Mohnish Pabrai: This will save you 10 years of bad investments

0:00 What percentage of Americans who invest in stocks? Do you believe are good investors? Well under one percent. The game we're playing is transfer wealth from the active to the inactive. If you have that type of a temperament. It is. Orgasmic activity. Okay. If you are even a slightly above average investor, you can't help but get rich over a lifetime. What's the mistake that smart people are making? Many people die at twenty five and are buried at seventy-five. I saw Charlie make investments six days before he died. This is like life advice disguised as investing advice. Yeah.

0:37 Just quick reaction, bullish bearish on the S P index right now. Bearish. AI, how do you think about it as an investor? Invest in the pickaxe makers. Because the alphabets and meta's of the world are playing a game they haven't played before. So I wanna ask you the hardest question. Which is

0:55 I can rule the world, I know I can be what I want to I'm putting my all in it like my day's all on the road less travel, never looked for this back. Round three. Here we are. Elevated as always, we're on the pitch. What percentage of Americans who invest in stocks do you believe are good investors?

1:14 Well under one percent. But the good news is so A large number of investors. Invest in index funds. Right. And index funds give you a great return.

1:28 Without doing any work. So You don't need to be a rock rocket scientist or understand businesses or any of that. And you get A pretty good outcome. Are you counting them in the one percent, or are you saying that's a separate thing. No, I'm talking about the ones who are actually picking strokes, right? And so I'm just saying that you can

1:46 Take the approach. of buying an index fund. And you're gonna be ahead of ninety plus percent of the crowd. Right. Which is awesome. Right.

1:55 I mean just think about doing some activity which takes no more brain cells and getting ahead of being in the top ten percent. Right. But if you decide that you want to actually Study businesses. And then invest in them. After studying them,

2:09 In that universe of people doing that, there'll be a very small sliver. Who would Do well with that. Yeah. What's the mistake that smart people are making when it comes to investing? It's not a mistake, it's the lack of patience. So

2:23 most of the nuances that would lead to a great investment result. have to do with temperament. They're not related to I think. or other things, but they have to do with temperament. So

2:35 It all comes back to watching paint dry. Right. So When we make an investment in a company Nothing may happen for three years.

2:44 Or five years. You know, it's just the just the nature of the beast is that it may Um it may not do a whole lot for A while. And also uh sometimes you made a in fact many times you made an investment, it's a mistake.

2:59 And you need to at some point reverse that message. So so there is the activity needed Appropriately. Uh, but basically the less the activity The Better the outcomes.

3:14 You gave me one of the commandments, one of the truths about investing, which is Thou shalt. Uh enjoy watching paint dry. I asked I called your daughter in research for this podcast because I knew you were very into mental models and these frameworks of ways of thinking. Yeah. Uh that produce benefits.

3:30 I said, What's one that he loves? And he said she said. The mistress is always hotter than the wife. So explain it. I didn't want to say that in front of my daughter, but unfortunately I did. That was the first one she mentioned. Yeah. What we own Is the wife.

3:48 We live with her every day. And What we don't own. is the mistress. Right. And

3:56 The Unknown has Uh Exciting attributes. And so one of the things we have to keep in mind is

4:07 The wife. is someone we know extremely well. And we may be discounting some great attributes she has The mistress is someone we don't know very well. She just looks hot. Right.

4:21 We don't know all the other nuances about her, you know, temperament and other things and whatever else. It's very tempting for an investor to say. I own this company. But I think there's other company which I don't own.

4:36 Is better. And I should make a swap. My friend Guy Spear says that He's very reluctant. to take any actions on his portfolio.

4:46 And not being interested in taking action. can give you a huge leg up. So sometimes we do need to take action, but in general you have to really be convinced uh pretty unequivocally.

5:01 Right. The mistress is truly harder. Right. Right, and uh not just an appearance of being hotter. That is a difficult nuance to Actually

5:13 Master in real life. the idea of the wife versus the mistress is You have to have a very high bar for action. It's not that there's no action. Yeah. It's that the bar needs to be very high. have the conviction level. You need to become comfortable Passing on everything below that bar.

5:28 Yes. And I think in general, most of us would do well to raise our standards about all things in life. The people that we're around, the investments that we make. Exactly. This is actually like life advice disguised as investing advice. Yeah. Right. My dad used to say that to have a great life you need one good wife and one good friend. And so less is more. Buffett says that If you hang out with people better than you.

5:54 You get better. And if you hang out with people worse than you, you get worse. There's a gravitational pull either way. So The good news is we don't need many of these, but what we should be doing is we should be trying to make sure that our relationships.

6:08 Uh ones with people we have deep admiration for. People that can Make us rise. Right. And I I feel that

6:17 You know, I randomly stumbled onto investing. I'd never been in this field, et cetera. And uh I remember so there's another mental model which is Uh Very powerful model. All right, let's take a quick break because I got a little freebie for you. So

6:32 If you're listening to this episode and you like what Manish'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 can 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. And enjoy. Charlie used to talk to me about introduce randomness in your life.

7:03 Introduce. Just to tell you the impact uh that had which I didn't even understand this when it had the impact. In ninety four I'm at Heathrow Airport with my wife and I'm looking for something to read on the flight back. And I pick up one of Peter Lynch's books, uh one up on Wall Street.

7:22 And I'm never invested in a stock, not really interested in investing, don't even know much about it. I read the book and loved it. Okay, I'm an engineer running a IT company, right? I said, uh oh I wanna kinda read more of this, right? So there was another Peter Lynch book, Peating the Street. I read that. And I love that too.

7:39 And then there's no m no more Peter Lynchbox. But in those two books, in one of the two books he talks about Buffett. Right. And I never heard about Buffett. So then I said Let me find out about this guy. And I was very lucky the first couple of biographies on him had just come out.

7:54 The year before. And then I read those, then that led me to the Berkshire letters, the partnership letters. Huge world opened up. Right.

8:03 And uh then I started to Invest using that approach. So I'd been doing the buffet investing and all that and really kinda overdosed on it. And in ninety seven

8:16 The thought came to me. Uh, should I go to the annual meeting? And I was saying, you know, the transcripts get published and all of that and I don't know anyone and I have young kids and all that. So I was very much on the fence whether to go to the annual meeting or not, right?

8:32 And I decided in the end Let's go. Okay. Let's see what the hoopla's all about. The annual meeting opened up another big world.

8:41 Right. Now. Само май без френс. I Folks I met in Omaha.

8:50 Reading the Peter Lynch book introduced randomness. And one thing I I came to realize I tell people when they go into the annual meeting Yeah. When you're flying to Omaha on a Friday. The two people sitting next to you? are both going to Omaha.

9:05 for the meeting as well. And they're both above average humans. So just start talking to them. Right. Right. Because it's not the average humans going there, right? Pre filtered. And so when I look back now um on my life, so much of it has come from the whole Buffett orbit, right? And the Buffett orbit what I realized is

9:25 When I got to know Charlie Munger And I started playing bridge with him. I got to know Charlie's friends. I used to have dinner with him and I one by one I met a bunch of his friends. Charlie's friends were some of the highest quality people I've ever met. They were much older.

9:42 But I uh worked on You know, building those friendships. And that was such an awesome thing. Right. And literally every time when I talk to some of these guys

9:52 And the way the conversation was a wow. you know, hang out with people better than you, introduce randomness. So this is what Munger calls the Latticework of Mental Model. So when you start Putting these things together. And you start using them all at the same time.

10:11 That's when one plus one becomes eleven. Or if you put four models together, it's one plus one plus one plus one is over one thousand. That's when you start getting what Charlie calls Lula Plus effects. And so then that's when you get a huge leg up on humanity. There are other people who may be a lot smarter. other people who may work a lot harder. Let's take Elon for example.

10:34 So I forget what he calls it the uh Idiot factor or something but idiot index. Idiot. Yeah, the idiot index, right? That's right. So what he says is They look at some part that they need.

10:46 And um they'll say, Oh, this part is, you know, five thousand dollars. So Elon says to them. What are the materials that go into this part? Raw materials. Raw materials. And what is the price of the raw materials on the London metals exchange. Right.

11:02 Okay. And they'll Calculate that and say It's Two hundred and seventy bucks.

11:09 We're gonna make it ourselves. And we're gonna make it for five hundred bucks. Right. Right.

11:17 And so the thing is that None of his competitors. Think like that. Right. None of them have this idiot index. Without that, there's no Tesla.

11:27 There's no SpaceX, there's nothing. There's no boring company, any of that. So it's it's a one of those core Right. Foundational models. Right. But the other thing about humans is that Boeing is aware of this model. And all the car companies are available aware of this model?

11:41 It's not in their DNA. Right. This is not how they think. They're not going to adopt it. So the other thing another mental model to understand. is humans are very poor at cloning. They all understand that Elon has kicked their ass.

11:56 They also understand why he kicked their ass. Yeah. They know everything. He's an open book. Okay. And What you need to do is also known

12:09 But after knowing all of that There is no movement towards that. Right. There's no movement, by the way. We wouldn't be here right now if not for cloning. So the story of this set Right now.

12:22 Is that my friend Chris, uh Chris Williamson, he did a podcast here. He sent us a video like oh I'm doing this crazy shoot. L E D wall three D I got this Film crew here, blah blah blah. He sent us a video of it and I was like wow, that looks cool. But my first reaction was

12:40 Buddy, it's a podcast. What are we do what are we doing? Why why do you Does anyone really care if it's in IMAX four K like does that really make a difference? And you know, that seems like a lot of effort, a lot of cost, and I sort of wrote it off. So then it comes out. First time I click the and then I see not even before I click the video, I see the thumbnail. I'm like wow, that looks different. So I click.

12:59 'Cause I'm a lizard brain human and uh if something is different interesting. I click it before I even think. And then I'm looking at it and I'm watching this thing and it's interesting and it's entertaining and so immediately I recognized Oh, a mistake on my part. Like I thought I thought this was not important. Turns out actually this is important. So

13:17 You had to uh travel a little bit in the sense that Your first reaction was stay in your comfort zone. Right. Right. But The second leap you made, which is after seeing it.

13:30 You acted. Right. So From admiring it to acting it is a huge leap. It's like ninety percent of humans will not do that. So Sam Walton.

13:40 Not That smart a guy. Okay. Uh very hard Walmart. Yeah. Very hard working. All American. But not that smart, okay.

