Turning $1M Into $1B : A Masterclass From The Indian Warren Buffett | Mohnish Pabrai Interview

an idea is like an [ __ ] everyone has one okay ideas don't mean anything this guy is known as the Indian Warren Buffett he's billionaire investor Mish PAB and last month I went to his house and asked him to teach me everything he knows about investing how did you make your money after taxes after everything I got a million dollars and I for the first time had money in the bank right that million became what 13 million and uh I said wow well done Mish and uh so they got 70% a year compounded how

the hell were you getting these returns I'm always looking at what is hated and unloved the key to moving the needle is inactivity have met and become friends with Charlie Munger and Warren Buffett good afternoon Mr Buffett and good afternoon Mr Munger my name is monish PAB how does that happen it shouldn't happen when I look at a CEO I always try to find out did they run a lemonade stand when they were 12 because if they didn't run the lemon stand when they were 12 they're not going to be that great at business at

30 how stupid can you be if you know the big picture you can change the big picture the most important thing in life is are you a fan of uh Bitcoin are you a Believer if you put a gun to my head I would say what do you think about uh Elon Musk Elon is not human if I said what's the number one trait that makes a great investor what comes to mind [Music] all right welcome good morning great to be here Sean you are a great investor but you started as a businessman I'm a

businessman trying to become a great investor uh how do those two relate in our brains we actually use the exact same part of the brain uh in both activities so Warren Warren Buffett has a great quote he says I'm a better investor because I'm a businessman and I'm a better businessman be because I'm an investor and uh and in his case uh a lot of people don't know but Warren had done a lot of different businesses in uh different areas before he was 17 starting when he was uh I think five or six years old

his very first business was uh buying um buying cokes from his grandfather's store at uh at a nickel a piece and then selling them at a dime a piece right buy wholesale sell retail yeah so that was one of his first first ones and one of the things that a lot of uh people don't uh understand about the way our brains work is the human brain actually when we are born it is the most underdeveloped organ uh when we born because the birth canal is not wide enough so for the first 5 years of life

the brain is the fastest growing organ that we have as humans the neuron connections are growing at a exponential rate uh from the age of about 11 to about 20 uh that window is when the brain is set up to specialize and um the neuron connections get cut uh so they actually go down quite a bit but the brain allocates areas to own in and specialize so you know if you think of someone like Michelangelo or uh Bill Gates or even Warren Buffett these these guys started specializing at 101 and uh if you start writing

code at the age of 10 or 11 for example um like like Bill Gates did by the time he was 20 the expertise that he had someone else starting at 20 would not be able to match him even at 50 so that tenure window is a very critical window in human development and uh unfortunately our education system doesn't recognize that and unfortunately I'm 35 so it's too late we hope there are some 11y olds listening or we hope when you have kids tell your kids yeah you it's not all the the the Cake's not fully

baked yet uh so I think the the thing with Warren was that that I think when he was about 10 or 11 years old he was running uh a bunch of very interesting businesses what was he doing I've never heard these so uh yeah like I didn't know this back one first businesses was he used to go to this racetrack in Omaha called aarbon which is Nebraska spelled backwards and uh he used to publish racing tips called stable boy selections basically telling you what what horses to bet on and uh and then also what he

would do is when all the races had been run he'd collect all the discarded tickets on the ground and he'd go home and go through each one carefully to see if some drunk had thrown out a winning ticket and and he'd find a few he'd find a few but he was too young to go to the window to collect because under 18 so he would give them to his Aunt Alice who would go and collect for him around the age of 14 or 15 um he had a very good friend in high school called Don

Danley and and Danley was a tinkerer he was like very mechanically inclined so one time I think uh Warren went to his home and he saw that uh Don's working on a pinball machine in his garage and uh he asked Don what he's doing he oh I just bought this pinball machine that wasn't working they gave it away paid like 15 bucks for it and I think I can get it working and uh Warren asked him uh how much is it going to cost he said it's going to cost like $3 in parts and maybe

a couple hours to get it working and then Warren says uh can you find more machines like this which don't work he oh yeah there's a lot of machines you can buy which people people don't want them because they don't work etc so Dawn and him formed a a company in their minds they never actually Incorporated anything they called it the Wilson coin operated Amusement Company and uh they went to barber shops in DC and these two boys you know kind of you know uh nerdy looking 15year olds they went to the barber and said

look we work for a Mr Wilson and Mr Wilson did not exist a fictitious character we work for Mr Wilson and Mr Milson has asked us to present you with a proposition that we can put a pinball machine in the barber shop and we'll come by once a week and whatever coins are in there we'll split it 50/50 with you half for you and half for Mr Wilson so so the barber said yeah put it in the corner right and so Warren got Danley busy fixing pinball machines and the two of them would go on

weekends and you know get barber shops every week they're making some money and and so I think he had eventually something like 40 barber shops with with these machines and Warren said that the first week he went back to the first barber shop he thought he died and went to heaven so there was like or $6 in there and uh so their take was about like you know $3 on $18 of capital in one week right and uh and he was he just told Don go as fast as you can Danley what are you doing

right now exactly Warren had all these different businesses that he was a senior partner and whoever he was working was a junior partner one time uh uh Danley showed him an ad for a Rolls-Royce for sale for $300 but it didn't run it was a old beat up rolls and you know people is giving away like like junk right and he thought he could fix the rolls so they bought the rolls for 300 maybe another 50 bucks in parts and Danley had it running and then they you know sprued it up and they would rent

it on weekends for $100 to weddings and uh and then on the weekdays the two of them would go to school the high school in the rolls you know so so what happened is and Warren didn't he didn't know this but he was specializing and figuring out business in that window of time the 11 to 20 right and so by the time he was 19 18 or 19 I think he went to college when he was 17 by the time he was 17 when went to college he had $155,000 and he told his dad um

I'm going to pay for my college myself and he also told his dad I don't need an inheritance whatever money there there is you're leaving leave it to my two sisters right I'm I'm I'm I'm good and 15,000 back then is a lot you know it's about 10 to1 so 150 grand 17y old yeah think about 17y old with 150k right and at that time College was cheap you know uh and uh and the other thing is that he got interested in uh investing his his dad was a stock broker so he used to go

to the dad's office in the weekends and he says that at the age of 11 he bought his first stock and he said I was wasting my time till then you know and but you know he didn't really have a philosophy he didn't have investing philosophy at 19 he read the intelligent investor by Ben Graham and that was transformational and he thought Ben Graham was this guy who you know died and passed away but then he discovered that Ben Graham was teaching at Colombia he was a professor at Colombia so when he finished his undergrad

he applied fed to Colombia to go to business school there so he could uh he could learn directly from engram and he joined uh Colombia's MBA program must have been 20 or something hey real quick as you know we're big on ideas here we love bringing new ideas business ideas brainstorming ideas for the podcast well a lot of people ask what do you do with all those ideas can we go find them is there a list somewhere the great people at HubSpot have put together a business ideas database it's totally free if you just click

the link in the description below you can go download a collection of over 50 plus business ideas that are from the archive listed out for you curated and so uh what are you waiting for go download it it's free check it out it's in the description below all right back to the show and then of course after that uh uh Graham hired him and isn't there some story where he tells Graham like I'll work for you for free and Ben Graham says uh your price is too high that's correct yeah but he's still ended up

convincing him somehow so actually Graham uh at that time Jews were very heavily discriminated L of antism street so Ben Graham who was Jewish wanted to give the fews that he had to Jewish kids and and young Jewish people because there just weren't many opportunities so he basically told Warren look I got to take care of the community right but but then Warren went back to Omaha in about a few months after that uh Graham called him and said uh if you want to come to New York I got something for you and Warren never

asked him what the salary was what the position was he just took the next train to New York uh with his uh with his wife his experience as a businessman uh he was very lucky it got seared in in that window of time and both Warren and Charlie they can crack businesses and business models really fast so when we when we start a business uh we will spend maybe three or four 5% of our time on figuring out the strategy you know what's going to be the product service Market yeah all the how we're going

to make it work and all the different plans right and then 95 97% is all the blocking and tackling to make it happen right it's Danley fixing machines yeah exactly and so in the case of investing we use the same brain cells that we use in that 3 to 5% of time and and basically uh one of the things that attracted me to investing was that basically that 3% becomes 80% because uh we don't need a Danley we've got public companies and all of that and uh we just have to pick which businesses we want

to own partially uh and which ones we want to ride and so on and so I think that um I I always find it strange if I run into investors who haven't been entrepreneurs because I think they're missing a very key part right and on the other hand I find that entrepreneurs are very naturally um already set up to be great investors if they make a couple of tweaks and but what what ends up happening is that we don't see a lot of entrepreneurs becoming investors and we also don't see uh we we see a

