Asking a Billionaire Investor How to Turn $10,000 into $1M ft. Mohnish Pabrai

0:00 How would I take 10K and turn it into a million? What we're looking for is something that hits you in the head. With like a two by four. We don't need to know. Many things about many things.

0:11 We need to know a lot about a little. Why do you think most people don't do that? Buffett always says. The most important question to ask. is and then what? Does he use Excel?

0:23 Warren wouldn't be caught dead using Excel. Okay. Usually the best ideas when you finally figure them out, they're very simple. You should be able to explain your thesis of a stock in about four or five sentences to a ten year old. Where do you even know where to look? I'm gonna lay it out for you. It's gonna be so easy. All someone has to do Is I feel like I can rule the world, I know I can be what I want to

0:49 I'm putting my all in it like my days off on the roadless travel, never looking back. Okay, here we go. Onish, welcome back. Round two. Sean, it's always a pleasure. So let's play a game. You're my coach. You're my investing coach, let's say. And I have ten thousand dollars. And I want to turn it into a million.

1:07 Right. Podcast called My First Million. I want to go from ten K to a million. So that's a hundred X. How would I take ten K and turn it into a million? The thing about investing is that Opportunities are not going to show up. Just because you have the cash.

1:22 So I would make some tweaks to your thinking first about the ten K. So I would say okay, the ten K is a good starting point. But I w 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 ten K and I also want you to take your

1:43 Annual savings maybe that's five, ten thousand a year or whatever it is. And normally I would say put it into an index. Right.

1:52 the index, like the S P is overheated. We can't go there right now. Circa twenty twenty five, we cannot go into the S and P. Okay. Okay, maybe twenty thirty five we can, but not twenty twenty five. So what I would do is I would treat Berkshire Hathaway as the index. So I would just say the default

2:09 Currently. Is you put it You know, dollar cost average into the into Buksha class B shares. Right. And you keep doing that day in, day out. And if we did that You know the the math is really simple.

2:22 Even if we were doing ten percent a year, right? I mean which I think is probably pretty reasonable for Books. Rule of seventy two. We would double every seven years. Life is all about doubles.

2:35 Okay. Let's say we are a twenty something guy with ten thousand. And you go for fifty or forty nine years. It's seven doubles. Right.

2:45 Seven doubles. Is one twenty eight. Okay. It's one twenty eight times your money. I gave you more than a hundred X. Right. I gave you one twenty eight X. In forty nine years.

2:58 W without doing anything. Right. So this is just plan B. Right. Where we put the ten thousand in, it becomes more than a million, one point three three million, with no taxes paid. Right. There's no dividend, there's no taxes, there's nothing. And We haven't even gotten to plan A yet. Right? This is just sitting there. Now the other thing is that every once in a while There'll be

3:20 opportunities that show up. And what we're looking for is something that hits you in the head With like a two by four. So The best investments are ones.

3:32 That make no sense. You cannot make sense of the numbers. It's too good to be true. It's just weird. And all of those things. So when when these kind of

3:42 Unusual things come together where Things don't make sense. Right. That's when we want to dive in. A great investment is one that doesn't make any sense. The numbers just seem wrong in uh you know to you in the moment. Well I'll I'll I'll give you one example where

3:58 It was a moneymaker for me. But I didn't make even three percent of the money I should have. Okay. You know, I mean it it was like uh it was given to me on a platter and I blew it. I still made money. Right. But i you know, usually the best ideas when you finally figure them out, they're very simple.

4:17 So in in the year I think this was like around two thousand one or two thousand two. Uh I had encountered the ch the shipping company Call frontline. And frontline. was a company that

4:33 Owned a fleet of about seventy five. VLCs. Very large crude carriers. These are giant ships that Transport crude.

4:44 From like Saudi Arabia to the US. And the they're just huge. The entire global fleet at that time was three hundred ships. Three hundred VL Cs. Seventy five of them were owned by Frontline, twenty five percent of the market.

4:58 The the guy who ran and was the founder of Frontline, John Fredrickson. had put the entire fleet on the spot market. So there are two ways he could have dealt with his fleet. He could have done

5:11 Time charters. kind of one year, three year 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.

5:22 Whatever the price today is. Right. on the spot market, the entire fleet. Now these wheel C Cs they have a cost with the crews and all of that. Of around fifteen thousand dollars per day. To break even.

5:38 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 VLCCs.

5:49 So the shipping rates collapse to the point They went to seven thousand per day. Okay, so now you have frontline. Losing. Eight thousand per day.

6:01 Time seventy five ships. Okay. And They're levered. Okay. And

6:08 So Basically the stock got taken out back and shot. Like A ninety percent drop, okay.

6:19 And It most of it was valid because basically, you know, when we are making investments or when uh the uh 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 when these losses will abate.

6:41 So The uh the dynamics were the stock I think was down to like three dollars per share. And when I looked at it, I noticed two things. Okay, the first thing I notice is all their debt was not recourse.

6:56 that that was tied to individual ships. There was no debt at the parent. So basically if they defaulted On the dead 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 loan. Right. Right.

7:11 And The second thing I noticed was that There's a very somewhat liquid market to buy and sell these ships. So even when

7:21 The rates went to seven thousand per day. The ships had dropped in price by something like maybe a third. twenty five, thirty percent drop from where they used to be. So What I realize is that if frontline got into a

7:36 crunch where they were having cash problems. They could just sell three ships. If they sold three ships, paid off the debt, they'd have enough cash. To keep sustaining operations for

7:49 six 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.

8:04 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 nine or ten dollars a share. You're at three bucks. Right. Okay. So you you'd make three times your money if they just liquidated the whole business. So there was a arbitrage between

8:21 The price of the stock and the net price of the assets in a distress scenario, right? And uh so I said, Okay, we really can't lose money here. So I put ten percent of my fund into frontline. Right, because it's I just couldn't see a way.

8:36 that we could lose money. After a few months the rates start improving, the oil demand starts coming back up. The rates go to fifteen thousand, then they go to twenty thousand. The stocks at ten bucks.

8:49 Okay. I sell my shares. Well done, Monish. Okay. Tripled my money. Yeah, in in like eight months or something. Okay. And I said, Okay, this was exactly what I thought, right? rates then go to Three hundred thousand a day.

9:05 Okay. At three hundred thousand a day, they're making something like two hundred and eighty five thousand a day. Time seventy five shifts. Okay. That number is like infinity. Yeah, I was trying to do the math. Just assume it's infinite.

9:23 The stock goes up in the next three years eighty X. 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 eighty percent uh return on my money and that was that. And So That was an example of where I did first order thinking.