13:51 And no original ideas. Okay. Every single thing at Walmart came from somewhere else. Okay, everything was copied. Uh he goes to meet

14:02 Uh Sol Price, who's the founder of Price Club which is the Predecessor to Costco. And he meets whole price and he looks at Price Club. And he says, No brainer.

14:14 He sets up Sam's Club. Okay. And price event eventually sells to Costco, and so now we have Costco and Sam's, right? And Sam Walton would tell you In ten lifetimes he could never come up with the concept of a Sams Club. He could not come up with the concept of a Walmart.

14:31 Walmart came from Kmart. Sam Warden said. There is No human who has come before me. who has stepped into more retail stores of my competitors.

14:45 Than I have. Right. And no human after me. Will ever beat that record. Okay, so anytime he traveled anywhere. He was going on vacation with his family and so he's passing some retail stroke. He'd stop his fam stop the car, tell them, Hang on here. go do his fifteen, twenty minute tour of the place and come back and make notes of what he saw, right?

15:06 One time he takes a bunch of his managers into one of the neighboring competitor stores. And they come out of the store and one of the manager says to him Sam, that was such a poorly run operation. Because they could just see it was just a mess compared to where Walmart was. And then Sam says to him, Yes, but did you see the candle display? The candle display was fantastic. So Sam said

15:31 You can learn from anyone. You can learn from the biggest idiot operator. Sam would go early morning at like five thirty in the morning.

15:40 to the Walmart distribution centers. With donuts. Okay. And he'd sit down with the drivers. Because the drivers were going to the stores every day and he'd tell them.

15:50 What do you see when you go in? The drivers of tell Well such and such so I saw the garbage, there was stuff thrown out that shouldn't be thrown out, Sam. Okay, and Sand's making notes about this, right? And then he'd go and, you know, fix all those. So but what I'm saying is that Everything at Walmart came from somewhere else. Right.

16:08 The reason cloning works so well is no one's willing to do it. Look at Tesla's market cap. And look at the market cap of the next Car company.

16:19 I believe it's more than the next fifteen car companies. All combined. All of them combined. You can take the whole industry combined. You know, they won't they won't get there. And on SpaceX, so if you look at Blue Origin and you look at SpaceX, They have completely different approaches to how they do things. SpaceX wants to blow up rockets. Their focus is to blow up rockets. Blue origin focuses on not blowing up rockets. And he's miles ahead. Right.

16:45 And In fact, he's clobbered the industry, you know, the whole landing landing these things backwards and you know reusing them and all of them people laughed at him at that. And He got it done. I'll give you a story of two of your models combined, as you said. So

16:59 Introduce randomness. There was a period of time after I sold my first company. I was thinking about what to do next. I kept Shuffling through ideas, couldn't figure out which one to do. And I realize I'm sitting here in San Francisco. And I'm meeting the same people, talking about the same things, going to the same tech events. over and over and over again. And I've had this gut instinct of I need to introduce more randomness to my life.

17:20 So I hear about this event called FarmCon. A farmers conference in Kansas City. Sign me up. I'm going. So I go and I'm the only tech guy

17:29 I look out of like a f literally fish out of water. Dress is I'm dressing wrong. I don't know anything about farming. I even get there and I'm like, I don't know what the hell I got myself into. I took Ben with me and We're sitting there, they're talking about soybean. Futures. I don't even know what soybeans are. And so I were completely out of water. But it was a great way to just shake up the snow globe a little bit.

17:50 Introduce randomness some serendipity. When we're there, we meet this guy. And his name's Kevin Van Trump, and he was the guy who owned this conference. I said, How'd you get all these people to how'd you get So many farmers to come, there's four thousand farmers here and they all love you.

18:03 How do they even know you? And he said, Well, I've been writing this newsletter for twenty years for farmers. Half of the thing is just memes, just funny jokes, because the farmers just want to laugh in the morning, and then half of it is his letter about like what's going on in the markets today for farmers. And so we're sitting there and we we essentially leave one of the conference rooms. And we decide to clone because I met with you for the podcast and you had this great analogy of

18:26 Who's the dumbest guy in the world? And we decided that the dumbest guy in the world is the guy with the gas station across the street from the more successful gas station. And it's like You could be unsuccessful, but if you're staring at the gas station across the street And he's winning and he's doing everything right, and you're just not doing those things. That's on you. Yeah. And so I'm sitting here, I'm watching Kevin Van Trump and he's got his newsletter for farmers. And

18:49 I at this time crypto had just started becoming very interesting. I said, You know, Ben, what if we created a a newsletter for crypto? Just like this guy's done for farming. We'll do it for people who want to keep up with the crypto news. It'll be half memes and it'll be half news. Yeah. And let's do this. We'll just write the first edition tonight. So we wrote the first edition while we were there and we named it something that was themed after uh the conference. It was called the Milk Road, like a dairy name. And in one year we built The largest crypto in the world. Oh, great. And we sold it for millions of dollars and never hired an employee. We had one employee. The best business I ever did at the time just in simplicity.

19:24 Yeah. Um, and it was all because we strung together two of these models, just introducing randomness and then cloning on top of that. I think that uh humans complicate things a lot, but I think that if you All right, let's take a quick break and I got a question for you. When a buyer asks AI for a solution like yours, does your business come up? Most companies have no idea. And by the time they found out, they've already lost the deal to another company that did. HubSpot has AEO, which helps you show up in the moments when the right buyers are looking for a company like yours before the first click, before they fill in the form. That is the moment. HubSpot AEO is built for. Check out HubSpot.com, the agentic customer platform for growing businesses.

20:04 McDonalds had this whole big department on figuring out where to put the next McDonalds, right? Location's very important. Burger King had two guys, they just looked at where's the McDonalds going? And they would look at where McDonald's are going, they'd put it across the street. Right. Right. And that was their model. Phenomenal. Because all the work's already done. Right. You know. Cloning gives you Uh a huge advantage. Now another bedrock model. I I think uh no mental models work without this model.

20:32 Which is Take a simple idea. And take it seriously. Right. This is uh to me None of the other models cloning or not using Excel or anything else.

20:43 works unless you buy into this first model. So you have to go all in. Right. I made my first trip to Turkey Purely on a limb, kinda like you going to the farmers. Yeah. conference. Just because it was screening cheap and I said I just want to take a look at this market, which is screening so cheap. And that was in twenty eighteen.

21:02 What I learned is that the average Turkish company, public company cycles through its float every seventeen days. Which means like let's say a founder owns forty percent of a company, the other sixty percent The shareholder base will just turn up. Literally about four percent of the shares are trading every day. Okay, and every seventeen days you got new set of shareholders. Okay.

21:24 Buffett has a quote that the stock market is a mechanism to transfer wealth from the active to the inactive. Okay. This is hyperactive. Okay.

21:35 Now, if you look at something like Bokshaw Hartway. And you look at How frequently its shareholder base changes. It might be the slowest in the world.

21:45 It might be like Ten years or something or more. For the float, right? And here you have seventeen days, okay. And then I even looked at places like India.

21:56 Right. So I actually Compared Turkey and India. In Turkey

22:05 Almost all the investors. are gamblers and speculators. They want to buy at ten o'clock. They want to sell at three o'clock and they want to make ten percent. That's their model. Okay. Whereas in India what I found is that out of five thousand public companies. There's maybe hundred, hundred and fifty companies with good governance that are investable.

22:26 And A lot of research has been done on those by a lot of smart people in India. and they've pounded into those companies and they trade it. Stratospheric valuations. Very expensive. I would look at a

22:39 Coke bottler in India. And I'd look uh at a or a Pepsi bottler in India and I'd look at a Coke bottler in Turkey. And the valuation differentials were massive. Same business. And I'd look at a airport operator in Turkey, airport operator in in India. huge valuation differences. Again, because

22:58 Here everyone was Looking for long term and all of that. So you're picking like poker tables to sit at. when you take the first model, take a simple idea and take it seriously, I said India zero.

23:11 We're not interested. Okay, even though I'm Indian. Turkey. I'm going all in. And so what I decided is To be an inch wide.

23:20 And a mile deep. And so I said I understand the nuance of the Turkish market. I want to study everything in here. I wanna be

23:30 The person who who's this is my moody's manual. Right, go through every single thing. Right. And What I found is Whether it's a useless company in Turkey or a great company in Turkey, they're all cheap.

23:42 So this is great. Focus on great. Right. And no one's interested. You got all these people like buying and selling shares. And so we were able to make some investments which we couldn't have made anywhere else in the world. At valuations we couldn't have made

23:59 You know, just the simple thing of the take the first model. And it gives you an edge. So I think the The mental model just carries so much weight.

24:10 that it makes your journey very light. Right. Because they just carry the they do the heavy lifting. Right. And all you have to do is not violate them. So I wanted to ask you about violating them because sometimes I could see a world where they clash. Yeah. Or that the definitions get fuzzy. So for example One idea is invest you know in your circle of competence. But like with Turkey.

24:31 It wasn't your circle of comp you sort of made it your circle of competence. So in that sense, like How do you think about that like 'Cause it sounds like some of the best bets. Where you decide to go get smart about a space.

24:44 But you were a p complete beginner in that space, maybe Six months prior. Well, so like for example, before I went to Turkey I had already studied Coke and Pepsi bottlers.

24:57 I studied the Coke and Pepsi business quite a bit just because Buffett had made the investment. And the c concentrate setup business is phenomenal. It's a software company. You know, it's just eighty percent margin to great business.

25:11 And the The bottlers. Not as good a business coke, but they are Oligopolies. Mm-hmm. And

25:19 Most of them do really well as well. I mean They have more capex than all that. But it's a good business. So When I'm looking at uh

25:27 Uh Coke or P Pepsi bottler anywhere in the world. One of the things to keep in mind is they had to be approved. to become a Coke or Pepsi bottler. And Coke and Pepsi are very anal. about who they're going to allow, especially at this stage because they've got

25:44 global brands and all that. So To me it was relatively easy that so when I went into, for example, the Coke bottler in Turkey. It wasn't surprising to me that the management team was super high quality. the management team was multinational. They weren't Turks like the CFOs from Ukraine. Right.

26:03 And he had worked in Delhi before that and all of that. So you could just see that this was a global team running this business and all of that. So similar to the airport operator, I looked at other airport operators. So I started by using guardrails. Right. And I focus on the uh the simplest businesses. Which were ones that were

26:24 uh the easiest to understand. And and one of the things about investing to also understand. the businesses that you spend the least amount of time studying tend to be the ones that make you the most money. Because they tend to be the simplest, they're obvious and all of that. But yes, you have to couple the circle of competence

26:48 With the introduction of randomness. Right. And so those two are not in Conflict with each other. The introduction of r randomness Is how you grow.