lot of investors who haven't built businesses met payroll and so both uh both have flaws so if if you had the um the good Fortune of having the entrepreneural experience then I think looking at the buffet Munger Frameworks it's a very easy transition right it's probably also easier to go business to investor than investor for a long time than suddenly go try to be an entrepreneur well investor to business the problem is the windows closed right you so you'd be you'd be at a disadvantage to start with uh and uh but yeah the earlier you

start on both Endeavors right the better off you are there's a great uh I don't know if you've seen this but I didn't know like I always heard okay Warren and Charlie great investors I read the shareholder letters and the shareholder letters are often um they're amazing but they're very like they're high level and they're philosophical in a way then you have um I saw this letter of Warren writing a letter to this I think the CEO of C's candy I don't know if you've seen this but it's a it's a letter and it's I

expected it to be very again philosophical amusing instead he's like brass tax right away he's like I went to the store and I have a few ideas for you is a very operational tactical I noticed this price point I noticed this and I was like oh he's he's a businessman like he's just like today we only think of him as one bucket but actually he's got both gears C's is a wonderful uh wonderful business it taught it taught them a lot it taught them more than they ever thought they'd learn from a stupid candy business

right uh but one of the things Warren did when he first bought C's is he told uh he told the CEO listen you got free reain run the business like you've been running and so on so forth but on December 26th uh I'm going to set the prices for the next year okay okay so he would sit down with the entire C's price list and he would bump all the prices by 10 or 15% and uh inflation might have been 3% right and so he would raise prices significantly of inflation and what he would observe

is volumes went up so and then the year after that he'd again bump it by another 10 12% and volume still went up and and so both him and Charlie were amazed that you could have a business where you're continuously raising prices significantly above the rate of inflation and there's no resistance from the customer base to accepting those prices and that's what gave them a huge lesson in Brands and uh you know he was a died in the wool hardcore deep value investor it was really hard for them they paid three times Book value for

C's they were choking almost when they paid that amount uh so uh I think the B sees for like 25 million looking back they could have paid 200 million and it would been still would have been a good deal yeah and ciz has uh sent dividends to Burkshire in the billions I mean it's been about 50 years since the purchase and billions of dollars have flown from Seas to birkshire which has then been used to buy a whole plor of other businesses and and if you look at their uh their purchase of coke for example

um they they put a quarter of the entire book value of bushire haway into Coke in 1988 if they had not bought C's they would have never bought Coke right so the lessons that they learned about branding and the power of Brands is what led to the coke investment which was a much bigger home run and they've made many more brand Investments since then half the portfolio is an apple right now right one of the best brands in the world and and I think I think Warren understood this notion of consumer behavior and how powerful

Brands can be and uh how powerful habits can be and uh and then he went from there so yeah absolutely and uh one of the interesting things about ciz is that CES wasn't this fast grower it wasn't uh they bought it and then it sales exploded but what I think the the beauty of C's if I remember correctly is that it was just no additional Capital had to go in so everything was just free cash flow coming out so so C's is very much a California story right I mean it it was it was uh

found founded in California almost all the sales were in California if you look at C's from the time they bought it till today about 50 years um the unit volume has G gone up on average 2% a year okay California GDP probably at least in the 70s 80s 90s was going up about at least four or five% a year so they were actually and part of that might have been the the price increases okay but even with those heavy price increases they still got the volume going up slightly yeah uh but when you overlay that

you know you do 50 years of 10% that's that's a very big number right right and so Seas is not cheap today right and now Warren was very excited about being the candy muggle of the world so they tried really hard to send Seas everywhere right I mean they would open open a store in Chicago and then fall flat on their face then they'd open in Arizona and they fall flat on the face they repeatedly tried over and over and over again to broaden seas and expand it and by and large those uh those efforts

didn't not work even today the bulk of the volumes of seas is in California right and um and so when the coke investment came about uh they discover they they found something very different than Seas is they knew Seas doesn't travel well but they could look at more than a 100e history of coke and they knew Coke travels really well they're two countries in the world where you can't get coke uh North Korea and Cuba okay if they opened up to Coke in either of those two countries and Coke did not advertise at all sales

would take off it's so embedded in the pop culture so even in countries and places where they've never done any branding before you know um people in Pakistan or India or Bangladesh they're having Indian food with a Coke right right so it's it's ubiquitous and that did not exist with Seas candy it wasn't ubiquitous and and Warren understood uh you can't conf you can't consume infinite amounts of candy you know there's an aftertaste and all that Coke you can actually consume a lot of right there's no uh what does he call it taste memory there's

no aftertaste yeah yeah that's right so so I think like I said I think they they move from being hardcore quantitative deep value guys to actually understanding a lot of nuances of Brands and consumer Behavior which was very fundamental to how and why boa did so well so you talked about uh specializing kind of that 11 to 20 years oldish window yeah um today you've done phenomenally well you manage I don't know almost a billion dollars or maybe more who knows uh a lot of money uh and done incredibly well investing uh did you did

you do that when you were 11 to 20 or or were you a late bloomer so uh no actually it was just dumb luck a lot of things in my life have been dumb luck um so my dad was a quintessential entrepreneur and um he was really good so you know a great entrepreneur one of the first traits you need is you need to be able to identify offering gaps some product or service that ought to exist but doesn't like Starbucks before Starbucks or McDonald's before McDonald's and so on right and so my dad was

really good at figuring out that oh this product should be there but isn't and he was really good at identifying these offering gaps he was also really good at starting businesses from scratch but his downfall was that he was always very aggressive and he was always over levered so when the businesses were going he was literally taking every last dime of profit coming in and everything that he could borrow and just pounding into the growth as aggressively as possible and the negative was that when the first headwin showed up the businesses had no staying power

right and so they would run into trouble so my brother and I uh I think after we were like maybe 9 or 10 years old um we were like his board of directors okay and I remember like when I'm I think 10 or 11 years old my dad my brother and me would sit down in the evening and we had to figure out how to make the business survive for one more day so all the walls were caving in there were everything going bad and there were a lot of moving parts and we'd put our

heads together and we try to figure out how to make it last right and then we'd make it pass the one day and the next night the same thing over right and so I finished many mbas before I was 12 by and and I think at 15 or 16 I was I don't know why my dad did it but I'm really grateful he did he used to take me on sales calls and you know who takes 15 year old on a sales call you know it just doesn't fit but my dad didn't care and that

was just incredible for me because I was getting to see um you know I was in um I finished high school in Dubai so I was in Dubai from the age of 16 to actually 19 and in in that window of time my dad had a gold jewelry business and uh so we used to go I used to go with him uh to these um uh he was manufacturing gold jewelry and he was selling it to these uh retail Merchants right and so he's going into cold calling right right and uh and I'm I'm observing

him going into a jewelry store he doesn't know them were you a silent Shadow or did you have a role in no no I I was very silent but I was I was soaking it in and sometimes when he was traveling my brother and I would run the business so they were like all these goldsmiths and all that and we'd manage giving them the gold and taking the jewelry and all that so basically I didn't I didn't realize it then but when when I went to college I I studied engineering and then I joined a

uh Telecom networking company as an as a R&D engineer and when we were working on these products I'd ask my boss so what are we going to sell this for and who's the customer and what kind of like what are you going to make on it and my boss would tell me those are all questions for marketing and sales we we don't need to care about that just design the product right he didn't know the answers yeah he that's the poker he didn't know the answers didn't care right and I found that all the people