9:44 But I did not do second order thinking. So the second order thinking was You know, Buffett always says. that the most important question to ask in investing is and then what?

9:56 If I had been so smart as to ask the question and then what So You see that rates are terrible. You s the scraping.

10:06 You see that that fleet's gonna shrink. So even if oil demand doesn't come back the way it was It's gonna come into balance. eventually that those losses are gonna go away. And then you do the next thing on 10 watt, which is that When

10:21 Oil demand comes back. It takes three to four years to build one of these shrines. So When the rates went to thirty thousand or fifty thousand.

10:32 And All these guys can see this is a great business now. Well when you go to the Korean shipyards Digo no sé

10:43 Go to the back of the queue. I'll give you a ship in five years. And by the way, the ship is no longer Seventy million? the new price is one twenty. Right. Okay. Because I got more orders than I can handle, right?

10:57 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 three or four years. So What

11:09 Two hundred and eighty five thousand times seventy five times one thousand days. That's the minimum number of time and that price is not gonna come down. It's only after three or four years more ships start getting delivered. And you start getting more balance and all of that, but that's

11:26 an insane amount of cash flow. Right? So The thing is that There are always like you know, our friend Jim Cramer says There's always a bull market somewhere. Okay.

11:39 So basically If we if we are Planny Boksha Hatway. Plan B looking for anomalies. Right.

11:51 Every so often, not not very often. Every so often You will find something weird. And we've got all the time in the world. We can research something for three months. It Turns out it's not that great. Let it go. Right. We've got Berkshire shelf cranking. Okay. So

12:06 If you look at Warren Buffett, you know, in in his twenty twenty two letter he said That In fifty eight years of running Berkshire. There have been twelve decisions. that have moved the needle for Bosch's stock.

12:21 Now in fifty eight years he made more than three or four hundred purchase decisions for stocks and businesses. Okay. out of three hundred, if I take a con conservative number, it's actually more than that. Only twelve.

12:36 were exceptional. And he said there was one good idea on average every five years. Okay. This is Warren Buffett with a four percent hit rate. Okay.

12:47 So basically Great investment ideas are rare. We're not going to run into them every week or every month or every year. So Plan A, stick it in the index. Plan B keep

13:01 running a Geiger counter over everything, looking at different things. And when something doesn't make sense the drill down and every so often You're gonna hit the motherlord. Right. And when you find something that's a motherlord, you peel off ten, fifteen percent of what you have in Berkshire. Put it into that.

13:18 Let it play out. Put it back into books, yeah. Right. Right. And just you keep doing that. And now Your

13:25 100x is gonna show up in half the time or less. All right, let's take a quick break because I got a little freebie for you. So If you're listening this episode and you like what Manicia's talking about. You might be like me. You're trying to take notes. You're trying to remember these principles that he's talking about because the dude is just a wealth of knowledge when it comes to investing. Well, the fine folks at HubSpot listen to this episode. They took the transcript, they put down the nine principles that he talks about, as well as the examples that he have. And they put it all in a PDF for you. So you don't need to take notes. They did it all for you. You could read that, learn from it. That's the much better way to get more value out of these episodes. It's in the show notes below. Just go download that.

13:59 And enjoy. So you t 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 industry and look at a hundred companies in it?

14:19 Do you read books on fifty industry? 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 gonna lay it out for you. It's gonna be so easy. But but it takes a certain temperament. Okay. So first I wanna talk about the temperament. Okay. So if you go back to Warren Buffett, when he was a teenager

14:41 He used to go to the race track in Omaha. And one of the things he did at the racetrack, he was like fourteen years old or something. is after all the race that had been done. he'd pick up all the tickets that people had left thrown on the ground. Right.

14:55 mostly losing tickets, right? They just kinda tossed 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.

15:10 It was actually winning ticket, but they didn't understand they were drunk or whatever. Right. 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. Yeah.

15:24 So he'd give 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 when Warren became

15:36 Older. Let's say when he was let's say twenty four or twenty five years old. He went through The moody's manual. And what he was doing with the Moody's Manual. And you know

15:47 Uh, for nostalgia, I bought these on ebay and I want you to see the movie's manual, okay? So so this is Buffett. This was his li nighttime casual reading. This was his so what he did now with the Moody's manual They were

16:05 There were a number of these that came out. So like in the year nineteen fifty three, this is just Railroads, airlines, shipping, traction, brothers and truck line. I don't even know what this is. Is this the earnings reports of the value line of that day? Okay. Okay, so if you if I open the Moody's manual to any Random page. Okay. What what it's doing is it's got like

16:26 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 It's basically giving you a summary. of every company. Right. Now Buffett went through now, this is just one of them in nineteen fifty three. For nineteen fifty three they were probably about

16:47 Seven or eight of these books. That came out in fifty three. Similar number in fifty four, fifty five, so on. So you're talking about a big stack of these, right? He went through Die dies books.

17:00 Two or three times. He went through what he did is He read each one. Page by page. Right.

17:09 And he was looking, what he was looking for, he was looking for anomalies. So He used to host these MBA students. And actually he brought he brought for them print outs from the Moody's manual to the ones that he made an investment in.

17:24 Western insurance, for example. Where the stock price was fifteen. And the earnings last year were twenty five. Okay. The stock is fifteen dollars a share.

17:37 Earnings the twenty five dollars a share. Book value is eighty dollars a share. Right. Okay. That's what we call an anomaly, right? Hitting you by the head head with a two by four. Makes no sense. Right.

17:50 He would make a list of all these companies that made no sense in the positive direction. Okay. And then he'd study them. And then he would make investments. Right.

18:00 Now In order for Warren to find Western insurance. He would He might have had to spend fourteen hours a day. Okay.

18:11 Non stop reading these. For three months. Before he finds one or two of them. But he only needs very few of them and Warren's mind.

18:23 Uh you know, he's he's a prodigy. So his mind Was programmed. To have this Intense

18:31 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. Right.

18:45 And so he went through the movie's manual. and basically started finding the anomalies and then started making investments in them. And did well, et cetera. No We have

18:58 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 do not have

19:08 The wherewithal. And the ferocious uh intensity that Warren does. Almost no one does. I think that he's just uh Extreme anomaly on that front. So for example, there's a website called Value Investors Club. Okay.

19:24 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 Sixty days or older. Okay.

19:36 And if you don't give them your email you can see all ideas that are one twenty T is an older. It actually doesn't matter because There's ideas and values in Westers Clubs that are ten years old, fifteen years old. It's very difficult. to become a member of Value University Club posting ideas. So it's like a curated website. Okay.