26:59 And that's how you may actually The circle is going to expand over time, naturally going to expand. But you don't need to focus on expanding it. In your book you have some great stories. The one I remember is the American Express Oil Crisis. I didn't know about this. It's a little bit before my time. Tell the story. It's an amazing story. American Express at that time had uh they've always had number of different businesses that we don't think about. One of their businesses

27:25 was asset based lend lending business. And there was kind of a a crooked guy he basically got them to finance his inventory of salad oil where he said I've got his warehouses filled with salad oil. A literal salad oil right. In barrels. Yeah. And so they'd financed it and There wasn't any salad oil, it was seawater.

27:50 Okay. So Somebody figured this out. How did they know this was there was just seawater in the bill? Later it came out because basically when they went to collect, you know, the guy's already taken the money, he's a he's a crook, it's gone. And when they went and uh got the asset and looked at it, they found that they they got nothing. Like they basically had been duped. Right. And it was a very significant

28:11 Loss. For MX. Where A big dent on the balance sheet. So obviously when they when they reported it, the stock uh collapsed.

28:20 And Warren felt that the big value of Amex was in its brand. His question was Is confidence shaken? in the credit cards. So for example if if I'm a restaurant owner. And

28:35 I accept the a Amex card. In effect, Amex owes me money. Right. So what he did is he went to a number of different restaurants in Omaha. And just stood by the cash register. And just wanted to see whether the restaurants had any concern.

28:50 about accepting the Amex card. And he saw zero, zero concern of any kind. So he felt that the moat of Amex was unaffected. And the trust and confidence in the brand

29:04 wasn't affected. And The stock on the other hand c had collapsed, right? So he He actually put forty percent of his fund.

29:13 Forty. Forty percent of single stock. It may have been about uh Forty million, thirty, forty million of capital. Right. Um so maybe like

29:22 Ten, fifteen million or something went in. The crisis abated, you know, Amex started to kind of get their balance sheet kind of straightened out and all of that. And of course the stock Eventually because these businesses were fantastic and their credit card business at that time.

29:37 was growing gangbusters. You know, it was just on on our on a rocket ship. Eventually the stock and You know, the interesting thing is he met Walt Disney. Once, just before Disney died. And then he he he felt funny, he went to see Snow White. He said I went to see Snow White with my briefcase because he said everyone else is there with their kids. I went to actually study the business. Okay, study what Snow White Snow White's all about.

30:00 I think he owned Like five percent of Disney? And of course for him at that time there was no buy and hold. It was just You know, look for the next cheap thing. So he he had a significant ownership in Amex, significant ownership in Disney. He sold all of these at a good profit. Right.

30:18 But he could have just carried them on. If he had kept them for twenty, thirty years They would have done extremely well. I'm trying to piece together this puzzle of What are some of the traits or some of the behaviors That Can lead to

30:31 Great. Investing. When I think of investor, I think of Finance, strategy, numbers, Excel, spreadsheets. That's where my brain goes. That's the p mental model, the picture I had in my brain. Yeah. When you're describing it's like

30:44 He goes to the movie theater to observe. He stands outside the restaurant, he asks the guy a question and it is these are not spreadsheet qu this is like Journalism. It's recent it's first hand. Research is maybe gut. I I guess for you, do you do the same? Uh d tell teach me about that.

31:00 One of my ten commandments or mental models is thou shall not use Excel. Right. And another model is that If you cannot explain your investing thesis to a ten year old. in about four sentences so the ten year old can understand it.

31:16 It's a pass, right. Right. So basically at the end of the day Every investment has to be very simple. It starts off being this complex thing, but when you've You know, understood it.

31:28 It needs to get down to those four sentences. Right. That to me is one of the most interesting parts of investing. So I think the way it works is that we have fifty thousand stocks around the world. If you're just investing in Public market.

31:44 The data set is too large. No one is ever gonna know fifty thousand companies. A large number of those businesses, something like ninety or ninety five percent or ninety eight percent of them. should go into the too hard pile. So Buffett has a box on his desk.

32:00 Which has too hard written on it. Right. And I think one time when I visited his his office I told him, uh, Warren, the too hard box is empty. Right. And he always said

32:11 Ninety eight percent goes into two hard parts. And he immediately took a bunch of papers and put it there like overflow. It's full. It's all full. In in his case he made the metaphor real, right, with the two hard pile. So Most businesses that we would encounter or look at.

32:30 Usually there there'd be two problems with it. One is it's either outside my circle of competence Or It's too hard. And this is an exercise in honesty. inner school card and all of that.

32:42 You have to be honest with yourself. And not be delusional that you know everything about everything. So exercise in humility. Peter Lynch used to say That when you're looking at

32:54 He said, Make a list of Everything you use. Right. What shoes do you wear?

33:02 What clothes do you wear? You know, what brands where do you go to eat? So make a list of everything that you consume. And study those companies. Because many of those companies are publicly traded. It's very difficult for a company

33:18 to get even a dollar from you. All of us as humans are very discerning about how we want to spend our money and we make our choices. And those choices are very specific. So If you are already a consumer of the product.

33:32 You understand the product. That gives you a basis to try to understand the business because you are a consumer of the product and then you can kinda go from there. We are in a business Which Buffett says has no call strikes. So

33:47 If you're a baseball player. Three strikes are out. Which means if the ball is Within the strike zone. You have to swing at it.

33:56 Even if it's like Not in the sweet spot you have to swing at. In investing, we can let ten thousand balls go. So It's only when we get the m fattest pitch.

34:09 In the center of a sweet spot. Do we need to act? And If those conditions are not satisfied. Just let it go.

34:18 What you mentioned is Entrepreneurs are all about action. Investors are also all about action. The action is below the surface. So basically

34:30 A person like Warren is spending all his time Studying businesses. Now usually not much comes out of it. Right. Because uh we only see

34:41 the whale when it surfaces, the whale is swimming all the time. Right. the activity that investors need to enjoy if they're going to you know, be good in this field. Is just

34:53 Turning the pages. One after the other after the other. So There used to be a racetrack in Nebraska. Called uh Aksarban.

35:02 Which is Nebraska spelled backwards. Okay. When I used to first go for the Berkshire meeting in the nineties, early two thousands The meeting used to be at the Xarbon race track. About ten thousand people. But Buffett used to go to that racetrack when he was eleven or twelve years old.

35:18 And what he used to do was he used to gather All the tickets that were lying on the floor. Or the trash cans that people have thrown away. And He'd go home.

35:30 And study each ticket one by one. And Some drunk may have thrown away a winning ticket, right? They may not have looked at it carefully. Some things in horse racing are difficult, you know, win place show, it could be a place or a show and could have still won. And that sort of thing. So he'd gather up

35:47 The few tickets that he'd find after sifting through this whole mess. That actually winning tickets. Because he was twelve he couldn't go to the window to c claim them because you had to be over eighteen. He'd give it to his aunt, Aunt Alice. His Aunt Alice would go to the racetrack and collect on those tickets and then give give him the cash.

36:05 And When he wasn't in his early twenties He went through the Moody's manuals and On eBay. I bought one of these movies manuals because they don't publish them anymore.

36:17 But they're on very thin paper. Very small. Text. And they have uh some financials about Three or four companies on one page.

36:27 He went through all of them in the early fifties two or three times. Turning one page at a time. And what he was looking for is he was looking for anomalies. And Ajit Jane made a comment this time at the bookshow meeting.

36:45 He says that you know, when we hire these people In the insurance business. The instructions I give them is whenever someone comes to you for any deal Always say no. Say no to

36:57 Every single thing presented to you. And then he says, You'll see a deal. That hits you in the head like a two by four.

37:07 And you can't believe the deal. Right. That's when you bring it to me. And then we'll look at it. Okay. And investing is the same way. So when he was going through these Moody's manuals, he's looking to get hit in the head by the two with a two by four.

37:20 And he found this company, for example, Western Insurance. The stock is at fifteen dollars. They made twenty five dollars last year. And they forty dollars of cash on the balance sheet. Okay.

37:32 That's hitting you in the head with a two by four. Right. So he pulls that out. Invest in it. Yeah, looks at it, goes and

37:39 understand more with the company and all of that. And then The next thousand companies, nothing. Then you against find something. recently, last four or five years he made the bet in the Japanese trading companies. Five Japanese trading companies.

37:53 Those came out of something like the Moody's Manual called the Japan Company Handbook. Which is a English publication updated once a quarter. Japanese companies on every page is tick. Book.

38:06 Right. He's been going through the Japan Company handbook for at least twenty years. Okay. This is the first time after twenty years of going through it that he made these These bets.

38:18 But it was a huge home run. Because again With a two by four. So these Japanese trading companies in this case what he did was All of them had a dividend of eight or nine percent.

38:28 He borrowed the entire five billion that he put into these companies. In Japanese, yeah. So it's hundred percent levered at half a percent a year. The companies are paying. eight or nine percent a year. So he's getting seven and a half percent cash. Right. Just for holding these investments.

38:45 Then in the next one. three, four years they double their inve their dividends. So now it's Sixteen percent. And the stocks doubled. So the five billion became ten billion.

38:57 And the ten billion is paying eight hundred million a year. Okay. And It was Almost fully risk free. Right.

39:06 So Basically That is the nature of investing is that the game we are playing is There is continuous activity of a different kind. than the way an entrepreneur would be but it is orgasmic activity. Okay.

39:21 If you have that type of a temperament. Right. Right. If you really enjoy Looking for needles and haystacks. Right. Then the payoffs are huge. At the Berkshire meeting Buffett had this line I love to he said.