I worked with the engineers didn't care I said how stupid can you be you know you you don't have the big picture the big picture is interesting and exciting if you know the big picture you can change the big picture right and uh so what I did after U two and a half years with the Nerds is I switched to International marketing and that was such a breath of fresh a it was so great and I my learning again Skyrocket and I had a big Advantage because I had a very strong engineering background but I

also had all the background for my teen years and so uh what I found is that I was able to connect with customers and figure out kind of what they wanted and how to really get the order much better than guys 20 years more experienced than me because they hadn't had all these experiences and they didn't they didn't think like an entrepreneur right it was was just a uh a small subset and and later in life when I heard about Buffett for the first time I found a lot of commonality right I mean he had

a he had a very different experience in the sense that he was his own entrepreneur right but one of the things that's really important is that uh when I look at a CEO I always try to find out did they run a lemonade stand when they were 12 because if they didn't run the lemon stand they were when they were 12 they're not going to be that great at business at 30 okay the the little itty bitty Lemonade Stand has a lot of lessons right and and so I think uh when uh when we have

kids I think it's really important in that window they don't need to run lemonade stands but they really need to uh be doing what's going to be their calling right and uh and I think that's what the biggest responsibility of parents is they need to expose them to more of what they think think their passion is you know I've done like maybe 500 plus episodes now of this and the podcast is name my first million because when we first started I would just say I was fascinated by the many different ways people became millionaires I

thought that's is cool to hear the stories so that's how the podcast started and along the way I noticed three common things of what you were doing in your teens because I used to ask this question I was like you know you're amazing now if I met you when you were 14 what were you doing and would I have known that you were going to go on to do things and most people are very humbled they're like oh you wouldn't have known but then when I say what were you doing it's always something that no

other 13 or 14y old is doing it's like oh yeah I used to go to the shop and I found these uh you know these CDs Rosetta Stone that I could go sell for 3x on eBay and I made an ebay account or I you know I started buying shoes and flipping them so it was always like eBay flipping or sneaker flipping is like a a super common one another one was uh competitive video games because a lot of the strategy you know communication collaboration um you know just extreme competitiveness gets built in there and

um and there's a couple others but another one is like a Mormon Mission so Mormons who go and have to sell you know Jesus to to a bunch of people get rejected a thousand times in two years they become incredible salespeople and so you you you see these backgrounds where oh you were kind of forged at an early age to to do this well we have a common friend you know s balky right and you you interviewed him for your podcast and S was an entrepreneur at the age of eight or nine you know even

maybe even earlier than that right uh he was selling greeting cards he was making and selling on street corners right you know and uh and then by the time he was 11 or 12 I think he was uh riding code and makeing website you know and uh went from there right you know yeah how did you make your money give me the highlights of your progression in terms of your own ability to to generate money and then start to invest it I actually never ever want to be an entrepreneur I never wanted to start a

business because I had seen so much turmoil trauma in in my in my childhood right and I remember I was like um uh 24 or 25 years old and my dad was visiting me I was living in Chicago and he tells me it's time to quit and start your own business and uh so I said you know have you forgotten have you forgotten my childhood and uh you know all the ups and downs he so my dad just said oh that's what makes life great right but he said look the company you're you're in my

the business I work for had 2,000 people he said you're such a tiny Co Cog in a such a big wheel you could drop dead tomorrow they won't even miss you okay you don't matter and what you really want to to be doing is figure out something where there's an offering Gap and uh go for it right and and I was actually uh getting a little bit frustrated at work because the company had been growing it was getting more and more bureaucratic and um so I actually uh started to think about um what might be

possible and I didn't have any money you know basically I was 24 25 so what I did is I came I came up with some uh uh IT services offerings that I thought would be pretty unique because that time client server Computing was uh just getting going early 90s and uh so I had about uh $30,000 in my 401k and I said okay we'll worry about retirement later and we'll pay the penalty I pulled that out nice and I I I applied for every credit card I could get my hands on and uh so I

had 70,000 available to me in different uh credit limits in credit cards and so I said okay we've got up to 100,000 that we can play with and the third thing that I did is I basically did both I uh was going to my my job and I had started my company at the same time because basically what I would do is like from like 6:00 to 9: in the morning I'd work on my business and then from 600 p.m. till midnight I work my business again and weekends right but somebody was was paying the

rent I still had a paycheck and all that and I said okay once we have enough Revenue clients profit I can quit right and and I always tell uh tell people that basically um if you think about it there's 168 hours in a week your employer needs you for 40 right and if you live close to work or work remote the commute time is not that much and even if you take out time for eating sleep everything else you have at least another 40 50 hours that you can engage on something other than work right

and I used to always get great reviews when I was starting my business I said okay look the plan is to not get fired the plan is not to be employee of the year okay right I don't need to overshoot so I said I'm going to give them just enough so I'm just above firing level you know where it's not so bad they call me in and terminate me I need to be above that okay and I did this for about N9 months and then I had clients revenue and all that and I went into

my boss and his boss and I resigned right and uh they they said you know Mish U we really couldn't figure out last nine months like you checked out I said exactly I said my my goal was to just do enough so I didn't get fired but she said she said yeah we saw a big drop in the old moish and the new moish and we talked about it and we actually said it's not so bad that we would fire him but there's something off we couldn't we couldn't figure it out right and then so

I explained to them I was going into a business my own business was not comparative with theirs yeah and so they said look when your business fails not if your business fails when your business fails you can come back we're going to give you more money we're going to promote you and you're going to do great so I said you know my my plan was that if I failed when I was going to my business if I failed I said look I got my degree I can look for a job I can apply for personal

bankruptcy clean everything off and start over right I said this is even better I don't have to look for a job right I get more money right and so I actually felt like the you know people think there's a people have a a false mental model people think entrepreneur take risk entrepreneurs do not take risk they do everything in their power to minimize risk if you think about Buffett's pinball machine business what was the risk those two 14y olds San's 14 year olds took nothing okay it's $15 in a pinball machine which they could use

themselves worst case scenario $3 $3 in parts so the second pinball machine will only get bought when the first one's already producing cash right and the third one after the second one so basically there's no risk right if it fails they sell those machines for more than they bought them entrepreneurs are actually great risk reducers they start with something that seems risky but so that's the other thing that is a commonality between entrepreneurs and value investors uh which is why the same brain cells get used both are trying to minimize risk you know we as

value investors want to go lowrisk high return and great entrepreneurs that's exactly what they're doing they're going lowrisk high return nobody is doing highrisk High return the only only so if you look at the United States probably around a million businesses more than a million businesses the year get formed in the United States venture-backed businesses um are less than much less than even 1% of that pie might be in most years less than one tenth of 1% right so if there was no venture capital and no Venture back businesses it would make no difference to

the landscape okay we'd still have the million businesses being formed Venture back businesses are a different animal because they are high risk High return right the what the VC wants you to do the VC's got 10 bets he doesn't care whether your bet works or not he just wants one of those 10 to work yeah so he wants you to step on the gas as aggressively as possible if you blow up you blow up right right uh when you are an entrepreneur who's not Venture backed that is not how you go you don't put just

you know foot on the gas you're very careful about downside protection so what happened even some of the big uh big entrepreneur who Richard Branson oh I think is the people see him as this free you know risk taker Reckless sort of guy but you you've pointed out that that's not true about Richard Branson in this case one of the stories I love about Branson is is when he had the idea to start uh Virgin Atlantic Airline right the minimum that you need to start transatlantic service is a Boeing 747 okay couple hundred million dollars

right and uh Branson got Virgin Atlantic off the ground with no money so what he did is he calls um directory assistance in the United States 5551 1212 in Seattle 206 5551 1212 ask for the number for Boeing okay gets the number for boing calls the main switchboard and says um I'd like to lease a 747 that you guys might have hanging around that you're not using they hang up on him right okay keeps calling them and finally the lady of switchboard says uh let me transfer you to someone who can get rid of you

properly right so she transfer him to someone who's head of like commercial sales and so this guy tells him listen Mr Branson in every country we have one customer and you are not the customer in the UK it's British Airways and so therefore there's nothing to talk about so Richard tells them listen I I I agree with you that's fine but just humor me for a second do you have a old Boeing 47 lying around that you're not using and he says yeah actually we do and if one of your customers like the one of

the UK called you like British AIS called you and they wanted a plane what would you lease it for so he says well I really don't need to have this conversation but we would lease it for about 200,000 a month okay 2 or 300,000 a month and Branson was able to convince Boeing to lease him that 747 because it was sitting and doing nothing right then when he set up uh virging Atlantic he said you get paid for all the future flights in advance because people buy tickets so the plan's going to fly in April

people already bought tickets in February right so you say I got cash coming in two months three months before the pl plan's going to fly and I'm going to pay for the fuel 30 days after that plane lands okay so he had negative working capital and the lease payment is also in areas right so basically he's he was able to get Virgin Atlantic off the ground with zero Equity right now the way I look at it is that if if you can start an airline with no money you can start any business with no money

right okay you just have to replace Capital with creative thinking right how is it possible that .1% of the population owns almost 70% of all the motels in America I think this is an incredible story can you explain how is that possible in the early ' 70s a dictator came to power in Uganda iamin and ID Amin noticed that in Uganda most of the businesses were controlled by East Asians Indians patels uh they controlled like 80% of the economy and these patels had come to ug Uganda they were brought to Uganda about 100 years ago

to work on the railroad almost as slaves right and but because they're natural entrepreneurs they they went from railroad Builders to eventually owning and controlling his old economy and he was pissed so so ID Amin said Africa is for Africans and you guys are not Africans and these patels had been in Uganda for three or four generations that was their home they were Ugandan citizens you know born and raised right and what he did is he nationalized all their businesses and he threw threw them out of the country which just means took their businesses right