19:54 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.

20:07 It has brain power coming out of the ears. Okay, it's all free. So All someone has to do is sit down.

20:17 And read. The write ups. on value investors club. So They may be I don't know, six or seven hundred, eight hundred write ups, maybe five hundred write ups in a year.

20:29 Each right up maybe around. Ten fifteen pages max. Then there's comments and whatever. But what I'm saying is that Uh it's much easier than the Moody's man. Because someone is actually digesting the information for you.

20:42 You could do one of those a day. You could easily do one. I'm saying even it but y even you said if there's three hundred total. Yeah, but I'm just 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. Right. 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

21:10 interesting you or not, or something that's grabbing you or not. Right. And what I do is I look at Every idea that's posted.

21:19 Right. And I don't I don't care to really look at them right when they're posted because they actually uh those ideas will work even five years from now. Uh like recently I started uh investing in a

21:33 in a company where the original write up was in twenty twenty one. Okay. It's twenty twenty five. Still valid. Okay.

21:42 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. Uh whether you buy into the area idea or not.

22:03 Excetera. And Buffett Buffett is still doing this. So His Japanese bets. So there's a there's another uh book called the Japan company handbook. Okay. And and I'm gonna bring the Japan company handbook. Okay. All right, here we have it. And I'm excited about this because You hear a lot about Buffett's, you know, C's candy, Coke, Geico, like those kind of well known Buffett's best bets. Yeah.

22:27 But as I understand it. Buffett made some incredible investments in Japan. So let me explain how no brainer the total no brainer nature of that bat. Right. Okay. So These

22:40 uh five Japanese trading companies. Had a eight percent dividend yield. Okay, so they were paying a eight percent dividend. It was very cheap. Japan has The index has not gone anywhere for like thirty years.

22:55 And A warren actually got a insane return on these. So what he did is He borrowed the entire amount. In Yen.

23:07 At half a percent a year. And it was not a small amount. It was like five billion. Yeah, yeah, he put five billion, but he borrowed the five billion at half a percent. The whole thing in yen. Yeah. In Japan. Right. So now he's bought A Japanese company paying dividends in Yen

23:23 Which he's bought in Yang, right? The dividend coverage is sixteen times. his interest payment. So he put no equity. Right. And He's

23:35 Instantly making Seven and a half percent. on five billion, which is like, you know, what, about uh three fifty, four hundred million. out of nothing, right? It's just coming to him. Now what happens is because these companies are so cheap In about three or four years they all doubled in price.

23:53 Right. So now the five billion has become ten billion. Okay. Equity that went in is nothing. So it's infinite return. They all raise the dividend. the dividend based on the original purchase price is about fifteen percent. Okay. So basically and then after that what he did is he increased the bet.

24:12 So he was he was under five percent of all of them. He's now approaching ten percent on all of them. And Anyone could have looked at the Japan Company handbook. Basically I think it's it's a matter of

24:26 How hungry are you? It's the same as any entrepreneur, right? I mean basically uh anyone who starts a business, whatever, they've they gotta go all in. No, intense passion, eighteen hours a day, all in. very strong belief. It's the same thing here. If you Truly Our Focused on it, you can do very well. I mean the universe will gonna conspire to help you.

24:49 With what are your passionates. And it's just a matter of whether you want it. By the way, does he use Excel? Well uh he does not use exceptional. For sure. Okay. He uses his computer now now he uses Google and all that, but he uses his computer mainly to play bridge. I mean Warren wouldn't be caught dead using Excel. Okay. Because the thing is that

25:09 He is looking for things that hit you in the head with a two by four. Right, so when he's going through a Japan Company handbook or the Moody's manual, there is no Excel needed. What what what will Excel help you with when the earnings are twenty five dollars a share and the stock is fifteen dollars? You don't need Excel. Right. Okay. When when the dividend deal is eight percent and you're borrowing at half percent. You don't need Excel. Right. Okay.

25:32 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 frontline?

25:45 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 these things are very basic numbers. You don't need Excel for it. Right. You know, uh recently I was talking to a friend of mine looking he's looking at some international stock exchange, okay? This international stock exchange uh trades at a trailing PE of like thirty.

26:10 Okay. It's growing at Fifteen, twenty percent a year. Very f rapid growth, okay. Sixty percent of revenue is profit. Okay.

26:20 And as they grow, that sixty percent might become seventy percent because they've got operating leverage. So if you just forward two or three years. the P becomes less than ten. Okay. There is no need for Excel. Right.

26:34 You can just do it all in your head. Okay. It's got ten dollars of herrings today. It's gonna have twelve dollars. A year from now, fourteen, fifteen dollars, two years from now. Maybe seventeen or eighteen.

26:46 Dollars three years from now. Stocks that Three hundred. Now when you're eighteen you're already at a fifteen multiple. Right. It's growing.

26:58 By that time it may be trading, it should be trading at even more than thirty times earnings. So the stock may be at like you know Six or seven hundred by then. Right. It's just the n just just the math of all of that. So what I'm saying is that if you can't do the math in your head

27:15 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 four or five sentences to a ten year old. Okay, and if you can't do that. It's a pass.

27:32 You can't sit down to the ten year old with an Excel spreadsheet. Okay. They're not gonna like you and they're not gonna be interested. Einstein used to say there's like Four levels of intelligence. Smart.

27:45 Intelligent. Genius. Simple. Okay. The highest level of intel in intellect is simplicity. Right.

27:54 And the other thing about investing is that You have to have conviction. It's very difficult to have conviction if you keep need to 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.

28:10 He knows what he paid, he knows what the yen is, he knows all of that. It's pre programmed. Right. Uh Don't use Excel. Don't overcomplicate it, is really what that means.

28:20 And the second is leverage. So don't over leverage. And I think the the story here that I like is Uh 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. Yeah. Can you tell that story? I think it had his name's Rick. So actually uh

28:40 Warren Charlie and Rick Gurren used to do deals together and uh they were all independent doing their thing but they used to share ideas and sometimes they'd go in together. Rick found blue chip stamps for them and I think he also might have been the guy see Candy contacted and so on. After the early seventies we never heard about Rick. He kind of fell off the radar.

29:02 So when I met Warren for lunch, I asked him just a Very innocent question. I said Warren What happened to Rick? Yeah, it's three of you and then We never heard from him after that.

29:13 And Warren said that Charlie and I And we were not in a hurry.