39:35 The stock market is like a church. With a casino attached to it. And he said Uh Seems like a lot of peop that casino's getting crowded. Seems like a lot of people are visiting that casino

39:47 Uh you know, nowadays. I'm curious what you think about that, and especially in the context of You've got prediction markets and Robinhood and options and two day options and you know leverage and there's so many ways to play the casino. And I think all of that from my point of view

40:03 Makes it better for me. The wealth transfer. Well exactly. I mean the thing is the more hyperactive people get The better it is for me. And I mean it is it is unfortunate because the stock market Serves a very important function of allowing

40:21 Gifted. leaders and entrepreneurs. to get the capital to pursue their dreams. I mean that's really the reason why we have capital markets, right? is basically to funnel capital to the

40:35 best uses, best uses of the capital. And of course the side effect of that is that you have All the casino activity. That comes with the church. And the interesting thing is that after the

40:48 There was a big bubble in the In the UK, the South Sea bubble. Uh where there was a big speculation orgy and prices went crazy and then eventually

40:59 the British government's response to that was to ban Public markets. For two hundred years. So

41:08 Interestingly, like even when there were no public markets. A number of great businesses got created in the UK. and capital still found its way to them. So it doesn't all always need to be through an auction driven market. But the main purpose of the New York Stock Exchange and the Hong Kong Stock Exchange and so on

41:28 is to funnel and allow the capital to go into the Teslas of the world, go into the space excesses of the world. And allow those businesses to improve the lot of humanity. Right. And of course the side effect of that is There's all the casino activity going on. And as we've seen with Robin Hood and so on. And so

41:46 It's a negative uh For humanity. And the more that becomes prevalent that more negative it is. But I when I look at it from an individual point of view, like from my own

41:57 self centered, self interested point of view. The more the merrier. You know, that's just gonna be more helpful to someone like me. I don't know if this is fully accurate, but this New York Times said this. on Polymarket, point one percent of the users have sixty percent of the profits right now.

42:13 And so they said some number like two thousand traders had made like half a billion dollars this year. It's just two thousand. Yeah. So it was an immense wealth transfer from the casual gambler. To what's likely an insider just sitting there who has m more knowledge or a bit of a sharp. Who's being more selective. Well, the simple the simple thing is so if you if you look at something like horse racing.

42:36 The track. Takes twenty one percent. Of every dollar. Because you know, physically paying for horses to run is expensive. Whereas let's say if I go

42:49 play black jacket. A great game in Vegas. The house has a Point two percent, or point three percent, or point four percent. Yeah.

43:00 Every time a gambler bets Forty nine point five percent or more is coming back to them, right? It's a forty nine point five percent odds that they uh will win that bet. It's a pretty g decent. Whereas in horse racing you've already lost the twenty percent is gone already. But the thing is that there are people.

43:19 Mm. Make a livelihood. Only betting on horses. Mm-hmm. And the way they make the money is the same as what's happening in poly markets.

43:28 Which is They watch all the horses and all the races. And they pick the one Where The odds make no sense.

43:39 Right. So they they know the horses, they know the races, and because The odds are set Based on how much is being bet. Just like the stock market or all the way against the other betters. Yeah, we're betting against the other better, right. And and th that's what's happening in polymarkets as well. Right. I was looking through all the stories you've done. And one of the craziest ones is that you paid

43:59 Six hundred and fifty thousand dollars. to have lunch with Warren Buffett. Was it worth it? So What happened is in uh two thousand seven My uh net worth hit I think eighty four million.

44:11 And most of it was because of the intellectual property of Warren Buffett. Which I had paid nothing for. Right. Right. I felt like uh I wanted to thank him.

44:24 And just look him in the eye and just say how grateful I was. Now When Buffett does these lunches. His agenda is that Whatever someone paid.

44:34 They should feel like they got a bargain. And so from his point of view, he just wants to make sure that There's tremendous value delivered, right? So before we met for the lunch They were the morning.

44:46 Kind of one year gap between the time I won and we actually sat down for lunch. Uh so his assistant had asked for bios of everyone who was attending And he studied all of those. So when he got there he basically Told us. My entire afternoon is free.

45:02 So whenever you guys get sick and tired of me Just let me know and I'll leave. What was the one thing you Took away now twenty years later. Yeah, I made some notes after the lunch and I think We had a total between everyone about

45:18 Over fifty questions that we asked him. And of course, you know, Warren has this great skill. Of taking lemon questions and converting them to lemonade. So sometimes I asked him questions which were just innoculo questions, just an update. Like I asked him for example What happened to Rick Goran?

45:37 Explain who Rick is for the Warren and Charlie Charlie Bunger were partners. For decades, several decades. Originally there were three of them. There was Warren, Charlie, and Rick Gurren. And in the sixties they did a bunch of stuff together, early seventies.

45:53 And then Rick Goran disappeared off the radar. I mean we never heard from him. So I I just wanna know what happened to Rick, you know. So I asked warren. And uh he converted that question. So he said Charlie and I

46:06 Always knew we were going to be rich. But We were not in a hurry. And Uh Rick was in a hurry.

46:14 So then uh he talked about how Rick was always levered. He always had margin loans. And when the downturn of seventy three and seventy four came, seventy three and seventy four were the very severe Stock market correction. It was a crash in slow motion. Basically the markets went down more than fifty percent over that two year period.

46:34 Rick got A number of margin calls. And uh Warren said that he bought Rick's bookshaw shares from him. For forty bucks a share.

46:45 I mean those shares are over seven hundred thousand now, right? And He then said If you are um Even a slightly above average investor.

46:57 And Spend less than you earn. And do not use leverage. You can't help but get rich over a lifetime. Right. So

47:06 He wanted to communicate the message about the ills and follies of leverage. But I I felt there were there were so many lessons. There was another important thing he talked about. He said that There are two ways you can live your life.

47:21 You can live your life with an outer scorecard. Uh, which is what people think of you. And react to that. Or you can live your life with an inner scorecard which is

47:33 You measure yourself with internal metrics. Not with external metrics. And he said that Would you prefer

47:43 The greatest lover in the world. But known as the worst. Or the worst lover in the world, but known as the greatest. So he said if you know how to answer that question. You got it made. So I think this inner and outer scorecard

47:58 is uh really uh to me it's a really fundamental mental model. You have to be true to yourself. Right. Because we can be swayed Easily swayed by External. inputs, external stimuli, so to keep it centered is awesome. I've thought about that one a lot. I think I read in his biography I think he called that

48:18 The most important lesson his father taught him. was to live life with the inner scorecard. How does one do that? How do you go from going from the outer scorecard to inner? You've got critics who are Very harsh. Right, who wanna pull you down and taking you below

48:33 Where you know reality is. uh frequently run into is I've I've met people Mm. Criticize Gandhi a lot. Mm.

48:45 Criticize Buffett a lot. Criticize Some folks that I think Have lived remarkable lives. Right. And they nitpick at

48:54 Oh what about this and what about that. And so the way I look at it is I say, Okay If they can criticize Gandhi. Then I'm for a game. Okay.

49:05 You know, just understand that the Gandhi's of the world being criticized. And so shocked when you are. Berkshire has something like almost what, four hundred billion in cash. Yeah. Three eighty, yeah. What are they doing? What are they waiting for? Well I mean I think that This has been the history of Berkshire where the cash will build up and then they'll find opportunities and they'll put it to work.

49:35 Uh, they're not suffering right now because treasuries are playing pretty well. So they're they're making decent money. But the second is that We get dislocations. And we don't know when these dislocations come. We had dislocations during Covid, we had dislocations in the financial crisis.

49:51 If I were to make a guess. I would say that five years from now The cash may be Half or less. of what it is today.

50:01 Mm. Berkshire used to be run by a great capital allocator. By a great operator. And

50:12 Oh. Pretty good capital allocator. Mm-hmm Berkshire's gonna get phone calls. And Warren used to say that when they call you on a Saturday That's when you know you're gonna make a great deal. He said the Saturday calls are the best. Because it's the most desperate call. Because usually they need they need the deal done before Tokyo opens on Sunday night US time.

50:34 Yeah. So When there is a crisis and Berkshire is a little better known now than it used to be. Greg will get the call. And Um

50:43 You know, the investing game is interesting because you need Extreme patience. With extreme decisiveness. Mm. Charlie used to say it's like

50:53 Standing by a stream. With a spear. Looking for salmon going by. And he says, you know, you might be there for a while But then suddenly a juicy salmon go comes in. And when a juicy salmon is passing by

51:06 You have to act fast. You can start contemplating your navel at that point. Right. So You have to be very patient where you have the spear. And you don't know whether it happens in the next five minutes or the next five hours or the next

51:19 Twelve hours. But you're ready. Right. In your whole Investing career. What

51:25 It one investment has been the best for you. So um I I had uh Two more than one hundred bagger investments, which went up more than a hundred X. before I started the funds. Uh so I started investing on my own in ninety four.

51:40 Oh, ninety five and then um By the time I got to two thousand. I had Uh hundred and forty X.

51:50 And the other went up about a hundred X. And In one case I had uh invested about uh Ten million.

52:00 Uh no, ten thousand. Uh, I had a million dollars in about in ninety four, so I I invested just Ten thousand one business. it became one point four million. But there was another business I invested in which

52:12 uh became Uh more than ten million. Mm-hmm. And so these two were the outliers of uh the original million became like Fourteen million or something.

52:23 But it was driven by these two investments. More recently, uh the company in in Turkey that we bought at uh Uh three percent liquidation value. It's just about hitting a hundred X now.

52:38 Which one is that? That's Resaus. That's the warehouse or the warehouse operator. Okay. Uh I mean so what happened there is that We were buying a company I think when we first started buying it was a fifteen, sixteen million dollar market cap. Liquidation value was about eight hundred million. And what was the big misunderstanding? Like w you know, you've told me these words before.

53:00 I look for what's hated and unloved or Where people have confused risk with uncertainty, or was it something else in the Turkish market? Why was it trading When you say three percent of liquidation value, that means The price of the business. There's thirty X that in just the assets that it owns if it had to liquidate everything. So You know, thirty three percent or whatever.

53:20 Was and even still is. In such a That it's hard to believe. So for example, at that time the company was trading at

53:31 What what should have happened with a company like that? Was that the Owners. Should have taken it private. Right. And uh the owners of the business did not have a good understanding

53:43 of buybacks and taking it private. They they are very good operators. public markets to raise capital so they could grow. Right. They got the capital, they were growing, they never care about the stock price. They've actually never even now, even today. they don't really calculate their kind of um wealth

54:04 by the stock price. They calculate it based on what they think the business has worth. They don't really care about the stock price. Which is actually a good way to run. Yeah great great way to run. But actually you really want the business to trade near the stock price, uh near the value so that Anyone entering or exiting is getting a fair deal. That's what Buffett tries to do. He wants to make sure that Burkshore's value is always Around what it's worth.