he just took them yeah yeah he basically confiscated all not their businesses homes everything confiscated all their assets and he told them you got 90 days to leave the country so these these patels in Uganda were stateless okay you you're being thrown out you know you're citizen of a country the country is throwing you out right and uh and they lost all their money so they they were able to convert a very little small sliver of their assets into gold and uh the United States took some Patel as refugees the UK took them uh Canada

took them India surprisingly refused to take the Patel refused to recognize the patels had any right to return to India because they said you haven't been here for 100 years and uh and India was at that time dealing with the Bangladesh Refugee crisis so it couldn't deal with anything more but a small number of patels a few thousand of them uh came into the United States in the early 70s the refugees um they didn't have skills there where they could get great jobs um they didn't have they spoke English with a funny accent and um

they they realized that look look if we um buy a really small motel 10 12 14 room Motel the family can live in one or two rooms motels are labor intensive right um the family can do all the work you know it's a job and a house together yeah so basically cooking cleaning front desk laundry and so what what they started doing is they would buy these motels and uh basically fire all the staff and move in into two of the rooms and because they had no costs uh they were able to charge nightly rates

that were lower that all the neighboring motels so what would happen is that the Patel owned Motel would be running 100% occupancy the other motels couldn't match that rate because they'd lose money right right because they they had staff workers comp and staff and all that stuff right and what the Patel started to do and they Fels were very frugal they basically were vegetarians uh at that time in the US if you were vegetarian you really host you couldn't really eat out anywhere so by uh they were forced to just cook themselves which was cheap

right so there wasn't much of a grocery bill and uh what they started doing is as their nephew came of age for example they would help him out to buy his own Motel right and then the nephew would get it going and then the next one the next one and you run this for 50 years and you end up with 70% of the motels in the country under Patel ownership not only that they've actually gone up market now so a lot of the Hilton Marriotts Western if you really look you'll find it's under Patel ownership

right same same math they always are very good operators and then they went into 7-Eleven laundro mats Dunkin Donuts all of it you name it and um but boss bottom line was that these were entrepreneurs that were lowcost producers right lowcost produ producers have an inherent advantage and I remember when I first uh when I first met Charlie uh he had he had read my book and uh and we were discussing the patels he says yeah you know I got some friends in the motel business I just tell them don't ever ever try to compete

with a p Patel if you ever find yourself in competition with a Patel Just find another game to play just move on it's not worth it so you said you met Charlie um that's got to be kind of a surreal thing for you uh to have met and become friends with Charlie Munger and Warren Buffett uh how does that happen how does that come about it shouldn't happen you know I was this Squan kid who grew up in the suburbs of Mumbai right and um I accidentally heard a Warren Buffett in the mid99s and it

was a big aha moment for me at that time I was lucky the first couple of biographies on him had come out uh and what I realized is when I read about how waren was investing I said all these uh all these models are the same models that an entrepreneur uses it's the same exactly what I was saying that you know uh better businessman because I'm an entrepreneur and vice versa so I said you know but the big Advantage he seems to have is that 4% of time of strategy is 80% time for him and

even in the business I had created the it business uh which had grown and scaled I always enjoyed the 4% more I I I I was strategy the figure I was happy doing sales calls and um you know building teams and all that that was that was great uh doing once I said wow if I go into investing it would be 80% of my time because there's no blocking and tackling someone else is doing that and so me that for me that was a big aha moment that I should switch I was lucky in in

the mid90s someone bought a small portion of my business after taxes after everything I got a million dollars and I for the first time had money in the bank right and I didn't really need the million right so I said okay what we're going to do is we're going to take this million we're going to invest in the public markets and we're going to find out if we can actually do this you know this you know um an idea is like an [ __ ] everyone has one okay ideas don't mean anything right so you

really have to execute it's really execution on the idea that has value you know uh entrepreneurs get kind of hung up on oh I need to get a patent and all that one of the things you have to understand is you can go to your most direct competitors you can tell them all your Trade Secrets they will listen to you really carefully and they will not change Behavior okay so you don't need patents for anything you don't the ideas don't mean anything it's really the execution and um so basically I I said okay let's take

the million let's start investing it let's figure out what happens and I was surprised we did really well I think that from like 95 to 2000 5 year period that million became about 13 million and uh I said wow well done Mish and uh so like got 70% a year compounded yeah and um so I was getting I was doing investing part-time while I was running my it business I was much more interested in the investing side losing interest on the business side till till that point when in 1999 I didn't even feel like going

into work I I said this is I I just want to just focus on investing and uh so I made I made a couple of big changes then I uh looked for and found a CEO to run my company and basically uh 13 14 million I felt was enough to retire do nothing you know I could do investing full-time right and so my plan was okay someone can run the business whatever's value is there is is there it doesn't matter I can go off and just now do investing full-time and um I had a few

friends who had uh basically uh I used to just give them stock tips you know in the mid90s I'd find some company I'd make the investment after that I didn't care who bought the stock right I mean I already bought it right and so I tell my friends hey you know I found this company you are to uh see if you want to take a take a flyer on it and buy it and so on and they did really well on the stock tips right but you know some guys worth like 5 million they would

put 10,000 into what I told them right and they would triple their money wouldn't make any difference right so a bunch of these friends came to me and said look we don't like this randomness of these stock tips we don't see you sometimes and you may have sold we don't know we want you to manage some money for us and uh so they were proposing giving me $100,000 each and it would be a million dollars in all right and I said okay I'll do it I thought of it as a hobby I didn't even think

of it as a fund but I want to do it in a format that works for me so I love the buffet Partnerships where he didn't charge management fees he only charged performance fees so so what's a normal structure and then what did Warren do so a normal hedge fund would be a 2 and20 structure they would take 2% of assets as a management fee for breathing every year every year yeah and then uh 20% of the profits right so if a if a hedge fund for example let's say has a billion billion dollars under

management right the general Partners would take $20 million a year for breathing for breathing and then if if it went up 10% so they would make 100 million for example on the billion they'd take another 20 million on that right uh so basically what would happen is the investor who put up the money on a 10% return gets a 6% return right below the s& right right because of all these frictional costs so Buffett had run his partnership by saying that uh there's no management fee um the first 6% returns go to you and above

that I'll take 1/4 and you take 34 so in the same situation if if the fund is up 10% in Buffett's case the first 60 million goes to the investors and the remaining 40 million is split so it becomes 10 million to him 30 30 million to the investors right so it's a it's a better it's a half the fee basically and you're you're paying for performance if he's not up that much you don't pay anything so I like that structure and so I told them I want to set up a a fund uh so

it's all legal and we will do it with that structure this they really didn't care what structure it was and uh so PAB funds really started in 99 as a hobby uh with me and my buddies and I had 13 million on the side which was my main focus and I said yeah the there's another million here it's okay if I find something I can buy for both it makes no difference right and um about a year a year after that there was about 2 and a half million we were up like 70% the first

year and uh some more money had come in and I said you know why do I treat the fund like a stepchild why don't I think of it like a real business and why don't I basically grow and scale it like a real business and uh and so I I started to do that and P funds uh we had a very good run uh for the first eight or nine years I think we were doing like mid-30s a year on average no down years and the assets grew we were at about I think in 2007

we were at about 600 million in assets under management and I had made a lot of money uh you know the fees and the compounding and all of that so in like a 10-year period you turned the million dollars of managed money into about 600 million of assets of management including new money coming yeah yeah it wasn't all it wasn't just organic but but but the original Money had almost tripled right you know tripled or quadrupled in that period I had asked you yesterday when we were hanging out I said uh you know there's really

two questions when you hear the story number one how the hell were you getting these returns what what what did you know about invest what was that part but the second part is how' you what' you do on the fundraising side how' you get so many so much more money to come through the door and you've had a great line of about that uh about how you get more money to come through the door cuz you didn't strike me as a a guy who wanted to be out there fundraising and knocking on doors and trying

to raise funds so how does it happen Buffett has a great great quote he says that if you are in a rowo in the middle of the Atlantic uh they will swim to you in shock infested waters to invest with you if you have beaten the market right they will find you he says you could be a leper and they will invest for you that's what happened and also one of the things that was very um difficult for me was that the SEC has a lot of rules and laws uh around hedge funds one of

those is you cannot solicit the general public right so when I was running my it business I could call on any CIO and say Hey you know uh would you like to use our services Etc I could literally call anyone out of the phone book uh when you're running a fund you can't just get a list of dentists in North Carolina and pound them that's that's not legal you can't do that um so the SEC said you can only talk to people you know okay I said the people I know I'm going to run out

of my Rotex in like five minutes you know there's very few people I know so what I did is I started to meet my investors once a year uh for an annual meeting where I would give them their results and uh take their questions and all of that and I told them listen um there was one reason and one reason alone you were put on planet Earth and that is to bring assets to P funds okay humans are always looking for a calling they are looking for some cult leader to follow and be part of