29:21 And he said, Rick was in a hurry. And uh so Rick was always using some leverage. Uh and then when the seventy three, seventy four downturn came. Uh that was a very intense. That was a crash in slow motion, basically. Okay. Uh over a two year period of the stocks went down like more than forty, fifty percent. It was a big

29:42 Uh big drawdown. And Rig got margin calls. And uh and Warren said that when he got the margin calls I bought his bookship Hathaway.

29:53 For forty dollars a share. The stock that's now seven hundred thousand. Right. So Rick was forced to sell it. At a time. When it was probably the worst time to sell.

30:04 Right. And so then Warren actually went one step further because he's always trying to add value to these lunches and all that. So he says He says to mo me and Guy he said if you're even a slightly above average investor. And you spend less than you earn. And you use no leverage.

30:22 You cannot help but get rich in a lifetime. Tell me about the difference between risk and uncertainty. Yeah, well r that's an important concept to understand. Uh because Wall Street gets confused between the two. And in fact when Wall Street gets confused between the two is where the greatest opportunities lie.

30:42 Okay, so we talked about frontline. Frontline with an example. of a situation where uncertainty was extremely high. And risk was very low. Right.

30:54 What Wall Street is looking for is certainty. Okay. So If we look at a company like ADP, you know, the process payroll, right?

31:04 I don't know, they've had some like fifty years. of non stop growth. Because you know, your payroll your running payrolls is gonna keep going up, your cash flow is gonna go up. It's all in a straight line. That's beautiful.

31:19 And Wall Street will reward you. Extremely well for that. And it's priced accurately. It'll be priced for euphoria. Hm.

31:28 It'll be overpriced. Okay. Because they love that. That's what they're looking for. On the other hand. Yeah, I mean that's that's uh that's music to the ears. On the other hand If a company exhibits high uncertainty it will be taken out back and shot. Right. And Those are where

31:47 the opportunity. So one of the cues to look for Is Is this a business? With low risk and high uncertainty. The combination of the two.

31:58 And when you get to the combination of the two Low risk plus high un high uncertainty equals high rewards. I was looking at your portfolio and you have this uh company invested in Turkey that's like a Coke Bottling.

32:12 Yeah. Would you say that's a good example of uh of kind of the risk and uncertainty mismatch? Yeah, we we actually made money on it, but we exited. Okay. And the reason I exited is that uh so The Coke bottler. Basically had a parent company.

32:28 which was the dominant beer bottler in Turkey and several other countries. Their largest operations were in Russia. Where they had uh they have number one market share. uh fifty fifty joint venture with Ambev. And

32:43 Russia has effectively 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. Uh what is support for Ukraine or something. And when that happened

32:57 It became Went in the too hard pile for us. Explain the two hard pal. That's something I stole from you. Well it's a it's a it's a warranting. We'll get to that in a second. But basically Uh it was something I couldn't handicap. Sure. So we were sitting at a game. And we have this im event take place.

33:16 I get to get my bet back with some Added. Return. And we close it. I said

33:23 Where to assign. Right. Right. I can go find something else to play with. But the two hot pile is a Actually a physical box on Warren's desk. Okay. And so actually if you Google it, if you just Google Warren Buffett, too hard. That image will probably pop up. Okay.

33:39 So he has a box on his desk which he calls too hard, and he says that Ninety nine percent or more. of investment ideas that you encounter. should go into that box.

33:51 Because We're not gonna be able to figure it out. So one of the things to understand is that if there's fifty thousand stocks in the world We are not really going to understand more than a few hundred of them at the most. After

34:04 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 in investing is humility.

34:17 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.

34:34 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. You don't need anything else. There's a guy who owns a bunch of real estate, but like in a very small area. Yeah, that's John Arriaga. Yeah, what's his story?'Cause it sounds like it's it's a good example of this. A very

34:53 Thin Kind of circle of competence, but he knew the pricing and was able to So John Ariega uh was a billionaire. He passed away maybe like two, three years ago, pretty recent. And his daughter's married to Mark Andreess. That's right. Yeah. You know, so it's billionaire to the power of billionaire. Okay. So anyway, uh John Ariega basically had a very narrow circle of competence. He didn't understand most things, but he

35:18 Only invest in real estate within two miles of the Stanford campus. Okay, that's all you usually just right around the campus. And if you walked with him. Around the campus.

35:30 Every single building, he could tell you the full history of the building. When was built. what the current value was, what the rents were. who the owners were and what the history was. He knew that about every building. And you know, so he was a He was a inch wide and a mile deep.

35:46 And that is a really good trait for an investor. is to be very narrowly focused. Right. Right. Now What John Arriga did is he ran, generally speaking, a very under leveled portfolio. Yeah. Or his portfolio always

36:03 Not much 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. Yeah. Other than Park Avenue or something. Okay. And so he would just buy these things up and

36:19 Everyone was getting foreclosed and bankrupt and go to the banks and buy it from them and all of that. And then you know

36:28 Least and Fair value and all of that. Again, take the leverage down and again next down cycle again the same thing. And he st he stuck to that. So the thing is he didn't wander into oh let me go to Mountain View and do it. Right. Okay, or let me go to Urban California and do it. He didn't do all that. I mean he's basically all let me invest in tech. Or something. He didn't do any of that. He

36:50 Stuck to real estate, that's all he did. And he did it extremely well. And he died a billionaire. We don't need to know Many things about many things.

37:00 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 frontline.

37:12 I should learn everything I can about shipping. I should learn everything I can about oil shipping, about tankers, about the history Who makes them and Every nuance about him, right? The deeper I go.

37:24 The better it's gonna be for me. Okay, I shouldn't be spending time next week on airplanes. Okay. Just leave it alone. Like one by one by one. Right. Why do you think most people don't do that? Because you when I hear that, I think

37:37 Uh. There's a blueprint. To just say I'm gonna go deep and in this two mile radius. I need to become super knowledgeable and I don't need to get distracted by everything else and I'll hold forever. Right. Like that's that's a blueprint. If you think about it, I think it was Nick Sleep who has this

37:51 He said, The best investors Uh Entrepreneurs who never sold. So if you think about entrepreneurs

38:01 That's what they are. They are John Arriaga, right? So if I look at Sam Walton. Sam Walton is John Arriaga. All he did was retail. All he did was visit competitor stores. He never bothered with anything else. So Sam Walton, founder of Walmart. Yeah. Tell me more about him. We can well, so Sam Walton

38:21 Uh I mean he said that there is There is no human Who has ever lived or ever will live. who have 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 twenty minutes. And he'd go

38:39 And what is he doing in there? What w what did he do? So I'll give you I'll give you an example. One time he went into the store and his Manager says to him That was such a Badly run operation.