54:27 But there were other businesses. Like I remember the first company I visited in Turkey was trading at a P of zero point one. Not not one. Zero point one. Which means that the market cap was equal to one month's earnings. Okay. And I remember my friend had sent me a list of the businesses we were going to visit.

54:48 And I did no work on these companies. I said I'm gonna do work on them after I visit them because I don't wanna waste time if I don't like them or whatever else. So as we were driving to the company, I start asking him questions, so I'm just somewhat intelligent of the meeting. So I said, Okay, so what's going on here? He says, Well Molish it's a P of zero point one. I said zero point one and it's one of the largest banks in Turkey.

55:08 I said. What's going on? He said Ah, they violated some UN sanctions. They were doing some wire transfers with Iran that we're not supposed to do. And uh what happened with that company was that uh

55:22 The CFO of the business. Uh who didn't have anything to do with this Craziness. went to the US to vacation with his family At Disney World.

55:33 And when he landed in New York The um Southern district of New York uh folks picked him up at the airport. And put him in Riker's prison. In violation of the sanctions.

55:45 And then Told him the rest of the family can continue on to Enjoy Disneyland. When that news hit The street.

55:57 I mean, that's like, you know, they you're gonna be cut off from the Swift Swift system. The US can put sanctions on you. I mean you could just, you know, kneek at the bank. And Erdogan at that time was calling Trump. In his first term, saying Can you please release the guy? Yeah.

56:12 And he didn't do anything. And uh Trump said It's New York State. And so all of this was playing out. while I'm going to see the company. And actually the the business Was

56:24 A well run bank. And I told my friend It's too much hair even for me. I'm not going there. Okay, so Toki Then and even now

56:33 has some crazily priced Which is why I decided to Take a simple idea, take it seriously. I said okay, this is the situation. Where Half the winners of the Sabin racetrack have thrown away William winning tickets. Right?

56:49 one in a thousand or one in five hundred, it's fifty out of a hundred are thrown away winning tickets. So basically it's it's going back to the mental model. You take a simple idea, you take it seriously. You know, I remember When this company was fifteen million. Turkish stocks are allowed to go up ten percent a day.

57:09 They were limited in a day a company and all So I was concerned how much stock I can buy. So I told the broker By every share available. Don't worry about the volumes. Take out all the ask. You know, the the stocks at fifteen, someone's willing to buy a sell at sixteen or seventeen, whatever. I said, all the ask up to ten percent, just take them all out. If anything more shows up, take it out. I said just

57:30 Take everything you can get, right? So The guy calls me, the broker calls me and says I have um five percent of the company being offered by Templeton Fund, the US fund in Turkey.

57:43 Templeton Trunks is offering five percent of the company. For a million dollars. Okay. So twenty million market cap, basically one million. I said, Why are you calling me? Take it. Right? And so now this is not a Turkish investor.

57:56 These are not people who are Day traders. Right. Somebody in New York Made a decision I'm out of Turkey.

58:04 And the reason he they were going out of Turkey is the currency was very unstable. And inflation was rampant. And they were right about that. So two things that were bothering investors a lot, which can be very detrimental to making an investment is an unstable currency and high inflation. And other mental models came in.

58:25 To help me. So One of the things that I think I discussed with Charlie is let's say There's a thermonuclear event. Global thermonuclear event.

58:36 Ninety nine percent of humans are dead. So we've gone to Seventy million humans left. out of seven or eight billion. And everything's destroyed.

58:48 The seventy million human uh humans that are left. Someone is gonna start producing Co concentrate. And someone is going to Resurrect a coke bottling plant.

59:01 Because they're seventy million humans. And there's no currencies. Anymore. But humans will be willing to trade. Fifteen minutes labor.

59:12 For a cook. So A company like Coke. is not dependent on Inflation.

59:19 It's not dependent on exchange rates. It's not dependent on anything. There is a So it doesn't matter whether you're trading Coke cans in seashells or dollars or lira or whatever. There is an exchange that would take place.

59:36 So I said to myself when I was looking at this warehouse company, I said What is a warehouse? It's land. Paint.

59:46 Cement. And steel. Okay. All four. are inflation indexed.

59:53 If the currency goes crazy, all of these prices are gonna go up. So I don't care about the currency. And then the exchange rate.

1:00:03 Also didn't matter because These are prime assets in a prime city. People need those assets just like they need to have a coke. So I only looked at investments in Turkey which were naturally Immune.

1:00:17 to the whole inflation or whatever still going on. And what happened in Turkey is when we were buying this company It was five lira to the dollar. Okay, that was the exchange rate. Seven years later.

1:00:30 It's forty five lira to the dollar. Okay, the Lira has collapsed by ninety percent. In dollars I'm up. Ninety X. Okay, in dollars. Okay, I don't care about that. I I I'm just looking at it in dollars. And the reason we went up in

1:00:49 Dollars ninety X is ex exactly so there was there was a m another mental model where I said All right, big news. We just hit three hundred thousand subscribers on Spotify. Thank you to everybody who subscribe. If you're not Go there and watch on Spotify. It's the best place to watch a podcast. There are many businesses in Turkey.

1:01:08 that will get hurt by inflation. We're not interested in those. So there was another company there called Tav Airports. All their revenue is in Euros. Everything is in Euros. Right. Okay. They're listed on the

1:01:22 Istanbul Stock Exchange with all the gamblers. Okay. Now Airport operators, these are phenomenal businesses. And normally you look at an airport operator like you look at one in India. The trailing P you'll sell at is seventy times.

1:01:37 fifty times. Very desirable, everyone wants in and so they're just over inflated and all of that. In in Turkey it's sitting at like Four times, three times. You know, it's sitting at nothing, like basically. So and in this case, in the case of Tav Airport.

1:01:56 The currency is not relevant. They're not Even then in fact what was happening is their revenue was in lira, uh in do in Euros And their costs are in Lera. So in fact what's happening is the employees are getting poorer every year. Right. And so basically

1:02:14 It was Just using A few models. Take a simple idea, take it seriously. Active versus passive. Understanding that

1:02:22 thermonuclear event people want coke. And let's look at assets where the currency is not relevant. Right. And when I was able to look at those those four things There was no one else on the planet. applying those four models at that same time in that market.

1:02:40 Right. That's it. How how difficult was that? So I wanna ask you the hardest Question, I think. I think the hardest question let me

1:02:50 I love the idea of studying businesses.'Cause I love business and I love studying, put them together. I'm happy. I enjoy it. I think it's a great Intellectual sport. And I do it. I pick some stocks and I have some index and you know, I combine the two.

1:03:02 At the same time It seems like most people lose money doing this. Even smarter people lose money doing this. And for example, I had Kathy Wood on the podcast. I said Kathy I you know, she's Super popular.

1:03:14 I think she's really smart. I even agree with her about many of her theories and thesis about where the world is going. At the same time I told her, I was like, Look If I look at the last one year, two years, five years, you haven't beat the S P But you're taking huge fees on your money. The way her model works is is that and I said, Look, I think you're an honest person. Like

1:03:34 Would answer the question I said would you invest In someone with your track record. And she said, you know, she had a great answer. Like actually, I really appreciate you giving me the chance to answer that. And so she gave me, you know, a good answer. But I'm curious you know, same thing. How hard is it to beat the market, really? And how do you feel'cause in some years you do and some you don't. I don't know exactly because you have funds and you have the

1:03:54 ETFs, it's hard to even piece together fully. Yeah. But I guess give me two answers. One is what is your track record? You manage something like a billion dollars. So what is your track record compared to just Blindly put in the index. And secondly How do you feel about that, you know, as a s sort of smart, honest person who's studying this game and trying their best to do the best they can?

1:04:14 Yeah, so the the track record, uh, it depends on the fund because we've we've got different funds and so on. But if you look at our oldest fund Which is now um Uh what, it's uh twenty more than twenty seven years old. Every dollar Is

1:04:31 turned into about thirty dollars. Uh so a dollar become about thirty dollars in the oldest fund and I think the S and P is Uh every dollar is less than seven. Approximately six or seven dollars. That fund has done done well

1:04:45 Uh if I'm Take the newest one, which is our ETF, for example, which is uh got about two and a half years of history. If you'll if I look at the entire two and a half years We are behind the S P because I think the S P has done

1:05:00 Like nineteen percent Since uh on average per year. in the last two and a half years than we've done like fifteen, sixteen percent. But uh this year we are ahead. Uh so if you look at three months we are ahead, six months, one year

1:05:16 And even eighteen months we are ahead. Uh and I think in the last one year, for example, we are Uh beating the S P by more than twenty points. Uh pretty significant. So in this in the ETF case, I think it took us some time to get properly invested because I only can find like couple of things in a year and I would I would say that I would expect that in the fullness of time if we look at

1:05:39 after five or ten years. Uh, we should be ahead of the S and P. Also the S P has Um it's a handicap situation for the S P because it's All valued.

1:05:50 Yeah, it's sitting kind of elevated in in valuations and such. And so uh at some point um Stock market becomes a weighing machine. And so I I think that in general the index, broad index of the S P

1:06:04 may not do that well for the next decade. Just because they've been so much growth. Yeah. into the future in the last decade. So

1:06:12 Uh I think we'll be fine. Yeah. Yeah. I guess do you do you feel like How hard is it to beat the index?

1:06:24 If you look at the entire US stock market over the last ninety years. Four percent of companies. have basically delivered the market return. So the m the return we're getting in the market

1:06:38 has come from four percent of businesses. The other ninety six percent have just treaded water. And if you look at Warren Buffett, for example. And he said this himself that Twelve. investments he made.

1:06:50 Over sixty years. is what has created Boksha Hathaway. He has made more than So again his success is three to four percent. And this is the reason why

1:07:03 Industries do well. Because the index is too dumb to know that it owns Nvidia. And it's too dumb to sell it. Okay. It's too dumb to know that it owns TSM C.

1:07:15 And it's too dumb to sell it. Whereas an individual investor or p or a portfolio manager will look at it and say, Oh, it's overvalued or this and that or whatever else or the mistress looks hard or whatever else and make that change. So this is the reason why index investing does well because It includes that four percent. So you don't need to think about it. You have captured the four percent and you will get a market return, which is very good.