cult okay so you gave them one so yeah you know they were they were wandering in the wilderness they needed purpose okay so I said here's what you need to do you need to go talk to your friends and family because I can't talk to them the SEC won't let me talk to them you can talk to them okay you talk to them you tell them about me you tell them to contact me once they contact me I can engage with them okay so go out and spread the word okay and send me more of

your assets too okay so basically what like I like I said I started with a million a year later it's two and a half million 2 years later it's 10 million and it's growing you know and and part of it was that the annual return returns are adding but part of it was that so I had eight investors when I started a year later there were 17 and two years later they were 25 so now I had an audience of 25 uh to prosze and spread the word you know and uh and and of course

the results now the other thing that was happening is that uh when I started the funds in 1999 we were 9 months away from the biggest bubble about to burst that had happened in decades the dot bubble right and I I was able to see the bubble not very much in advance of the rest of the world maybe just two or three months ahead I I knew the internet was transformational but I also knew that the Euphoria was too much you know we had pets.com trading at multi-billion Dollar valuations with no ref revenues right I

mean there was just common to have a lot of companies people were counting eyeballs they're not counting dollars and they're not looking at net income they're not even looking at Revenue they're just looking at eyeballs right and so so I said okay this this is bad news um it will blow at some point it's going to the bubble's going to burst I didn't know when uh so I had always been a tech investor from like the mid 90s and I had done really well uh Tech had had a great run run from 95 to 2000

it had just done really well and I'd ridden that Cod tail but what I did in 99 when the fund started and also with my own capital is I did a 180 I switched completely to Classic Ben Graham deep value you know what Buffett had started doing in the 50s and one of the things that was happening in the equity markets at that time was the day the NASDAQ peaked I think March 8th or March 99 2000 was the day that Burkshire hit a multi-year low and literally people were pulling money out of their Burkshire

stock and buying pets.com right and then then that goes to zero eventually and so I said okay basically there's a lot of basic businesses that had become really cheap because nobody was interested so I was buying Funeral Homes at two times earnings and buying steel companies three times earnings and so a lot of basic businesses which very predictable and doing well trading really cheap right and uh and so PAB funds did really well in fact uh the NASDAQ imploded basically it hit 5,000 in March 2000 by the time it bottomed out the next two or

three years it was at 1,200 75% drop you know and uh the Dow in the S&P didn't go down as much but they also went down a lot and uh so it was it was a traumatic period for investors it was a great period for me and and so it was very easy for me to talk to my investors because I was the only guy making money for them okay if they had like five accounts they just moved it all to me because everything else was going down everything else was red and so that's how

we we got going so in 2007 um I I think my network at that time was like 84 million and uh Warren had been running uh these uh uh charity lunch auctions where once a year you could bid on eBay to have lunch with Warren Buffett and the money would go to the Glide Foundation which was doing you know feeding the homeless and all that in San Francisco so I said you know I am using this guy's intellectual property and making all this money off him um I really have a big tuition bill I need

to pay so I said the lunch is a great way to do that I said I can bit for the lunch and I'll meet Warren I'll be able to thank him in person and it goes to a cause that he supports so I thought about it okay 84 million what's an appropriate tuition bill I said 2 million is is good I think if I if I gave him 2 million I'd feel good about that right so I said okay okay I decided in 2007 I was going to bid for that lunch and I I decided

I would go up to $2 million and you can bring up to 7 other people to that lunch so I was going to take my family but there still were a couple of seats empty so I contacted my friend gra gpar he lived in Zurich I said hey guy I'm going to bid on this lunch blah blah blah and I said uh do you want to come in with me uh and I said if you and your wife want to join us uh because there'll be four of us and two of you you can pay

oneir and uh and I'm willing to go up to 2 million so guy says W that's too rich for me I can't pay 1/3 of 2 million he says uh I'm good for a quarter million so I said okay whatever the bid ends up at you're capped at a quarter million right and uh so I bid for it U it settled at uh 650,000 uh much less than what I was willing to pay and then onethird of that got paid by guy and uh so my only agenda in meeting Warren was to just say thank

you Warren right I didn't have and of course a big Fanboy and you know meeting him and all that Warren's agenda when he has these lunches is really different his his agenda is he wants the people who won that lunch to feel like they got a great bargain so he would take all our what I would call our lemonade lemon questions and turn them into lemonade so he's always is exactly what he does in the booksh show meetings is he's a great teacher and so he was trying to uh give as much value as he

could in that lunch and like he told us when we met him he said look I got nothing going on all afternoon right so when you guys are sick and tired of me you just let me know and I'll leave right we kept asking him questions for three hours and then we were exhausted and so we said Warren we just have anything else to ask you you know he said okay I'll I'll I'll take off no problem and uh in that lunch um I told him I said look Warren um my my wife then heren

I said she's uh a huge fan of yours but her true love in life is Charlie okay and Warren got competitive he said Charlie is a very boring guy he's a very kind of pessimistic always says no to everything I'm the guy who's really interesting so he said what I'm going to do is you guys live in California in La I'm going to set you guys up to meet Charlie for lunch and then when you meet him for lunch you're going to find that he's useless and I'm the guy so I thought he was joking

about that right and two days later I got an email from his assistant to Charlie's assistant copying us uh basically saying hey I met this wonderful couple in California and they seem to think you're more interesting I think they just don't understand so I want them to meet you so we can set the records straight right and so this is really what he was saying this is exactly what he said in the email right was he joking or was he not joking and then I I Charlie's assistant sets us up to meet Charlie for lunch

now Warren you can bribe and have lunch with okay Charlie there's no bribing this this is great and so uh we met Charlie my my wife and I we met Charlie in 2008 uh at the California Club in LA and uh I actually found that lunch a lot better than the Buffett lunch okay was great because I think Charlie is just so direct you know and um and I never expected these lunches or any of this to lead to any anything you know just a one and done but it led to a friendship with Charlie

he started uh asking us to come to his place for dinner and uh uh I would meet him like four or five times a year for dinner and then uh we started playing bridge together usually on Fridays he play bridge at the LA Country Club I'd meet him about once a month or something to play bridge and that used to be lunch and then about four five hours of bridge after that so it was a it was a a a a wonderful deep friendship for 15 years uh which was unexpected you know just never expected

that so let's go back to the lunch you asked him questions for three hours yeah uh what were the interesting uh questions and answers I know you've said one that I want to hear you you explain because I didn't fully I I've heard the tidbit but I want to hear the full story which was he said something about being a harsh greater of people yes what does that mean well I I told I told Warren I said Warren um you know you are both you and Charlie are such good judges of humans and human nature

were you always that good at figuring people out so he says to me monish you have mistaken I am useless at figuring people out he said if you put me in a cocktail party with 100 people and you gave me five or 10 minutes to meet each person uh I could tell you three or four people exceptional and I could tell you three or four people you want nothing to do with and the remaining 92 I would have no opinion on because it's not enough time to figure them out so but he but he also

said that look what you do in life is those three of your people who are exceptional you bring them into your inner Inner Circle and obviously the three or four people who are you know not not the great humans you're not going to have anything to do with them but the third thing you do is you treat the 92 just like the useless humans and you exclude so he says be a harsh grader so he says that when you have friendships and when you have people you work with your peers and all that he says

there's a gravitational pull if you hang out with people better than you you're going to get better if you hang out with people worse than you you're going to get worse so he said that one of the things that most humans are not willing to do is loyalties get in the way for them right so they may have a friend who's kind of weird or quirky or has ethical issues but they've had a long friendship so they'll keep that person going with them uh that has detrimental impacts so basically um I really took that to

heart and I said that uh I'm really going to try to see if I can uh focus on the great relationships you know the great people and that's actually been um a journey I've been on now for like you know 16 17 years it's been tremendous it's it's great now it's it's unfair right because you're treating the unknown the same as the useless people but but that's the way life is I think that sometimes you have to make these difficult choices uh because if you don't do that then uh the impact of that is significantly

negative and one of the things I realized when I started to uh get to know Charlie I got to meet Charlie's friends so I would play bridge with his friends I'd meet his friends and what I realized is his friends were so off the charts they were so exceptional I said wow this is like a different world right and I said I'm going to take a shortcut I'm going to make Charlie's friends my friends because he's already done all the work he did the filtering you know can't get a better filter than Charlie right and

and so I I worked on building relationships with Charlie's friends and some of his family and that's been beautiful I mean some just great friendships uh and you know I realize that there's such a huge Delta in off the charts top .1% top 1% of humans and the rest and you know we we talked about this Adam Grant uh wrote this wonderful book give and take right and he categorizes people uh in three buckets right the givers the takers and the matchers right now the takers you don't want have anything to do with you know