38:53 And Sam says to him, Yes, but did you see the candle display? Did you see how fantastic that candle display was? His perspective was I can learn from losers. Okay.

39:04 I wanna that spark that's there in something that's a total loser, right? So he was going in and one time uh In Brazil. This uh retail store. They find this older guy flat on the ground.

39:20 They call the paramedics. It turns out it's Sam Walter. And what he was doing is he was measuring the space between the aisles. And he didn't have a tape with the body.

39:31 So he laid down. He laid and you know, the space between the aisles is a very important data. point for a retailer because you're gonna either waste square footage or be too narrow and the people won't enjoy the experience. So you have to get that right, right? And so he was in Brazil saying How are they doing it? I might three inches too wide in Walmart? Am I three inches too narrow? What am I, what's going on here, right? So that was this was a game of inches.

39:58 That's who Sam Walton was. And in fact Walmart has not innovated at all. f at least for the first twenty, twenty five years that Walmart ran. Everything came from somebody else who was already a competitor.

40:13 They took a lot from Sears, they took a lot from Kmart. And then they kill them. And they kept learning From one comparator after another. Sam Walton actually used to say

40:25 I'm not the smartest. Tool in the toolbox. I'm not a smart guy. But I'm a learning machine.

40:31 I'm gonna keep At this. And what others have become So you know, uh it's very funny He goes and visits Sol Price, the fo founder of Price Club, which eventually leads to Costco. Right.

40:44 And he looks at the Uh Price Club. And he says, This is fantastic. And it cleared Create Sam's Club.

40:50 Right. And cost goals. was also taken from Price Club. So both Sam's Club and Costco. They would not have Sam's club is Sam Walton.

40:59 I don't I didn't even 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 A price club which was a predecessor to Costco. Right. So Sol Price was an incredible entrepreneur.

41:13 uh someone goes to me and says, you know, no one has had more impact on retailing than sole price because sole price influenced Sam Walton in a major way. And he influenced Jim Sinegal, the founder of Costco in a major way. I mean he thought the the pillars and then These two companies. influence Amazon. Right.

41:31 Right. So th it's all coming from sole price. So someone told Sol Price, You know, y you are like the Father of retailing in the US. And actually globally

41:44 I wish I'd worn a condom. That's amazing. So so Sam Walden is Yeah, but I just want to say that for example some of those things that Costco does. Cost of pays. fifty percent more than Walmart pays its employees. So the entry level people are making fifty percent more.

42:08 Okay. Hasn't affected hurt their profitability. In fact, sole 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.

42:21 Just like Henry Ford said, I want my workers to be able to buy my cars. You know, at that time their cars were Automobiles were for the rich. Right. And uh Henry Ford said, No, I want them for everyone, right? So he wanted to drop the price and and uh So I think at at Costco the lowest wage is like twenty bucks. An hour. you know, like when you're starting out whatever and then they have tuition reimbursement, all kinds of other things and

42:44 Uh they get a lot of productivity out of their people. Yeah. 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.

42:59 I mean just to set the scene. So that your office your computers over there were surrounded by a cave of of books on every topic. So I s I see some business books over here. I see investing books. You got you just brought a retail book about Sol Price, the founder of Price Club from over there. There's science, I think, on that one. This what does this door go to? What is what is this? This is like a bedroom. That's a bedroom. Okay. So you live in the library, essentially. And you nap every day, I think. Absolutely. Yeah. So we're both nappers. I've been I've been uh so used to napping that if I don't nap My productivity goes down. And so I I actually don't like to work.

43:37 if I'm not productive. And and what I find is that even if I you know, lay down for half an hour, forty five minutes. It's I'm re energized. Right. And I think for the work I do I need to be all in. Yeah. So I can't I actually can't do this work if I'm tired. You know.

43:55 uh this athlete, Connor 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. Yeah. And this flickering dim light, it's not doing you any justice. And so I've used that in my own model of like

44:23 Where's my light right now? And if I need to just sh shut it down briefly, thirty minutes, an hour, whatever it is. Well uh Jeff Bezos, you know, he said. All decisions, important decisions, in the morning. And Uh he's very particular. He needs a solid eight hours at night. Right.

44:40 And he he leaves work at a normal time. Right. They don't do these important decisions in the afternoon. Right. It's the first thing in the morning.

44:51 Because he wants the highest energy levels. And in fact what I also try I f 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

45:08 Analysts and junior people and and uh It didn't seem you seem like you keep a pretty clear calendar. Is that intentional? Do you think that's is that just what you like or is that effective? In the business I'm in, if I can find a couple things to buy in a year.

45:23 In the case of Buffett, one thing to buy every five years. Right. I'm doing well. And so this is not of a situation where having some packed schedule or whatever. I think the thing is that

45:35 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. Right. And and

45:56 Sometimes I find uh 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 three to five percent of my brain power.

46:14 Was on Strategic decisions. Really clear thinking. coming up with the right answer, and then ninety five percent of my time was blocking and tackling. And you're like as an investor, it's great because that three percent becomes ninety five percent. Uh I'm I'm just it's just about clear thinking and making the right strategic move and not uh I don't have to busy myself.

46:33 But one thing I thought was cool was uh I've read that you took some personality test or you got some analysis done on you that basically helped you s uh you know they sort of told you your temperament is for single player games. Wha what is this? I I didn't understand what what you did. Yeah, so uh 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 I didn't In uh nineteen ninety nine, actually I was at a crossroads where

47:01 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 a hundred and seventy people in the company.

47:18 Who thought I'm motivated. And I can't fake it. You know? And uh so very accidentally I was with these two industrial psychologists and they basically did uh three sixty on me. So they had me take a bunch of tests. They talked to

47:33 my direct reports, they talk to my friends. Family, spouse, so on. And they built a kind of three sixty view of who I was. And then they gave me what I call my owner's manual. And I think everyone should have their owners manual. Like it comes with a a appliance you bought. Yeah. I mean it's it's we show up, we don't have a owners manual. And each one is each one of us is programmed differently.

47:58 So what they said is look The way a human is, his traits, likes, dislikes and what Passions they are. That is hard coded at the age of five.

48:10 And that is not gonna change from the age of five to the age of ninety five. Okay. You might try to ch 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. Hard coded.

48:26 Now the problem most humans have Which I had. Is We don't know what those traits are. Uh what most of us try to do is we do what what uh they call mirroring. We look at what the world considers acceptable.

