blackjack games. Single deck, double deck, six decks, whatever else. Every single one of those, it gives you the odds if you play perfect blackjack. Now, normally, and these odds vary depending on how
• 92:30 - 93:00 competitive. So if I'm going to some, you know, riverboard in Indiana, I'm not going to get the same odds as Vegas. Vegas strip is going to be more more efficient because it's more competitive. So usually the house will end up with something like 3.4% all the way to like 2% edge over the better, which means every bet you're making, if you make a $100 bet, every bet you're making you're losing your 50 cents or whatever and such. So, there's a casino in Vegas called the
• 93:00 - 93:30 Elcortez. And the Elcortez is a small casino. It was actually started by Bugsy Seagull, who made the Flamingo before before World War II. And the the Elcortez is it's in downtown, not on the strip, but it's a little away from the action of downtown. So, in order to kind of induce people to come, they kind of improve the odds. Okay, still in their favor, but the single deck game at the
• 93:30 - 94:00 Elcortez has the thinnest house edge of any blackjack table on the planet. The house edge is.18%. Okay, so if you look at that BJ21, you look at all all of the they have the edges of every table, this one is a is the lowest, right? So this is a very thin and I have a system where basically what threw them off which took them a long time to figure out is that
• 94:00 - 94:30 they play single deck blackjack right but they only deal half the deck and they shuffle. So the reason they deal half the deck is so that they can just make it difficult for the counters because you may be counting cards the deck becomes very favorable but then they shuffle. Right. Right. So high cards at the back but they never get dealt. Right? So the counters get screwed. Right? I had a system where it basically relied on the fact that blackjack occasionally has streaks. It has streaks where you may win six or
• 94:30 - 95:00 seven or eight hands in a row or you may lose six, seven or eight hands in a row. And what I did in the betting was that usually when I was losing it was always the minimum bet and when when I was winning the bets were increasing. So with the variance of that what happened is I was able to overcome the8.18 right right so I don't want to go more than that that gives it enough enough to get going I've tried to
• 95:00 - 95:30 martingale the system you know no martingale you're going to go bankrupt no but well I guess what I'm saying is you basically use the the combination of the deck and the the the the preset edge and then basically how do you use your betting as the other variable yes in order to like and what I'm going to do is when the cameras turn I'll explain it to you. Okay, great. So when you go to next time and you go to the all cortels but but now what happens is so what happened with them what what really confused them which they had never dealt with before is normally what the counters do is on a
• 95:30 - 96:00 brand new shoe it's a low bet minimum bet. Yeah. In my case there was a brand new shoe there's a high bet. So they said we just shuffled right the whole deck is there. There's no odds edge he has on that deck because the entire deck is there. He has a high bet. Did they ever figure it out or did they figure it out? It took them So what they what they said is they said this is what they figured out. This is what they came. So what happened is I'm playing blackjack. The general manager who was very
• 96:00 - 96:30 friendly to me comes and sits around next to me and tells a dealer stop dealing. Okay. So she's in the middle of her hand. She just continued dealing. She he says he screams at her stop dealing now. She never heard that before. Okay. Like literally middle of the she said she said shuffle. Right. we're done. We're not dealing anymore. Then he tells me that Mr. Parry, I like you, okay? I read your book. I watch your videos and you have a system that
• 96:30 - 97:00 we cannot beat. Right? So, I said I I told him I said, "You know, you know, I'm not counting cards." He said, "That's what threw us off." He said, "We know you're not counting cards and we know you'll beat us and so you can come to this casino anytime you want, but you cannot sit down at a blackjack table." Then I'm thinking, why would I come here? Okay, why would I come to the hel if I'm not going to play blackjack? But you know, whenever I like I go someplace
• 97:00 - 97:30 to talk or something and you know, they're introducing me, I always tell them, listen, just say that I have a lifetime band in Vegas. Yeah. I mean, street cred through the roof. I really don't care about everything else on my CV. That's really irrelevant and that's what's relevant. It's just like if you uh you get into Harvard. Wow, that's impressive. You're a Harvard dropout. That's the higher status signal. And so you're good at blackjack, made money in blackjack. I was banned from a casino. That is the highest status. Yeah. So I
• 97:30 - 98:00 took them for like about 150,000 or something. And I and and you know, this was a very low table limit. Uh the table limit was only 2,000, but at 2,000 I took them. So they they said, "Okay, we're done." You know, I love it. I'll throw out some names and you could say pass like I don't know them or I have a story about them. Just that's your stories are amazing. I could listen to your stories all day. So Michael Bur, one of my favorite movies is The Big Short and Michael Bur is this kind of my mysterious character. Did you ever well
• 98:00 - 98:30 meet Michael Bur? what you're going to end up when we finish this conversation is you're going to know that my middle name is Forest Gump. Okay, that's really where we're going to end up. So, you know, I always tell people that God loves me. He loves me more than other people. And I'll explain why. Right in 2008, okay, so the financial crisis is not yet happened. It's like March or April of 2008, right? So, things are getting topsyturvy, right? And I was
• 98:30 - 99:00 visiting San Jose for some something. I was going to San Jose and I knew Michael Bur had an office in San Jose and I didn't know him but I sent him a email saying you know Mr. Bur I'm I uh like you admire you etc and would love to visit you. So he he was kind of wellknown. He was not very wellknown but he was like posting on value investors club and things like that. He was like he was there a little bit and I liked the way he thought you know and he said oh yeah stop by. Okay. So, I go to his office in San Jose and there's a few
• 99:00 - 99:30 kind of analysts sitting outside. It's a very kind of seems like a very depressing place. Okay. Because a few it's kind of a little dark and there's a few analysts there. And then I go into the office. There's huge piles of paper everywhere. And he immediately launches into CDS's. Okay. And he says, "Look, Mish, I want to tell you something about something that's going to make you extremely wealthy." Okay? He then downloads to me at 1 million miles an hour. I've never heard of a CDS, okay?