they just going to like want to extract whatever they can from you so they're just not people you want to uh have in your life the givers are people who are selflessly trying to help the planet not really concerned about what comes back to them right those are the ones you want to be with and then then the matchers they're kind of doing math in their heads oh you know Shan did this for me so I'm going to do something similar for him they kind of and so even the matchers aren't that great so what

you really want to do is you want to seek out the givers and more important than that is you want to be a giver right and uh and so the the interesting thing that he pointed out in that book is that when you're a giver the universe conspires to help you and I found it magical how and Warren and Charlie are great examples of givers everyone's trying to help them in any way they can and so that's the the funny thing is that the matchers who are trying to do this you know Equalization they end

up losing the best way to get the most is not ask for anything it'll all come to you right you know and so so these are wonderful models to incorporate yeah there's even some Game Theory with that which is the cost of excluding somebody who might be good or might be great is quite is actually quite low to you but the cost of accidentally including somebody who might be have some toxicity or it's quite costly to you and so uh you know I think even in Investments he has the the good pile and then the

the twoo hard pile Warren has a lot of baseball analogies he says that in investing there are no called strikes right so in baseball uh you're at the pitch three strikes you're out right he says I can let a, th balls go by thousand stalks go by and not swing right right I I only need to swing when eight moons line up right and so the fat pitch right the fat pitch right and so the thing is that we live in a world with infinite humans if there are infinite humans it also implies that there

are infinite number of good humans so basically uh making of uh excluding a good human from your circle because you can't figure them out there's no penalty for that right because there's a infinite Supply right just to put it for the mathematical way mathematically uh but but when you bring in a substandard person it just there's so many drains it's just negative I want to hit you with some of your big investing philosophies and give me the kind of the The Punchy version of like what is that what is the phrase mean and how you

use it so um let's do one heads I win Tails I don't lose much well I mean I think this is classically uh comes from the patels right the it's the dando philosophy uh but but this is this is how we want to uh do all our Bets with people with stocks uh with everything asymmetric yeah basically where uh we always want to look for things where the the odd are so heavily in our favor and uh so in investing uh we do get these anomalies where you you take what's one that you've benefited from

or what's an example in your portfolio or your career investing where you felt like you you you recognize asymmetric upside your downside was cap but your upside was high well I mean I think that if I look at my first business for example right I mean I I'm taking 30,000 for my 401k which I can make up and at that time the uh credit card laws were very different where if you uh declared personal bankruptcy you got a clean slate and actually didn't affect your credit because you couldn't file again for seven more years so

everyone would give you money after you filed okay so actually they've changed the laws now but at that time uh what I had uh I realized that starting a business has high rates of failure right and so I said how do I um minimize the risk on that and and this is what all entrepreneurs do and I said okay so basically if this thing blows up which there's some probability that could happen um I got my job already they want to take me back and I I clean up the slate and and I'd also drisk

it because the company was already cash flow positive by the time I quit my job right and so there was already a pipeline and such and so repeatedly what I've what I found is uh even even in investing uh I mean I'll give you an example like for example I think in 2003 or 2004 there was a steel company uh in Canada uh ipco and um I noticed that they were trading uh for three times earnings right and they the the stock was at $45 they had $15 a share of cash on their balance sheet

they had no debt and they had contracts uh over the next couple of years where they had said our earnings for the next two years are going to be $15 a share each year um given because these were these were these were not forecast these were hard contracts right so I said okay so the Stock's at 45 if I just buy the stock and hold it for two years I got $45 cash in the company now it was cyclical business third year could be zero could be negative but I said I I own all the

plant equipment everything for free right so my my I made the investment I put 10% of assets into ipco and I said all I want to do is I want to see what Mr Market does with this stock in two years just going to hang out and see what happens so we make the investment and then a year later the company announces is that we're going to have one more year of $15 okay so now you're going to have 60 versus 45 right and by now the stock has kind of gone up and it's sitting

at about $90 double in one year so I said okay uh it's still a very cyclical business maybe we should take our chips off the table and while I'm thinking about all that one day I wake up and the Stock's at 155 some Swedish company came and offered 160 to buy them 5 minutes later I sold the company and moved on right so what what I'm saying is that that's what we're looking for right we and in the equity markets because these are auction driven markets when you look in areas which are hated and unloved

you will find these anomalies um last year for example I spent about seven or eight months uh studying the coal industry four-lettered word hated and unloved more than anything else yeah I mean uh a lot of endowments and funds are not even allowed to invest in the coal industri it's so much hatred for it so you got excited the math the math was like this if there's a business that is going to exist for 50 years on average it's going to produce a billion a year in cash flow that's going to be distributed to shareholders

available to buy for less than two billion where do I sign okay that was a coal industry okay and so it's like you you in auction drived markets you repeated repeatedly run into these things where things you know the companies emerging from bankruptcy there's things that people just don't like uh there's different reasons why things get mispriced right you talked about like um private markets versus public auctions and why you think public auctions present more of these dislocations more of these opportunities well I think I think that uh let me put it this way um

let's say this home of mine was a publicly traded company okay listed on the NYSC right every day its price would change right it would be wiggling here and there and if I look at the average uh public company on the New York Stock Exchange the 12- Monon range of the stock might be 70 to 140 in 12 months if if I just throw a dart at any company in the New York Stock Exchange and I just look at the 52e range on that stock price it's going to be 60 to 100 70 to 130

so like a 50% swing it's a big swing right my home which maybe might go up 4% in a year or in a good year maybe three 3% would be vacillating in value it would be sometimes trading 20 30% more than it's worth and sometimes trading 20 30% less than it's worth and if I had a realtor friend and I said to him listen um can I call you every day and just tell me what my house is work the guy would think I was stupid but I would call him on Monday and say hey

what's my house he said it's worth 2 million I said oh thank you I call him the next day he said still worth 2 million okay third day he said listen idiot it's 2 million okay and after a month he would tell me oh it's moved to 2 million 30,000 okay and then again he would be at 230,000 for a while okay it wouldn't move because it's an intelligent buyer facing an intelligent seller and so you're not typically going to get um a company like ipco available as the whole company for the price you can

buy some shares right because the whole company there's an intelligent guy the Swedish company paid 4 times that price to to buy the company right and so that's just the nature of so reason I like the I've always like public markets is because there is so much irrationality and if you're just willing to be patient uh you know in a year in a year if I can make two good Investments it's a good year okay so we don't need a lot of activity right we just need to be patient and wait for for the times

when uh something weird is causing a mispricing right so uh let me ask you a few questions so number one should in your opinion should somebody just buy the index uh lowcost Index Fund or actively invest uh the index is a really good way to go uh the index is too dumb to know that it owns Nvidia and it's even more dumb it's even more dumb that it won't it'll never sell n okay or it's own Apple the last 10 years and never sold it for example so I would say for the overwhelming majority of

humans probably more than 99% of humans you're best off just buying an index and I think that the uh the US Equity markets and the US Financial uh Services industry is so efficient that the frictional cost for owning owning an index through an ETF is you know single digigit basis points you know less than uh one10 or 1% less than 0.05% or 1% or so on so it's very it's very small and so I think it's very smart to uh go with indexing absolutely yeah for for the vast majority of people yeah for almost everyone

and for whom who shouldn't do that well if you are if you have the talent and the patience to figure out what a business is worth and then um you know have the ability to buy those businesses well below what they're worth and patiently hold them uh those sliver of humans that can do that uh would be better off just doing it that way if I said what's the number one trait that makes a great investor what comes to mind patience if you are a guy who loves to watch paint dry you know you paint

a wall and just sit there and watch it dry you will do very well uh did you ever watch Seinfeld uh some episod not not religiously the thing is that uh Elaine Elaine is on a flight uh with her boyfriend okay I forget the name of the boyfriend and I think if you pull up Google you can probably find this clip the boyfriend is just staring at the seat back in front of him okay and so Elaine says to him um would you like something to read he keeps looking at the seat back and says

no um do you want to talk about something and he says no he just he's just doing nothing just looking at the seat back in front of it right by the end of the flight she's broken up with him yeah he would have made a great investor that's what you need you can be if you can be happy or like you know Pascal uh Pascal had a great quote he says that all man's miseries stem from his inability to sit quietly in a home in a room alone and do nothing right right and so if

you have this ability to watch paint dry watch the back of an airplane seat for a few hours and just be in a nirwana state this is the this is the work you need to be doing I don't know if you know this but you have a fans in a subreddit on Reddit I don't know if you ever have you ever been on I haven't done done much on so I went when I was doing my research for this I'm seeing what do people think about about you what questions do people have and I go