48:41 And we adapt our behaviors so that we kind of fit in. But That can be a big disservice. Okay, so

48:49 So basically What they were able to tell me is they said, Look Uh you you are a person they say when we look at the company you're running. And we look at who you are. We don't even know how you

49:03 Can Go to work. How you're functioning. Yeah, we don't know. And uh actually I was in pain. I was in a lot of pain. And the the the thing was that I love that business. When it was just me. And I love the business as it was growing.

49:18 Until we got to the first ten, fifteen people. And then as I started growing beyond that My life became and my job description became HR. I'm just herding cats. I'm not a cat herder.

49:30 Okay, that's not who I am. Okay. So uh What they said is that that business that you have You need to get rid of it in some way.

49:42 As soon as you can. And I was just thinking at that time, this was in March or April of to in nineteen ninety nine, I was just thinking of starting Pobraye Funds, right? They looked at it. And they said, This is perfect for you.

49:55 this is gonna work extremely well for you. In fact one of them invested. He's one of the first investors who came in. He was so and put a skin in the game. He was and I told him, listen, you know, I'm paying you guys two thousand to do this You're giving me a hundred thousand. I really don't want to lose your money. I don't have any doubts, Mornish, you're gonna do very well. So I don't see any risk here, right? And he did extremely well. Uh and so uh they were actually right because now it's been

50:22 Twenty six years since I've been running it. And haven't gone bored. So what did your owners manual say? So I said, Don't like that. My owner's manual basically said That Well, first of all they said that I had

50:35 Very high housepower. Right. And they said that I was one of the smartest guys they had come across, et cetera, which was great. But they said that You are a guy who likes to play single player games. uh you are not the kind of guy who would be happy being in a soccer team, for example.

50:51 Where you're one of the forwards or whatever. And your Performance depends on the team. They say you do They say you seek out games.

51:00 Which are 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.

51:15 Right. Okay. I I gotta know this story. I I figured out a system. Which Basically beat them.

51:23 Okay. Counting cards? What were you doing? And actually did it without counting cards. Right. And and in fact it It took the casino Almost a year of watching me. So I used to go every like six weeks or something and they played those tapes over and over.

51:39 Because uh the markers that they look for. And uh but we'll talk about that in a second. Okay, so what I'm saying is that So

51:48 What are the games I like? I I like blackjack. I like bridge. Mm-hmm. I like investing.

51:55 And even Dakshana, for example, Dakshana Foundation, that's also a game. Right. That's your philanthropy. Yeah. But they're all mathematical games. Even Dakshana 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 Dakshana is How much money is going in and what's coming out. Right. And that's the only thing I'm focused on.

52:22 is what's going on what and what what ended up happening with the is 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 that this is the best, okay? Never done that for any philanthropy that he's uh looked at.

52:39 And the reason is because there's a game player who's not focused on, you know, name and lights or a bunch of fancy pictures in the annual report. We have no pictures in the annual report, you know, just like the Berkshire report, right? But it's it's about an honest input to output. Singular. So what I did is every year that we ran Dakshana Well explain what it is. I don't even know.

53:01 If you take a step back and say okay I wanna give money away. To make the world a better place. So the natural second step you would get to with that is

53:11 I want Very high returns. on the money I'm putting out, right? So social return on investor capital. should be extremely high. Now most non profits don't even think this way. They all heart.

53:24 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 two thousand six I ran into it. Where he was taking thirty kids who were very, very poor in India.

53:45 in in Bihar and most of these kids were coming from illiterate parents, et cetera, but they have very high IQs. And he prepped them for about ten months. And he had them take the IT entrance exam. The IT that the you know the the best uh uh technical institutes in the world. And uh

54:02 Now the thing about the IITs is that There's about Oh One point three million. Uh kids.

54:13 Applying for sixteen thousand seats. It's about a one point three percent admit rate. Okay. Princeton is about a five percent admit rate. Harvard is about five or six percent. This is one point three percent.

54:26 And If you get into the IDs. It's basically free to attend. the government subsidizes it. So If you're a very poor person

54:34 And you get into the IITs. Well now Microsoft will hire you, Google will hire you, anyone will hire you. Right. And but getting in is

54:43 expensive because the coaching is expensive. So what this guy had done is He had made the coaching free For these very poor kids. And now what was happening is you had a family that was making Sixty dollars a month, let's say.

55:00 And the kid graduates. And Google hires them for hundred and twenty thousand a year. Okay. I mean, you know, the the transformation in five years the guy's making three hundred thousand a year. Right. And so the just that that And

55:13 He was spending eight hundred dollars per kid. And the training, the person. You spend eight hundred dollars And you take a family from sixty dollars a month Right.

55:25 Okay, I mean what's the ROI on that? And you're gonna do that for this whole lifetime and you're gonna reset the extended family and all of that. It's a the ROI is off the charts. Right. 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.

55:44 I do thirty kids, I don't want even thirty one kids. I don't want take outside money. None of that. So I'm the shameless cloner. So I told him, Do 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.

56:00 And that's what Dakshana is. So we we are spending. Dakshana spends About three or four million dollars a year. Just imagine what the output of that is. You know

56:12 When when you look at it from each family and then you and we're doing three, four million, we've been doing it for seventeen years. So basically What we get out of Three million dollars a year. A lot of other nonprofits would not get out of even a hundred million a year. Right.

56:29 So We actually uh you know have a footprint that is much larger than what it should be in terms of impact. Right. And to take it back.

56:41 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.

56:52 So the IITs accept one point three percent of the kids who apply. They accept Seventy percent of our kids. That's amazing. So now what I'm doing is I have a game which

57:05 put two models together. So One day before I die. I wanna have ten thousand dollars left. Okay, so basically inheritance is just don't do much, right? I mean my kids already have

57:19 They're doing well. Yeah. What is your philosophy on that? So Well uh In general, large inheritances are going to do more harm than good. And uh you know, basically you don't want a person to be on an Ivy drip for their whole life. I mean that's that's the worst thing you can do somewhere. Right.

57:37 And so uh Buffett has a great quote. He says I wanna give my kids enough money for them to do anything they want. But not enough to do nothing. Okay. Okay. So Because I I'm investing for a living and we have this kind of compounding going.

57:54 uh I'm gonna 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 with the lifestyle and everything else, right? So Everything else basically needs to get recycled. But it needs to get recycled at high returns. So on one hand, I have a compounding engine and a network that's growing.

58:21 On the other hand, I have to give it away. So God Google told me That on June eleventh, twenty fifty four. I'll be leaving planet Earth.