• 99:30 - 100:00 And he's talking about housing crash and the coming implosion and all this stuff, you know, and housing's never crashed, okay, in the US, none of that. And 80% 90% of what he said went straight over my head, okay? Like he was just he just gave me a full core dump in half an hour. my subhuman intelligence couldn't handle it. Okay, I couldn't. And you know, so I come out of the meeting, my head is spinning and I say, "Okay, well that was
• 100:00 - 100:30 interesting." Okay, and then you know, of course, he rides off into the sunset, right? And then the movie comes out, right? And then he's exactly like they show in the movie, right? That's how he is, right? And I felt like, okay, you know, God who loves me so much takes me to the epicenter of the epicenter of what would have been the best place to be, right? The best teacher to have. And the idiot Monish blew it. Okay.
• 100:30 - 101:00 But that's the way it is, you know. That's I mean what uh where does that rank in terms of like you know sort of the the best calls or or uh you know foresight in terms of that you've seen in your career was I think this has happened to me a lot. I mean in the sense that you know like I said you know we put 98 99% or two hard pile right even now I think it was right of me to not do anything with it because I couldn't understand it right even after
• 101:00 - 101:30 the financial crisis it took me a while to understand the CDS's right and all these tanches and how they were like doing all this stuff and all that I mean that took me a while to like really get my arms around it and even after knowing all that I would have been skeptical about making that bet so hats off to him right I mean he figured it out a few people figured it out but it was a very small number for people who figured it out. Tell me about the greatest investor from India. Who is the greatest investor from India? Well, the greatest investor from India would be Rakkesh Junjunwala. Yeah. And I never met Rakkesh. I mean I
• 101:30 - 102:00 I know his friends quite well. Guy actually met him. Guy actually went to his office and and met him. Wonderful guy. Died relatively young a few years back. But Rakkesh was a very interesting kind of split brain in the sense that he'd have like three or four Bloomberg screens in front of him and he had all these charts and everything going on rapid fire trading going on but on the other hand he had these two or three stocks that he never touched. So he had I don't know anyone like that who's okay
• 102:00 - 102:30 who's and he was great at both but the ones that he never touched I mean they just went through the roof like the there's a company in India called Titan Industries and Titan Industries basically does branded jewelry branded jewelry basically didn't exist in India you know it was all mom and pop and there was a trust deficit right so you go to a jeweler in India and in India they have like 22 karat gold right and you're buying the gold you don't know whether it's half gold 80% gold what the hell is going on right the jeweler knows
• 102:30 - 103:00 but you don't right that Titan brand is owned by the Tatas who have very high integrity so basically they were able to take a sector which had a huge trust efficiency I think Titan is still in its infancy and I think Rakkesh made a huge huge I mean Rakkesh I think compounded at north of 40% a year for several decades it's unbelievable and you know he started with like $10,000 borrowed you know didn't didn't even have that on his own. Someone lent him the money. What made him great? Was he a brilliant mathematical mind? Was he you know cuz
• 103:00 - 103:30 what was the trait that really helped him? I think what so he was a trained CPA. India is the equivalent of CPA chartered accountant. So he obviously understood numbers well but I think he was really smart about understanding business that like and he was smart about understanding the few things that he thought would do extremely well and just before he died. So he had figured out that Indigo which is a lowcost carrier in India they have like something like 70% market share growing
• 103:30 - 104:00 very rapidly. It might become the largest airline in the world. I mean they've got like thousand planes on order or something. Okay. So they they're growing very fast. He had done well as an investor in Indigo but then he took the next step and he set up a clone of Indigo. I mean just think about the the guts you need to set up bloody airline okay from being a passive investor and while he was dying you know he was like in bad shape in hospital and all of that and that airlines up and running and cranking and all of that and
• 104:00 - 104:30 doing great so if he had lived longer I think he would have gone not just as an investor but also shown that he could be an operator and I was just in India in just recently last month February And I met one of the guys who worked for him. Just very impressive people, very down to earth, very impressive. You said something like if he had lived longer, this idea of like runway and how early you start. Yes. Matters a ton. Yes. Even