and one of the best comments I thought was such a great compliment they go the day I knew that this is my guy I want to follow he's on CNBC he's on a TV show and they're asking for stock picks so give me a stock pick and they go around the horn and everybody gives their stock it's going to be this it's going to be this it's going to go up they go to you and you go I don't really give public stock tips like this um and they're like well you got you're on TV

you got to do something and they're like the comment was he refused to just like randomly name a pick or tell people to go buy something and the TV hosts were like why are you on TV and he was like that's not what I do and then he just stayed steadfast and I thought it was such a great compliment but also so so big of a contrast from you go watch Kramer or these guys and it's like you go on and it's like overstimulation telling you you got to do something right now the opposite of

patients basally uh is that should people avoid that yeah I mean I I think that it's a big red flag if you're taking stock tips from some guy on TV I think that's just not going to end well you know the guy on TV is not going to be there when it's down 30% right he's he's all somewhere not available have you seen the reverse Kramer index uh it's not just people just whatever he said do the exact opposite and you're up like you're crushing the market if you just did the exact opposite of this

guy yeah so I mean I think I think that like I said I think indexing is a great way to go for most people I mean uh so you know uh I wish I wish um in high schools or even Middle School uh compounding was part of the curriculum from an investing point of view and and you know just uh it's really simple but but you know the people people don't pay attention to the math you know there are three variables that uh matter with compounding right I mean one is the the starting Capital you

have the second is the um the annualized rate of return you get and the third is the length of the runway right now there's something known as a rule of 72 which is a kind of mathematical just a very helpful rule explain it it's I learned this luckily one teacher in college she used to be a student she came back to teach said because she's like I wish we actually taught things that were relevant in the real world so she took it on herself became a teacher to come back and teach personal Fin and the

one thing she did was she's like you know compounding is the eighth wonder of the world and let me just tell you the rule of 72 very simple math but explain so the rule of 72 is just a mathematical Quirk that happens to work so for example if I'm getting a 7% return a year and I want to know how long is it going to take for this money to double I can take 72 divide by 7 it's approximately 10 10 years take 10 years right now if I have a 10% interest rate that I'm

getting and again if I do 72 divide by 10 it's 7 years so you can you can switch between the years or the interest rate and it tells you the other one right and and this is um the most important thing in life is how long does something take to double okay because that basically leads to everything else so for example if you look at someone like Warren Buffett right he started he started his compounding Journey when he was like 10 or 11 years old I think he's he would say it's when he was 7

years old he's going to be 94 this year okay that's a 87e Runway so far right uh now the thing is that if you have a really long Runway then a low rate of compounding would still get you a big number or if you have a shorter Runway and a higher rate would again get you the same result so it's very important in life uh and that's why I think that I wish they do this in high school is to start that engine early so for example let's let's take a situation of someone who's just

finished college right at 22 years old they got some job maybe like making you know 70 80,000 a year or something and they they put away $110,000 in their 401K right they're 22 years old in in an index right the index has done 10% a year now what that means is the 10% a year means that that 10,000 will double every seven years so let's take a situation where the person is now 64 years old right now they started at 22 with 64 so it's 42 years 42 years is Six Double right I do this

to make it easy right okay so six doubles right that's 2 the^ six 2^ 6 is 64 so that 10,000 that the person saved at 22 is 640,000 at 64 but that's not all they have at 23 they save 11,000 that's again sitting at some big number and you keep going and you know sometimes we see these news articles there some guy who's a janitor janitor of some college and he gives 4 million to the college and lived in a one-bedroom apartment whatever right why are we surprised okay if you actually run the math he

actually didn't even save that much and he didn't even have that a such a great compounding engine it's not like he found Apple 20 years ago or something that's not what happened what what happened was that there was a consistency and so actually my uh my push back to my dad when he was telling me to start a business is I was telling him at that time I said look I got a 401k I got 30,000 in the 401K right I'm going to I'm contined with 15% a year my employer at that time was matching

the first 2% so it was becoming 177% taxfree basically it's tax deferred and my income's going up over time so I was when I first started working my salary was 31,000 right so I'm saving 4500 a year right but if I was still working my my my pay would have been hundreds of thousands or more and I'm putting away a lot of money so by the time I get to retirement it's like it's game over you know lots of extra cash available no problem and I never missed the money because it was pre- tax right

taken out so it's just great so I think I think I I I wish that uh young people understand that yeah listen you can pursue lottery tickets you can pursue entrepreneurial dreams you can do all of that that's fine but on the side keep this going and and start it early let it be boring let it be a stupid index fun Vanguard and whatever and uh and that's it the uh the tortoise is going to win the race right you know what's the uh circle the wagons philosophy well the circle the wagons philosophy actually came

out of uh when I was thinking about Buffett's letter last year to shareholders the uh 2023 letter he he pointed out that in 58 years of running bursha uh there were only 12 decisions that he had made that had moved the needle for bushire now busha had a tremendous run they've compounded um I mean till recently were compounding at 20 plus% a year for 58 years that's you know if you're doing uh if you're 20% a year you are doubling every three and a half years okay and that means after 35 years it's a 10

doubles and 58 is another 23 years so you've got another uh what one six six t so 16 doubles uh 2 to the^ 16 now the way to do 2 to the^ 16 is 2^ 10 * 2^ 6 2^ 10 round number is 1,000 it's a th000 x right and 2^ 6 is 64 it's 64,000 times what you started with okay if you started with a $100 it's 6.4 million okay $100 is 6.4 million okay so he he's saying I would calculate in the last 50 years 58 years buffets made three 400 at least 400

different investment decisions he's saying 12 are the ones that mattered right the god of investing has a 4% hit rate that's the god of investing that's why we should Index right what are the rest of us mere mortals supposed to do so now the thing is that the I was thinking about his 12 bets right and I I I thought about okay which were the 12 and I think he never mentioned that but you could guess which one C's would be one of them Coke would be another one AMX uh Gillette cap Cities Washington Post

you know you can come up with the names you know uh bushire haway energy a Chan hiring a chain probably was the biggest bet for them with paid off huge for them what's the story with a there's something about the recruiter for him so what I realized when I thought about these 12 bets was it wasn't the buy decision the buy decision is important the important thing was they never was sold se's stayed in the stable for 50 years Coke has been in the stable for 40 plus years right so it wasn't the buy decision

it was the paint drying decision okay that was the important thing so when you find yourself in the happy position of a small ownership in a great business just find something else to do with your time uh play bridge or whatever have you have you considered golf uh I have golf is great and and so if you ask Charlie he would say the single best decision best investment booksh hathway ever made was the search fee they paid to hire a Jane okay now a Chan walks into their offices in 1986 1985 actually never having worked

in the insurance business right um from scratch without them putting up venture capital or anything the business he's created for them today probably has a value north of a 100 billion okay I mean it just gets lost in bursh because bsh is so big but I'll give you I'll give you an example of um of a uh a discussion I had with Charlie I think there maybe 2 3 months before he passed away so he was telling me that um a you know bsh bathway writes uh super catastrophe Insurance like you know uh insurance against

hurricanes uh earthquakes and so on right and um many many years uh there when people are looking for earthquake insurance in Florida uh hurricane insurance in Florida uh Ajit would look at the rates being offered and just take a pass okay B basically he would find is too competitive whatever else people not giving enough okay uh what he did in 2023 uh and they mentioned it at the at the meeting actually is that um he wrote um hurricane Insurance uh on Bush's behalf uh reinsurance with a maximum payout of $15 billion so if if these

hurricanes had hit now uh basically the math is like this I just want to explain how how ait's mind works um Burkshire would pay out on a big catastrophe like in uh earthquake uh Hurricanes 3 to 5% of the total insured loss incurred so for them to have a 15 billion payout you would have to have had an event with insured losses in Florida of 300 billion it's beyond and and Beyond Katrina right is beyond all of those right so it's it would be need to be a really big event to for them to have

a 15 billion payout the premium he collected uh to write that 15 billion policy take a guess take a guess five billion he collected five billion okay and I was sweating that guess no no but but but he he collected that's exactly what he collected how much did he pay out in 23 zero there was one came through my guess would be they might have paid Out 3 400 million okay you know some 300 milon collect 5 billion and and what Charlie said to me is ait's done this about six times okay where he's picked

the years that he's written these policy because what was happening in most years is the premium offered was 2 billion he just took a pass right right a lot of all the other insurers wrote that policy Burkshire took a pass right no C strikes right and and and now for example uh we've had um we had some unusual uh losses like for example um that uh that ship in Baltimore right now that's going to end up being about three 3 to 5 billion in losses right and it's the biggest Maritime loss in global history it's

going to change premiums for ships in the future Burkshire will probably be writing when everyone else is saying I don't want to do that you know it's like the cat who sat on a hot stove and doesn't want to sit on any hot or cold stoves ever again you know you have a thing over there I saw in your office that says it's like a placard it says trouble is opportunity absolutely that's a that's a the story of that it's a quote by John Templeton uh and I actually uh the good friend of mine PR