58:31 Uh. So y you asked AI, what did you do? If you if you go to God Google and just say, Hey, I'm you know, fifty two years old and tell me when I'm gonna die He will tell you. Okay. And now that we have the date, so what you know, my birthday is June twelfth, just to make it poetic, I've made it June eleventh. Okay. Okay. So we have an exact

58:55 No number. So basically uh twenty fifty four means I've got like twenty nine years and change left, right? And at any kind of compounding rate it's a ridiculous amount of you know, uh assets that get built over the time. But I wanna end on June tenth.

59:11 with ten thousand dollars. Okay, so there's one game which is to give it away. 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 three million a year needs to go to five, ten, fifteen eventually. And so on And

59:32 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.

59:44 And my investors are happy and so then that's fine. Okay. So what was your blackjack system? I'm sc I'm skeptical. So The the black tech system. It would destroy the casino. they would have to either change the game or something. But basically

59:58 I'll give you I'll give you some pointers of kinda what's going on here. There's a there's a coup there's a publication called BJ21. Bj21.com. Okay, if you go to bj21.com. And you give them a hundred bucks. They're gonna give you a PDF.

1:00:16 It gives you the odds of every blackjack table in North America. Okay. So for example if I go to Uh the win Las Vegas, right? The win live also gets a bunch of different blackjack games, single deck, double deck.

1:00:30 Six stecks, whatever else. Every single one of those, it gives you the odds. If you play perfect blackjack. And these odds vary depending on how competitive. So if I'm going to some, you know, riverboat in Indiana.

1:00:44 I'm not gonna get the same odds as Vegas. Vegas strip is gonna be more more efficient because it's more competitive. Uh so usually the house will end up with something like a Point three, point four percent all the way to like Two percent.

1:01:00 Edge. Edge over the over the better. Which means every bet you're making, if you make a hundred dollar bet, every bet you're making you losing your fifty cents or whatever. So there's a casino in Vegas. Call the El Cortels. And the El Cott is a small casino. So

1:01:17 In order to kind of induce people to come The Kind of Improve the arts. Okay.

1:01:25 But the single deck game at the El Cortez has the tinnest house edge of any Black check table. On the planet. Okay.

1:01:37 The house edge is 0.18%. Okay. So if you look at that B J twenty one, look at all all of their they're the edges of every table. This one is a is the lowest, right? So this is a Very thin

1:01:51 And And I have a system W which took them a long time to figure out. They play single deck blackjack, right? But they only deal

1:02:00 Half the death. So The reason they deal half the deck is so they they can uh just make it difficult for the counters. Because you may be counting cards. The deck becomes very favorable, but then they shuffle. Right.

1:02:14 Right. So you the the high cards at the back, but they never get dealt. Right. So the counters get screwed. Right. Uh so I I had a system where It basically relied on the fact that Blackjack occasionally has streaks.

1:02:30 It has streaks where you may win six or 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. Mm-hmm. And when I was winning, the bets were increasing.

1:02:48 So with the variance of that, what happened is I was able to overcome. The point one eight. Right. Right. So I don't want to go more than that gives it you know. And what I'm gonna do is when the cameras turn off, I'll explain it to you. Okay, great. So when you go to the next time and you go to the all cortez, but but now what happens is so what happened with them what What really confused them.

1:03:10 Which they had never dealt with before is. Normally what the counters do is on a brand new shoe. It's a little bit. Minimum bet. Yeah. In my case, there was a brand new shoe, there's a high bet.

1:03:23 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. Right. He has a high bet. Did they ever figure it out or did they just say it's a little bit of a it took them so what happened to them playing Blackjack? The general manager who's very friendly to me comes and sits around next to me. And tells the dealer stop dealing.

1:03:45 Okay. So she's in the middle of a hand, she just continued dealing. She he says, he screams at her. Stop dealing now. You should never heard that before. Okay, like literally middle of the day. She said she said shuffle. Right. We're done. We're not dealing anymore.

1:03:59 Then he tells me that Mr. Pabry. Uh I like you. Okay. I read your book.

1:04:06 I watch your videos. And You have a system. That We cannot beat. Right.

1:04:13 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.

1:04:24 And we know you'll beat us. And so you can come to this casino any time you want. But you cannot sit down at a blackjack table. Then I'm thinking why would I come here? Okay, why would come to the Al Contest? And so that was but you know, whenever I like I go someplace to talk or something and you know they introducing me, I always tell them listen. Just say that I have a lifetime ban in Vegas. Yeah. I mean street cred. I really don't care about everything else on my C V that's really r irrelevant.

1:04:58 And that's what's relevant. Wow, that's impressive. Yeah. You're a Harvard dropout. That's the higher status signal. And so you're good at black check, made money in black check. I was banned from a casino. That is the highest status. Yeah, so I I I mean I I took them for like about a hundred and fifty thousand or something. And I and then you know this was a very low table limit. Right. Uh the table limit was only two thousand. But at two thousand I took them. So they they said okay, we're done. You know. I love it. You you've run into all these characters. We've talked about Warren, we've talked about Charlie, but I want to know about some of the other characters. Your stories are amazing. I could listen to your stories all day. So

1:05:36 Uh Michael Bury. One of my favorite movies is the big short and Michael Bury's this kind of mist Mysterious character. Did you ever meet Michael Burry? What you're gonna end up when we finish this conversation is you're gonna know that my middle name is Force Camp. Okay. That's really where we're gonna end up. So

1:05:55 You know, I always tell people That God loves me. He loves me more than other people, and I'll explain why, right? In two thousand eight, okay, so the financial crisis is not yet happened. It's like March or April of two thousand eight, right? So th things are getting

1:06:11 Popsy Derby, right? And uh I was Visiting San Jose for some Something else going to San Jose.

1:06:20 And I knew Michael Burry had an office in San Jose. And I didn't know him, but I sent him a email saying, you know, Mr Burry, I'm I uh like you, admire you, et cetera. And uh Would love to visit you. So he he was kinda well known. He was not very well known, but he was he was like posting on Value Investors Club and things like that. He was like he was there a little bit. And and I liked the way he thought, you know.

1:06:44 And uh he said oh yeah, stop by. Okay. So I go to his office. In San Jose. And there's a few kind of analysts sitting outside. It's a very kind of uh Seems like a very depressing place. Okay.

1:07:00 And then I go into the office. And there's huge piles of paper everywhere. And he immediately launches into CDSs. Okay.

1:07:10 And he says, Look, Monish, I wanna tell you something about something that's going to make you extremely wealthy. Okay. And He then downloads to me Yeah.