• 104:30 - 105:00 Buffett, I think you've said that if had he not been giving away so much money along the way, he'd be the wealthiest guy. Yeah. He'd be the wealthiest guy in the in the world right now. And you know, I guess when you when you go talk to people, are you just sort of like, you know, you should have started 30 years ago? Is that the number one message? What we started our conversation with, right? I think the important thing is that if there's a young person listening, it's really important that they start. You know, the
• 105:00 - 105:30 funny thing is that if you look at the rules for a IRA or a Roth IRA, there's no minimum age. You could be 6 months old and have have an IRA, right? The only rule is that you can only put in wages that you earn. And I was just reading in the Wall Street Journal, there's some entrepreneur who's hired his kids who are like four years old and like six years old to do like different
• 105:30 - 106:00 things in the business because he's putting like 6,000 7,000 into their Roth IAS, right? Which is equal to their W2 earnings, right? Probably stretching the limits of what he can get away with with the IRS. That's beautiful. But even if you're not doing that, if you start at 22, I mean that's the important thing is that when you start earning at 22, a small amount saved at 22 is more important than a larger amount saved at
• 106:00 - 106:30 32, right? Because you get started earlier, right? So it's really important to have the whole spend less than you earn and put it into Bergkshire. Set it and forget it. Yeah. Because then if you start at 22 and you're 22 today, you're going to live over 100, right? You know, you're going to go to 100 110 by the time, you know, because all the advances taking place. That's a 90-year runway. I mean, a 90-year runway is something. I mean, if you're talking about a even a
• 106:30 - 107:00 10% return, we are only going to look at doubles, right? So, every seven years, that's 2 to the^ of 13. 2 to the^ 10 is a,000. That's 2002. That's 8,000x. Okay. The first 10,000 you invested is at 8 million, right? The second th 10,000 is another 8 million, you know? So, the thing is it's a mind-blowing amount of money if you start early. So, the length of the runway is really important. Do you pay
• 107:00 - 107:30 attention to the macro? Because, you know, my head starts to spin. and it's interest rates and then there's wars and there's all these different factors um that you could pay attention to and there are some people who really pay attention to that. Do you pay attention to the No, because I can't handicap and I wouldn't know what to do with the information. So, I always try to keep the bet simple. I need to be able to explain to a 10-year-old in five sentences. I'm not going to be able to figure out the macro. That's why I couldn't make that CDS bet. You know, it was like so much stuff going on about
• 107:30 - 108:00 housing's going to crash, this is going to happen, that's going to happen. I mean, I just couldn't get my arms around it, you know. Do you think about uh, you know, Buffett, I would say, famously kind of missed a lot of the tech wave that happened in the last 30 years. Now, I know he owns Apple and some other things, but largely like internet wasn't his his zone of genius. Do you think about AI? You know, in my world, everybody's talking about AI. Everybody's thinking about AI. You can't really make a move unless you sort of are factoring in AI. Do you think about AI at all? The problem is I bring
• 108:00 - 108:30 nothing to that party and I'm probably going to get my head handed to me if I try to participate. So, it's not in the no-brainer category. It's not something where I have an edge. Of course, I do believe that it's transformational, but you know, I knew the internet was transformational. We've known electricity is transformational. We've known the app store is transformational. But in investing, you can do extremely well without understanding all these things. We go back to John Arriga, you
• 108:30 - 109:00 know, doesn't understand any of these things or even Warren Buffett and and you know, Apple Apple is in the rear view. They sold most of it. Yeah, they might have sold all of it by now, but basically that was a one and done. But basically, yeah, I think that we don't need to understand flavor of the day. We don't need to understand Nvidia. We don't need to understand AI. If you understand it, more power to you. That's awesome. And if you know how to leverage that understanding into dollars you can make that's even better. But that's not
• 109:00 - 109:30 me. So we all have to play to our strengths. Okay. Well, Manish, this is uh been incredible part two. Uh I'm happy with it. This is I I asked you at the beginning. I said, is this like one of those Hollywood sequels where the first one was incredible and the second one uh they just they just did it. But no, I think we did a good job. I think the the sequel was if not better, at least as good as the first. Well, you got some material you can cut and paste different things. So, we'll see. You know, I it was fun. I enjoyed it. It was awesome. Awesome. Thanks for doing it. Okay. Thank you.
• 109:30 - 110:00 [Music] [Music]