1:07:39 When I look at What I'm doing. I don't think I would have to do it. The wealth I have had and I don't think my investors would have had

1:07:48 what they have done if we had indexed. We've done better than the index. The way the way I look at it is that Every year that goes by the I'm getting to be a better investor. So I think that if I were playing a game like basketball

1:08:02 I would start declining, right? And when get to my thirties and forties, I'm Gone, basically. But investing is a game where you can keep getting better. And you keep seeing more patterns, you expand your circle, you get better at

1:08:18 uh looking at different things. So Experience is a huge plus. And all of this And also you get to

1:08:29 Ride the winners, if you will. So The important thing in investing is not The mistakes you make. It's not selling the winners. the four percent bets of Berkshire that work.

1:08:42 The other ninety six percent, whatever Buffett did with them did not matter. It didn't matter whether he sold them, bought them. uh liquidated and whatever else. That didn't really move the needle. What what mattered was Not selling Coke. Not selling Apple. having Greg Abel run Mid American Energy, having a G chain run the insurance.

1:09:01 And not firing a Jeet and not getting rid of him. Those were the important things. Circle the wagons. So so the thing is that we We have to understand that capitalism is brutal. And

1:09:15 Almoost every biznes We'll eventually go to zero. because of the comparative destruction forces. But there's a sliver of businesses that what happens is that A brand gets built.

1:09:29 Or Taste happen. Like A business like McDonald's. It starts off with no moat. Right. But now it has a brand, you know.

1:09:38 Um there'll be ha a sign of the highway saying McDonald's eight miles ahead. Right. You see that sign and say That's where I'm going. Right. Right. Even if Sean's Burger Shack is one mile away. Exactly. And that's the most that's the motive. And so It's actually accidental for the most part.

1:09:58 how and when more to get built. But once a moat gets built. Some of these modes become enduring for a very long time. Uh like if you look at something like FICO, for example. The FIGO scores. I mean that business just prints cash.

1:10:13 Right. But it started off with no more. Then as more and more people start using that score and now There's some movement where people are talking about other things, but people don't want to move away from Fico. It's too entrenched. Right. And so We as investors have the advantage

1:10:29 of buying into existing modes. Right. And so if I look at for example the largest bet we have, which is the Turkish Uh warehouse operator. They have Prime warehouses, extremely well built.

1:10:45 in prime parts of Istanbul. Okay. And that's a very important city. It's a big city, it needs it, it's uh it's fundamental. I don't think that's going away. In fact, the demand for warehouses increases in an e commerce world.

1:11:02 Mm-hmm. Right, because you need uh in fact what they were building a quarter million square foot warehouses are now becoming million square foot warehouses because all the nuances happening with e commerce. So We we want to look at businesses where the motes have staying power for a long time. An airport operator, a coke.

1:11:21 Bottler, you know. gonna go on. Right. So we want to look at these enduring motes. Eventually we want to own parts of those enduring motes. I wanna ask you about some new things. So what w you know, was it's very interesting to look at the kind of Investments of maybe early days Buffett and just things that are around for a hundred years.

1:11:40 But then there's new things that might be around for a hundred years from now or or might not. I'm curious your opinion on these. So I'm gonna throw four um kind of topics at you that you can rapid fire. Give me just your kind of where you're at mentally on these different things. So First is AI. I don't think you could be an investor in the world and not have AI thoughts whether you think it's

1:11:58 gonna disrupt certain businesses or create new industries or really be huge tailwinds or headwinds. Invest in the pickaxe makers. So I think I think that the alphabets and Matas of the world are playing a game they haven't played before.

1:12:13 Which is having businesses very high capex. May work, may won't work. I don't know. But what I do know is they have to pass through some toll bridges.

1:12:23 They all have to pass through TSM C Uh they have to pass through ASML. They probably have to pass through Micron. So I have

1:12:32 No bets in any of these areas because Um it either goes In the too hard pile. Or it goes in outside circle of competence or it's too expensive. It's all

1:12:44 If I'm not making a bet. It doesn't matter whether I'm right or wrong. Right. So what I'm saying is that Uh there's no way I'm going to sell The Turkish warehouses. Right. To buy T S M C

1:12:57 Because that That trade makes no sense to me. Much. Uglier than the wife. Yeah. And there's no bullshit. Yeah. Yeah. Um you when I when I came to your house once You were telling me about your investments in coal and you talked about how

1:13:15 You look for things that are hated and unloved. Yeah. It's a clue for you to go go spend some time. Yeah. Because you think that there might be opportunity there. I feel like the right now in my world, the hated and unloved bucket is SaaS companies, vertical SaaS companies. I saw you invest in constellation. Yeah. So I'm curious and and I've been thinking about this too. There's you know A lot of great businesses are on sale right now. So so that was an area that was an area where uh things fell within circle of competence. And

1:13:44 It made sense. So The idea that Betsy and H are. It's going to fire up some Yeah, yeah, software, whatever.

1:13:56 develop her own software and get rid of work day or whatever else they're using. N HR. It's just a pipe dream. Yeah. Oh so I think what is not understood well by the market is that

1:14:08 Software is not coding. Okay. Coding is automated and will get even faster and whatever, but it may be At most one fifth of the pie.

1:14:19 Mm-hmm. And so just because you can get something coded quickly. doesn't mean that Adobe is going out of business. Or you don't need Photoshop and you don't need All the products that they have. And and so I actually feel the market

1:14:37 has got it wrong. So in in my view the advantage will go to the incumbents. So An Adobe

1:14:46 will be able to reduce his costs. Because I mean Microsoft's laying off people, they are laying off people, right? Because they don't need so many because they can they can automate it. So all of these incumbents are gonna reduce their cost. Now they may also end up reducing price. But I don't

1:15:03 Really see Uh they may not even need to reduce price. Okay, depending on the you know, how much the moat is. I don't see their cash flows going down. And and so if you drop the price in half. And the cash flow is not going down, uh, you know, where do I sign? You know? And and

1:15:21 I specifically Only invested In the Mark Leonard universe of businesses. Because he has a unique mouse. So the reason why I I invest in mouse uh is Mark Leonard is

1:15:37 No one else Has ever cloned constellation. And no one else ever will be able to clone constellation. Explain who he is,'cause he's this mysterious guy. There's no like there's like two photos of this guy on the internet.

1:15:53 Mark is a highly, highly unusual leader. Okay. What he's built at constellation. is very unique. So there are probably

1:16:08 seventy to a hundred thousand vertical model software companies, private companies in the US. They have a team. uh biz def team. That touches all these companies.

1:16:21 Twice a year. With a phone call. And twice a year. With an email. Mm. Okay.

1:16:27 And in fact the funny thing is I was the in Omaha at the Burkshow meeting And a guy comes up to me and says, Uh Monash, I'm a huge fan of yours. I'm in the constellation M. I said. Don't go anywhere. Need to talk to you, right?

1:16:41 So Tell me what's going on. And you know I try to get a conversation going because you know, constellation is such a black box. But anyway, they have this large M and A team. They buy a company like every Yeah, they bought they bought like two hundred companies last year, for example, right? And they bought more than a thousand companies. And they don't use bankers, right? And so they're deen doing direct deals. And now

1:17:04 I think paying they might be paying five times cash flow or something. Or maybe six times cash flow? But then almost immediately within a year or two

1:17:17 three or four times cash flow because they bump up the revenue's little bit, they bump up the license fees about twenty percent, whatever, and then they've got all these best practices that they built up. Now they don't tell the companies do this and that, but they say, look, You're in this business, here's you know eighty other companies we have like this, and this is what we've learned. So this is what we suggest. Right. And you do your thing and whatever you want. So they actually extract Right. More efficiency out of that engine. So

1:17:41 On an organic basis, that they were not buying anything. they'd be growing about three percent a year. So these companies they're buying are not dying. On average they are still growing. Right. So if you think of a If you think about buying a business that's growing three percent a year, And you know, interest rates the way they are, you would be fine paying fifteen times cash flow.

1:18:00 Mm. that would probably be a part where the deal should be done. A business is doing ten million. in in sales and let's say they're

1:18:13 Okay, and that one million is going up three percent a year. No Let's say you were buying that company for 10 million. Okay, your alternative is put it in treasuries.

1:18:25 You put it in treasuries, you're gonna get Four hundred thousand a year. Okay. You're getting a million a year. Right. And the million is growing.

1:18:33 But but it has more risk than treasury, so you won't pay exactly what a treasury is playing. So that's the math, is you know the uh the risk free rate effectively uh makes it that If you knew business was growing at three percent a year, you would be willing to pay in a low interest rate environment. Ten, fifteen times cash flow, whatever. And so

1:18:53 They're they're effectively buying it for three or four times. Get the deficiency. So now you're taking the cash flow the business is generating. and you're reinvesting it at a twenty five percent rate. Right. I mean that's and then you're continuously doing that. Right. So

1:19:10 Nobody else has the patience. Touch the seventy thousand twice a year. And

1:19:19 Also the more difficult part is Integrating them. Right. So the culture to say Let's do this and that. In many ways constellation is superior to Berkshire Hathaway. Berkshire Hathaway

1:19:31 buys businesses of all kinds. These guys buy only one kind of business, right? And They're buying one kind of business And and they're buying it in a delegated manner now, because the people doing the deals are not even at headquarters. they don't even need an approval for it,'cause they've been told any business up to twenty million, you can just do your deal. And as those

1:19:52 teams have keep keep doing that and have a track record, they bump up how much They will need to so so it's actually a delegated model now at this point. And so from my point of view, you've basically got a mouse trap. That's growing cash flows at twenty, twenty five percent a year.

1:20:08 What should you pay? for a mouse trap that's growing cash flows twenty five percent a year, you would be paying Forty times. If you knew that was gonna continue forever. Right. you'd easily play forty fifty time. It went down to teens multiple. Right.

1:20:21 And it came down to a point where even from a like Monish, a cheapskid like Monish got interested. And uh and the thing is so I I think that the DNA he has is very s very special and This universe of companies that he's going after is too small for private equity. Private equity hates doing these E D B D deals. Right.

1:20:42 And the second is they don't want to buy and hold them. So he's buy and hold. These come these guys want to flip. So the frictional costs of buying a tiny company and then trying to find another buyer and all that, there's too much nonsense involved. So quite frankly, the only competition they would have. would be if someone decided

1:21:02 I want to do everything exactly the same. And The market could tolerate three constellations. It's large enough for three or four constellations. But there are none. There's only one. Right. So that's why we are in. And and now the thing is that We don't need you have to understand the four percent rule of Buffett, right? Only four percent of his bets work.

1:21:21 So If you look at My bet, like you know Uh airports. Cool.