1:07:21 One million miles an hour. I've never heard of a CDS. Okay, 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

1:07:37 Eighty percent, ninety percent of what he said went straight over my head. Okay, like he was just he doesn't give me a full core dump in uh half an hour. My subhuman intelligence couldn't handle it. Okay, I couldn't

1:07:51 And you know, so I come out of the meeting, my head is spinning. And I say, Okay, well that was 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? So I felt like okay, you know God who loves me so much.

1:08:13 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 Mornish Blue. But

1:08:27 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 p or uh, you know, foresight in in terms of

1:08:40 that you've seen in your career was Well I mean I think I think this has happened to me a lot. I mean in the sense that Like I said, you know, we put ninety eight, ninety nine percent are to hard pile, right? Even now, i I think it was right of me to not do anything with it because I couldn't understand it. Right. Even after the financial crisis, it took me a while to understand the CDSs. Right and all these tranches 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

1:09:10 Hats off to him. Right. I mean he figured it out, a few people figured it out, but it was a very small number of people who figured it out. Right. Tell me about the greatest Investor. From India.

1:09:21 Who is the greatest investor for India? The greatest investor for India would be uh Rakesh Junjunwala. I ne I never met Rakesh. I mean I I know his friends Uh quite well. Guy actually met him. Uh wonderful guy died relatively young uh

1:09:38 Few years back. But uh Rakesh 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.

1:09:56 Then he never touched. So he had I mean I've I don't know anyone like that who's who's and he was great at both, but the ones that he never touched I mean, they just went through the roof. Like there the there's a company in India called uh Titan Industries.

1:10:13 And Titan Industries uh does uh branded jewelry. Branded jewellery basically didn't exist in India, you know, it was all mom and pop. Yeah. Uh and there was a trust deficit, right? So you go to a jeweller in India and in India they have like twenty two carat gold, right? And you're buying the gold, you don't know whether it's half gold. eighty percent gold or what the hell is going on, right? The jeweller knows what you don't, right? Uh the the that Titan brand is owned by the Tata's who have very high integrity. So basically they They were able to take uh

1:10:42 a sector which had a huge trust deficient. uh deficiency. And I mean they've I think Titan is still in its inf infancy. Right. And I think uh Rakesh made a huge huge I mean Rakesh I think compounded it

1:10:56 North of forty percent a year for several decades. Unbelievable. And you know, he started With like uh ten thousand dollars 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 What was the trait that really helped you?

1:11:16 Uh CPA. India is the equivalent of CPI chartered accountant. So he Uh obviously you understood numbers well. And Just before he died, so he had figured out

1:11:27 that uh Indigo, which is a low cost carrier in India. They have like something like seventy percent market share growing really rapidly. It might become the largest airline in the world. I mean they've got like Thousand planes in h order or something. Okay, so they they're they're growing very fast. He had done well as an investor in Indigo.

1:11:45 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

1:11:56 While he was dying, you know, he was like in bad shape in hospital and all of that. And that uh airlines up and running and cranking and all of that and uh doing great. So If he had lived longer, I think he would have gone Not just

1:12:12 as an investor but also shown That He could be an operator. This idea of like runway and how early you start. Yes. Matters.

1:12:25 Even 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 in in the world right now. Yeah. And I guess when you th when when you go talk to people are you just sort of like

1:12:41 Yeah, you should have started thirty years ago. Is that the number one method? What we started our conversation with, right? I think the important thing is That if there's a young person listening The funny thing is that if you look at the rules For a IRA or a wrought IRE.

1:13:00 There's no minimum wage. You could be six months old. and have an have an IRA. Right. The only rule is That You can only put in wages.

1:13:12 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.

1:13:23 Different things in the business. Because he's putting like six thousand, seven thousand into their Roth IRAs. Right. Which is equal to their W two earnings, right? And probably stretching the limits of what we can get away with with the IRS. That's beautiful. I mean the thing is that uh but but even if you're not doing that, if you start at twenty two. I mean that's the important thing is that when you when you start earning at twenty two

1:13:49 A small amount saved at twenty two. is more important than a larger amount stay of the thirty two. 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 Berkshire. Set it and forget it. Right. Uh yeah, because then then if you start at twenty two.

1:14:10 And you're twenty two today. You're gonna live over a hundred. Right. You know, you're gonna go to hundred, hundred and ten by the time, you know, because all the advance is taking place. That's it. Ninety runway. I mean a ninety year runway is something. I mean we if you're talking about uh even a ten percent return

1:14:27 Uh we are only going to look at doubles, right? So every seven years that's two to the power of thirteen. Total power ten is a thousand. That

1:14:38 Two thousand two that's eight thousand X. Okay, the first ten thousand you invested is at eight million. Right. The second town. Ten thousand is another eight. eight million. You know, so the thing is

1:14:50 It's a mind blowing Amount of money. If you start early. So the length of the runway is really important. Do you pay attention to the macro because You know.

1:15:00 My head starts to spin. It's interest rates and then there's wars and there's all these different factors. that you could pay attention to. And there're some people who really pay attention to that. Do you pay attention to the matter? No, because I can't handicap and uh 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 ten year old in five sentences. Right. I'm not gonna be able to figure out the macro. That's why I couldn't make that CDS bet. Right. You know, it was like so much stuff going on about housing gonna crash, this gonna happen, that's gonna happen.

1:15:29 I mean, I just couldn't get my arms around it, you know. In my world, everybody's talking about AI. Do you think about AI at all? The the problem is I bring nothing to that party. And I'm probably gonna get my head handed to me if I Try to participate.

1:15:42 It's not in the no brainer category. It's not something where I have an edge. I of course I do believe that It's transformational. But

1:15:53 You know, I knew the internet was transformational. Uh 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 Arriaga, you know. don't understand any of these things. Or even Warren Buffett. And and you know, Apple Apple is in the rear view. They they sold most of it. Yeah. And they might have sold all of it by now. But uh but basically uh that was a one and done. But basically, yeah, I think that We don't need to

1:16:25 Understand flavor of the day. We don't need to understand Nvidia. We don't need to understand AI. Uh if you understand it. More power to you. That's awesome. And if you know how to

1:16:37 leverage that understanding into dollars you can make, that's even better. But that's not me. So we all have to play to our strengths. Yeah. Okay, well Monish this is uh Been incredible. Part two. Uh I'm happy with it. This is

1:16:51 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 uh better, at least as good. No, I it was fun. I enjoyed it. It was awesome. Awesome, thanks for doing it. Okay, thank you. I feel like I can rule the world a no way be what I want to I'm putting my all in it like my day's off On a roadless travel never looking back

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