1:21:27 Uh warehouses Constellation. If all of them work. Now if I if you ask me about each one, I'll give you a case why it works. Right. All of them not gonna work. Because that There's no way.

1:21:39 If if I were doing if all of them work, we're doing 100% a year. Okay, that's not gonna happen. But if half of them work, we have a home run. Right. Even if forty percent work we have a home run. So this is a very forgiving business. Right. And so that's where this is, which is I don't know which half works.

1:21:57 I wish I knew Yeah if you knew. Yeah. I don't know which half of So like like I know that our coal bet, for example There are things that can cause that bet to fail. They are low probability, but they could happen. Right. So

1:22:10 Maybe those things happen, maybe they don't happen. I don't know. Right. Constellation, maybe cloners arrive. I don't know. Maybe the DNA of the country deteriorates after Mark is gone. I don't know. Right. So there are these unknowns.

1:22:22 But It's a favorable bet. It's not a hundred percent bet, it's a favorable bet. And as long as we keep making these favorable bets. We're okay. So Howard Marks came on the podcast. Oh, really? He was um he he laid out a uh why the S P might be a bad bet for the next ten years. And his take was basically if you look at the current P E ratio of the S P, it was like twenty three or something like that.

1:22:44 That the forward ten year return had vasillated between negative two and two percent. Any time that had happened. Yeah. Uh so I'm just wanna give you kind of like a Just quick reaction, bullish bearish on uh on the S P index right now, if you were to to be an investor. Bearish. Bearish. Same reason.

1:23:01 Yeah, I I I don't I Howard is very very smart. I don't disagree with that. Yeah. GLP once. So it's amazing. We have a the best thing in sliced bread. And it puts sliced bread out of business. I s read a stat that The GLP one drugs, uh Osempic and and the others. They're currently generated double the revenue of the AI of the AI companies. So it's like seventy nine billion a year versus

1:23:28 Yeah, and we're embryonic right now. And we're early stages. And also I think the the science is gonna get a lot better. Yeah, so like give me your how you're thinking about that right now, whether from an investor point of view or just Well, I think I think from an investor point of view, to m for me it goes a two hard pile. And uh reason it goes a two hard pile is Industries with rapid change are the enemy of the investor, according to Warren. So We go king.

1:23:52 And then now they're talking about some of these tablets. The tablets are gonna have a hard time because they're have to go through the liver and all that. But basically to me, uh I I think that This trajectory is gonna continue. But

1:24:08 Given the valuations and given where this head is, it's there are too many Right. A few years ago when I was at your house, I asked you about Bitcoin. And you similarly were like Somewhat bearish on it.

1:24:19 But you said, you know, ultimately too hard pile for me. Yeah, it's also too hard pile. Has anything changed in your opinion?'Cause the more time goes by, in a way, like All money is a confidence game, as you know, right? Every currency Oh yeah, a gold every gold bar. It's a confidence that this will this will last. I was curious if anything had changed over time for you with Bitcoin. I I I prefer gold.

1:24:42 It's not used by a bunch of scammers and you know, ransom seekers and whatever else. Uh so Uh to me the whole thing is in the too hard pile, but I would just say that Given that we already have gold. Why do we need Bitcoin?

1:24:58 Okay, we'll debate you on that. It'll be a four hour podcast. Yeah. There's um A couple of life models I wanted to ask you about. Cause I asked you many of the investing truths. Yeah. But then some of yours, I feel like Maybe are related to investing, but probably not. One was Don't die at twenty five and get buried at seventy five. Yes. What do you mean?

1:25:18 So that's a quote by Ben Franklin. As you know, I have no original ideas. So Ben Franklin uh said that Many people die at twenty five and are buried at seventy five.

1:25:31 And basically what that's saying is that you've stopped Growing And you've stopped kinda doing things and you're kinda just coasting. You know, I I had discussed this talk with Charlie Uh in my last meeting with him.

1:25:45 And he was buying that stock six days before he died. Okay. N he was ninety nine point nine years old. He didn't know he was gonna die in six days. But when you have a ninety nine point nine year Age. You know life expectancy is not twenty years.

1:26:00 Or ten years. Okay. But he was I saw Charlie make investments and bets and decisions. Ignoring

1:26:11 His mortality. Mm-hmm. Like he was twenty five. He was making the bet as if he was he was twenty five. And so I think that um living Till the very end, truly living.

1:26:22 is really important. So we we we want to be pursuing our passions We want to be getting our music out. We want to be doing the things that we want to do. for this very finite time we have here. What does that mean, get your music out? I saw that on your your list.

1:26:38 But I didn't know what it meant. Well Олафвас хав music in us. And it's different, you know, for the musicians it is actual music that they but uh but the but the thing is we have to understand who we are.

1:26:54 And understanding who we are is not easy, but we have to understand w who we are. And we have to understand what Would be something we want to bring to this world. That makes the world better.

1:27:05 And makes us feel. a sense of accomplishment for doing that. Right. So we we all have special talents and there are there's no person who's got nothing, if you will. They w everyone has something special. We have to get that out. Because that's going to be a fulfilled life.

1:27:23 September twenty eighth. twenty seventy five. Apparently that's the date I'm gonna die. And I quote Ask God Google when you are going to die and act accordingly. Last night I Googled when I would die. I gave it all my info. I told it I'm a non smoker, this year's old, I have done this, et cetera, et cetera.

1:27:48 And it gave me a Hey, prop here's a range. Yeah. And here's the most likely date. September twenty eighth. Twenty seventy five. Awesome. All right, now what do I do? You freaked me out. Now what do I do? So

1:27:59 Contrary to Seneca. Life is short. Mm-hmm. And Gandhi has a quote.

1:28:06 Live as if you were to die tomorrow. Lear as if you were to live forever. Right. And uh even Steve Jobs said that if he spent two, three, four days doing not what he really wanted to do or loved doing he would make a change. Right. So I think that

1:28:22 Twenty seventy five seemed the drill. Really For long ways away. You know, like forty nine years or whatever. But it's not that far away.

1:28:31 There's a Buddhist saying about living in the moment. And living in the moment is fantastic. So I think that Treating Every day as if it's your last. and living it to the fullest for the full forty nine years.

1:28:44 That's what you want to be doing. So I think you know people say Oh, I'm gonna graduate, then I'm gonna work three years at McKinsey, then I'm gonna get some experience, then I'm gonna start my business. You know Buffett would say to that that's like saving sex for old age.

1:28:58 Not a good idea. Okay. So Don't make a lot of long term plans. We have to enjoy Today. Yeah. Don't wait to live. We have to enjoy every day. So I think

1:29:11 Getting the music out. doing what we love to do, working with people we like, admire and trust. and pursuing our passions, we have to do that all the time. Right. Those are sort of like the uh eat clean, exercise, get good sleep.

1:29:25 Uh what those are to health. Yeah. I feel like what you're describing is to like living life well. Absolutely. Yeah. You know, one of the things that i I think is your part of your music you get out. Is That not only do you study investing and study companies to invest in, but you study the investors. Mm-hmm. And my favorite learnings from you have actually been the stories and the insights you have.

1:29:46 having studied all the great investors. I wanna ask you about a couple of names I didn't ask you about in previous ones. The first is Ed Thorpe. Tell me about Ed Thorpe. What do we learn from Ed Thorpe?

1:29:58 The first time I met at Thorpe. I was naked. So just to give you the long form um answer, so Ed Thorpe

1:30:09 MIT trained, PhD mathematician, very smart. He actually worked with uh uh Claude Shannon and if you s study Shannon, there's podcasts on him and all that. But Shannon is uh, you know, probably one of the smartest humans around uh ever lived. But Ed Thorpe basically used MIT's mainframe computer To

1:30:29 figure out how to optimally play blackjack, right? And he came up with what we now call basic strategy. And at that time in the early sixties when he when he did this casinos in Vegas and Reno, et cetera played single deck blackjack to the end of the End of the deck.

1:30:45 And blackjack is a game where every time a card is played, the odds change. And so if a deck gets, you know, filled with more aces and tens or whatever else, then you're basically It's in your favor. And smaller cards, it's against you.

1:30:59 So He's counting cards, it's easy to do. And when the deck got loaded, he increases bet bet and when not loaded, he reduces bet. And he cleaned the casinos out. And uh at that time the casino the Mob run. And so they basically showed him a baseball bat and said, Don't ever come back.

1:31:16 Okay. And we don't need to know. They were losing money. They didn't know why they were losing money. And that's all they cared about, that they were losing money. Right. And uh so He went back and is a you know very

1:31:33 Meek, timid guy. He said, Wow, this is like Like they might actually like, you know, kill me or something. So he said, I'm not going back But To get back at them, he wrote a book. Called Beat the Dealer. Mm-hmm

1:31:45 We've sold millions of copies. Which basically says here's how we beat the casinos. Okay. And the casino's freaked out. Because they said now we've got like ten thousand head tops are coming at us. And

1:31:56 So blackjack became a game from then till now, which where the rules have continuously changed. where they started not playing to the end of the shoe. They introduced multiple multiple decks and all these different and all the different uh, you know, rule changes and everything else to keep up with all of that. And it's been a kind of And you know the movie twenty one where the the MIT kids went in with all of that. So anyway, he did well. He he he wrote Beat the Dealer.

1:32:24 And then he Realized that there was a better casino. than Vegas, which was the New York Stock Exchange. And there's something known as the Black Shoals formula. Okay. Which is the way how options are priced. So the

1:32:39 guys who came up with their black should and another guy, they got the no Nobel Prize for that. It tells you If you've got a stock with whatever volatility, how to price the options, the call options, whate else on that. Ed Tarp

1:32:54 cracked how options were priced before black shoals. but decided instead of getting a Nobel Prize, he was gonna make money off it. Okay. So he's he he set up a entity called Princeton Newport Partners. And they killed it. Like

1:33:09 twenty five, thirty percent a year and no down years and any of that. And um did that for a while, became very wealthy. He Uh moved to Newport Beach, became a Professor at UCI and then Uh someone introduces him. Just think about this is like a kind of forest comes story. Someone introduces him

1:33:27 To Ken Griffin. You know, Citizen's founder. While while he's at Harvard, you know, training out of his dorm room. Can ask because Ed was not using his all his um algorithms and everything else he had retired Uh Ken asked if he would give it to you.

1:33:44 Uh to him. And talk to can realize is very unusual. And said you can have it all. And I want to invest with you. And so he becomes

1:33:54 one of the early investors in Citadel. So that engine just keeps going. Oh my God. And then also uh he meets uh Buffett. For bridge, I think in the seventies. And realize this is the guy. And he puts a bunch of money with him. So you know, he's investing with Ken Griffin, with Warren Buffett, with himself, Princeton Newport Partners, and the casino, all the above, right? Legend. Now I'm in I'm in urban California. I'm at this uh club where I go play racketball. And I'm getting ready for my racketball game, so as I'm getting ready, I'm naked.

1:34:25 And this guy, older guy. is looking at me and then the Wall Street Journal next to my And uh he says to me, What do you do? I said oh I'm uh I run a hedge fund, right? And

1:34:37 He starts talking to me and I forget that I'm naked. Okay. And then he says, I'm Ed Thorpe. And I get so excited. I said, Oh my God, Ed Thorpe. And I go up to him and I'm not talking and then I realise Monas, you're naked. You know, this is not appropriate. So I said, Ed. Can we just meet for lunch? You know, I said I I I I promise you I won't show up this way. Okay. And he said, absolutely. Right. And so then I met him for lunch. And uh got to know him. In fact, I just got a Christmas card for him and he wrote me a nice note.

1:35:04 Uh but Ed is fantastic. I think that's a great guy. And you know, he's I think uh ninety great health. And he should get him on the podcast. He also beat Roulette too, did he not? Oh yeah, he had a uh he had a device by which they could uh Uh I forget they had they had something where they wore a shoe or something. Yeah, yeah, they had something they wore which would kind of uh tell them what was going on with the roulette and all that. I mean that is an unbelievable story. What do you know about him and and what kinda made him special and why maybe Ed initially spotted that this guy might be a little bit different. So I met Ken around two thousand or so.

1:35:39 I was running the IT company and um Someone I knew said that they were looking for consultants. And My wife went in as a consultant to Citadel.

1:35:53 Okay, so she's actually At Citadel. Uh, Ken is like there might be like ten people I said around that time. And she'd come home every evening with a whole bunch of Ken stories. Like he said, She tell me this guy is very unusual and the place is very unusual. Everything's very unusual. So

1:36:11 He he had hired some whizbang Russian mathematician. PhD, postdoc, whatever, who's working on the algorithms. And Everyone at Citadel would come to this Russian guy with their problems. And Ken didn't want anyone coming to him. He just wanted him to crank without anyone bothering him.

1:36:29 So my wife told me that There's a temp that was hired. And Can

1:36:37 Here's Hugh. Here's the mathematician. No one crosses. So the temp says, Oh, what do I do? Nothing. Your whole job. is to make sure no one crosses, no one talks to him. So she's just looking at this temp, and the temp herself is in shock. Someone's pay me to like, you know, file my nails. So yeah, Ken is a very intense guy. But I think I think he's very smart. I think he found all the different nooks and crannies.

1:37:04 Uh built a tremendous business and so I have a lot of respect for him. Awesome. Did a great job. Ken Griffin uh intensity stories is something that uh that I can binge on. I've heard you know When Enron was going out of business, did you hear the story? Yeah, they all went in and they we bought all got all the training out. All the smart guys out? Yeah. Like a rescue mission. I just read the other day that they had made an offer to some guy uh at Harvard or whatever, some new grad. And can ask them so Let's say you made ten million a year, what would you do? You said oh I'd quit

1:37:35 At GoPri in the Tallest peaks, this and that, whatever. So Ken says to him Please reject our job offer. You know, we've already made the job for you, we can rescind it, but please don't accept it.

1:37:46 Because we really don't want someone like you. Right. Yeah. dies at twenty five. Right. podcasts like these before with me and then others. I I think

1:38:00 Our podcast together, more than five million people have listened. However, the sad part of that is I bet if I talk to those five million and I say What'd you really take away? What did you what'd you remember? What was the thing that you you took? I'm not sure how many would have Something that clicks. And so I want to make it easy for them this time. What's the thing that they can't miss out of this one? Because I don't want people to just listen, be entertained. And go back to doing things exactly how the way they were. Lead an aligned life.

1:38:23 Mm-hmm. So Who we are. is hard coded at the age of five. So between our genetics and what happens till in the first five years.

1:38:32 How old are your kids? I have a six year old, five year old, and a two year old. Okay. So You've got some work you can do for the two year old. But the sixth and five year old the cake is already baked. Okay. And especially after they're about twelve.

1:38:45 After they're twelve. The only thing you can do for them is control who their peers are. What happens with us humans is we show up in this world without an owner's manual. Okay. We don't know.

1:38:56 What our calling is. The calling is predetermined at the age of five. If we don't following. This is our in our inner map. And this is how we are externally. We are misaligned.

1:39:09 And to have a great life it needs to be like this. Now to get from here to here means You have to understand who you are. And

1:39:19 There are clues. So What you have to do is whenever you do Any activity. You have to ask yourself.

1:39:28 How much did I like that? When when you meet someone, how much did I like meeting that person? And so you have to try to get to the point where the glove fits. So You may be a lawyer, but you are meant to be an artist. Or you may be a musician and you're meant to be a running back. Okay. So I mean I found it out by going through these industrial psychologists who we did all this. uh work with and all that and and uh I was able to get to

1:39:53 What my Calling is when I was Thirty four or thirty five years old. Till then I was wandering the wilderness, completely lost. Right. And then it life became a lot better.

1:40:03 Getting to an aligned life. is the most important thing. It's not being a great investor or you know, finding great investments or any of that. I think the thing is you have to get your music out and you have to understand what that music is and you have to live an aligned life. And it's worth the pursuit, however painful it may be. to understand that as early as you can in life.

1:40:25 The shortcut is You could go through a psychological test with a psychiatrist. What what do you ask them for? What are you asking them to do? Is there a name for this? You're uh you're gonna tell them that I want to understand who I am. And what is my calling in life? What am I supposed to be doing? Now you could go to my guy

1:40:45 You can go to him. Yeah, who's your guy? Uh his name is Jack Skeen. Oh I've met I've met Jack. Okay. Yeah. All right. Yeah, he does the kind of full life three sixty sort of analysis. Yeah. So so uh you can go to Jack. And Jack can only do like twenty a year or something. Okay. So he can't do it at at scale. But he may know others. Right. And so that's a pretty foolproof way to get there. Other than that, I think you have to feel your way. If you're don't not willing to do that, then

1:41:11 You have to look at what you like, what you don't like. You have to look at whether doing something energizes you Or doesn't energize you, that sort of thing, right? And so you have to find what you love doing. And if you only do what you love doing, you'll do it very well. Why do you think most people don't do that?

1:41:28 It's because the world tells us what we are supposed to do. And we think that what the world tells us what we're supposed to do is what we're actually supposed to do. For example, The human brain is set up optimally to start specializing after the age of eleven.

1:41:45 And from the age of eleven to twenty is a window to specialize. That is the exact window when the education s system makes you a jack of all traits. So like Michelangelo, you know, he was doing his sculptures and paintings and all that. Ten eleven. Buffet. Picking stocks. Right.

1:42:01 uh gates coding at eleven or twelve, right? So You have to try to within the context of a world that wants to be a jack of all trades. start getting to what is your calling, like the way Buffett and Gage did it. They were in a world

1:42:18 Gates spent an inordinate amount of time doing coding. He would slip out of his parents' home at night and cold all night and come back and sleep and whatever. And so he got ten, twenty thhous hours of coding experience by the time he was in his early twenties. Right. And nobody could touch him after that. So yes, we have to at that age, that's your job as a parent, make sure the kids at eleven or twelve, you're trying to figure out what they're good at and trying to increase the time.

1:42:45 that they get for that. Well uh I don't know what my calling is just yet. Actually if I look back at that age Uh I was doing something very similar to this. The two things I really love to do back at that time was

1:42:57 I love to play any kind of game where there was a score. I was playing online poker at a very young age. Things that related to business and and money. And then the other was I was doing improv all the time. I loved it. What's a podcast? But an improv s session.

1:43:11 I just did this for whatever, three hours and it was no problem. Right. And could have known that signal. At a younger age, maybe figure it out. If you're not there, you're damn close. A a gift for you in this envelope. Want you to take a look. We asked Somebody who knows you well.

1:43:28 To write a letter. And it's your friend Guy Spears. And guy wrote this letter for you. He knew you were here today. All right. So let me just uh start reading it because I really like to read it later at leisure, but that's so that's awesome. So the title is what I did not learn at HBS. Monish Pabrai taught me everything I need needed to succeed in business.

1:43:46 Dear monish. This is fun. Dear Monish, I met you some years after my MBA. But the truth was, despite the degree, I knew next to nothing about business.

1:43:58 My real education didn't begin until we met for dinner at the restaurant at the Delamar Hotel in Greenwich, Connecticut. I remember that evening vividly, I came away from that one dinner with more ideas than I had in two years at Harvard. Books I'd never heard of, and ideas I'd never thought of, you introduced me to Power Versus Force by David Hawkins and to Gandhi's autobiography, The Story of My Experiments with Truth. We discussed Robert Cialdini's influence, the psychology of persuasion, but what struck me

1:44:29 read about these ideas, you had put them into practice in your own life in a way that I did not even know was possible. I was a conventional thinker, you on the other hand had a very unusual mind. Someone

1:44:45 Who knew how to get things done in the real world And translate ideas into action. I myself was very misaligned at the time. I'm deeply deeply grateful that you were willing to Become my friend. That allowed me over time to untangle some of the misaligned elements

1:45:03 In my personality. Alignment. You couldn't give me a better gift. This is very special. Yeah. Thank you so much. I want to thank Guy for doing it. We a we called him last minute. I said, You know, who knows him better?

1:45:15 Excellent. Okay, awesome. I feel like I can root Well I know I can be what I want to I'm putting my all in it like my day so on the road, less travel, never look at it. Hey, let's take a quick break. I want to tell you about a podcast that you could check out. It is called The Science of Scaling by Mark Robert. He was the founding CRO of HubSpot, and he's a guest lecturer at Harvard Business School. The guy's smart. And he sits down every week with Different sales leaders from cool companies like Clavio and Vanta and OpenAI. And he's asking about their strategies, their tactics, and how they're growing their companies as you know, head of sales or chief revenue officer. If you're looking to scale a company up, if you're a CRO or head of sales, just looking to level up in your career.

1:45:56 I think a podcast like this could be great for you. Listen to the science of scaling wherever you get your podcast.

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