Wata in Canada they call him burshire haway of Canada War Canada and uh I had seen that uh that plaque on in his on his desk and somebody sent it to me and so it's a great quot I mean I think that that's what what we're trying to do as investors is we uh want we we need to be fearful when the world is greedy and we need to be greedy when the world is fearful and so basically when the world is running away from coal we need to run towards coal right so I'm always

looking at what is hated and unloved right and usually you will get a lot of mispricing when something is hatden and unloved right uh tell me about Bitcoin are you a fan of uh crypto Bitcoin are you a Believer outside my circle of competence and I would say that if you put a gun to my head I would say it's going to end badly M and why is that it's in the eye of the beholder there is no intrinsic value as I understand it to Bitcoin now you can argue that there isn't an intrinsic value

to the dollar uh but it has the full faith and credit uh of the US government which is then backed by the uh hardworking American people so basically I think that uh I think that it's U for me it's in the two hard pile but I think for most people I would just say take a pass right most people who have invested in Bitcoin couldn't really tell you um why it's or what it's going to be worth and why it should be worth that okay uh fair enough so one of the reason I wanted to

fly here is because it's fun to meet these kind of outlier investors or even just hear the stories and I've heard you tell a couple stories about guys I've never heard of that um I would love for you to to tell the story because I think most people have never heard of these people so tell me about um Nick sleep who is Nick sleep or uh junjin Wala whichever is your favorite give me give me one of the the stories that that well I think Nick is uh Nick is a wonderful guy and there's a

book called uh uh Richard Richard wiser happier that came out uh two three years ago and there's a chapter on him Nick is very uh he's a recluse he doesn't do uh interviews and such I was actually surprised he even talk to the author but it's worth reading the the book and uh you know him he he and his partner Zach uh they would uh come into their office and basically just sit and read annual report after annual report till they were blue in the face you know I mean they were just and um and

and they would uh want to see if they could understand uh different businesses and that exercise of reading those annual reports LED them to the annual report of Amazon right and for example I I've been a customer of Amazon known Amazon for a long time Etc familiar with the business but every time I would uh take a cursory glance at Amazon it looked very expensive on a earnings basis a PE basis it looked really expensive and the reason it looked expensive is they were investing so far ahead of the curve on the growth that uh

what what should have been categorized as capex wasn't was just categorized as expenses so the US government was really funding their growth because there were no taxes uh being collected now what what uh Nick and Zach were able to do because they were just sitting in their office with no distraction reading year after year of buffet uh of uh bezos's letters and the Bezos letters are worth reading I mean I think they're they're very uh clear he clearly laid out in those letters what he was up to right that he's basically Ally that he wasn't

he wasn't uh completely candid but he was basic you could tell that the business had very high Returns on Capital and he was investing uh he was throwing a lot of things against the wall but basically they were very low risk bets if any single bet didn't work it didn't wouldn't sync the company and um so for example one of the bets they made was AWS right which became a huge and they didn't know it was going to become as big as but but basically um they also made a bet on fire Amazon Fire which

didn't work but basically I think what uh what Nick and Zach realized is that here was a very gifted Capital allocator who understood all the different facets of building a team going after different markets he actually disrupted multiple Industries and so they had placed u a bet on Amazon and uh and because Amazon was doing so well it was becoming a larger and larger portion of their fund and in the UK there are more regulations on hedge funds than we have in the US the UK regulator was telling them that we see this position as

very high risk uh and you guys need to diversify so they were getting pressure and they felt that they understood the business so well so they looked at each other they were they were managing I think two or three billion uh they had made hundreds of millions in for each of them and uh they said look uh we are independently wealthy we never thought we'd be here we're young uh why do we have to listen to some regulator right we could return all the capital to all our investors and uh what what Nick said is

if I return the capital I'm going to put everything into three stocks and these are three stocks he owned maybe a dozen stocks but he was going to go into three stocks the three stocks he was going to put oneir each into was uh one3 Berkshire one3 Amazon one3 Costco right and so he said I'm very comfortable with these three talks they very built to last businesses and he did that and what what happened uh a few years after they hung up their boots is um it's really funny the uh Amazon still kept you know

it's a juggernaut it still kept going and so it became 70 80% of the pie so instead of them being 1/3 each it was 80 1010 for example right and uh uh Nick decided that oh maybe I should take some chips off the table here and so he cut the Amazon position in half and bought uh another business which has not done well went sideways and that goes back back to Buffett's point of 12 that worked in 58 years is we are not going to if Warren Buffett has a 4% hit rate the rest of

us are going to have a 2% hit rate okay so but you also need to get rich just one so I I think that what worked really well for Nick and Zach was they took the Buffett lesson which is that once you have a great business just leave it alone now even after he was sloppy and he took chips off the table from 80% or whatever still done very well right and and I think one of the things that uh investors forget is that um if you look at the the Walton family um none of

them are running Walmart Sam Walton passed away a long time ago it's been several decades since Sam Walton passed away The Waltons have for the most part kept the Walmart stock and for most of them it's almost the entire net worth in a single stock right so more concentrated than even Nick sleepers right and uh it's not a business that they control it's not a business that they run it's not a business that they are on the board of um none of them gives them sleepless nights right and uh so for example in 200 um

18 I started visiting turkey and I was just looking at things hated and unloved at that time and I saw that the Turkish markets were screening really cheap everyone in the brother was just exiting turkey and I have a really good friend of mine in Istanbul very good investor kind of classic Ben Graham investor and I told him hey Haider I'd love to visit Istanbul and I'd love to if we could visit all the companies in your portfolio starting with the company with the your strongest conviction biggest position to the smallest position and I said

don't take me to see any companies where you don't have money in okay he said Mish it be a blast so I went in 2018 first time to Istanbul the Blue Fish on the Bros forus was great and all these different businesses we saw were great you know and I didn't really do much work he told me what places we were going to but I just said let me meet the companies first I went back in 2019 and we're driving to this company and I like I said all these Turkish names and companies I said

I will do the work on the back end I'm I'm not going to spend time so as we're driving over I said hia remind me what company are we going to what's the what's the cliff notes version he said okay he says uh this company going to visit racas has a 16 million market cap $16 million market cap and he says a liquidation value of the business if you sold it today is 800 million so I said um is it a fraud he said he said no I'm I'm invested in the company and so I

said you're telling me the company is trading for two 2% of liquidation value he said yeah I said why he said it's turkey you know everything's cheap I said but this is outlier cheap okay and Ras basically is a very simple business they uh the largest Warehouse operator in Turkey they rent out all these warehouses these are 99% leased inflation indexed and um they leas to Amazon Ikea car 4 Mercedes Toyota like Blue Chip clients and all of that right so I went and uh met the father and son who run the company and the

founders and um and then after that I went and visited a bunch of the warehouses and I couldn't find anything wrong with it basically uh and he was absolutely right if you just went to any realtor in turkey and said this is their ad warehouses uh uh give me a value in each one he would just look at the rent and he would tell you okay you know you're looking at about $70 $80 a square foot for each Warehouse they had 12 million square feet it was about a billion dollars and there was 200 million

of debt so 800 million liquidation value and 16 million market cap okay and so then I thought okay this thing probably um trades by appointment and maybe can't buy the stock but turkey has very high trading volumes because they're all gamblers and um so I found that when I when I started buying the stock that huge volumes are available and I I spent $8 million to get a third of the company okay now the way I look at it is that you know when you look at you know Buffett's letter with the 12 positions or

you look at Nick sleep with Amazon right um the family that runs the business they have maybe 40 45% ownership right uh I'm an outside investor at 33% I'm no board seed but the way I look at RAS is the way the Walton family looks at the Walmart stock right uh I said uh and what what I've noticed since then since 2019 is they have increased the value of that business so I would say that probably today the business might be worth one and a half to two billion somewhere in that range and I think

they'll I've never seen them make any decisions that were stupid they're very smart about the decisions it's very well-run so I say okay basically uh we are done uh we will keep that business I don't care about the stock price so the 16 million market cap now now is about 500 million you know in four years and you know the Turkish L which when we were investing it was five L to the dollar today it's approaching 33 L to the dollar Turkish L's collapsed um in dollars we are up almost 30X right right but uh

the business is worth more right and so the thing is that it's exactly what what Buffett says is that basically uh just leave it alone and uh as long as that family and that father and son are running the business we will just uh keep our stake and uh and uh let keep running so basically the idea is that uh I'm also going to when I look back going to find there were a few things that move the needle big time and the rest it and and the key to moving the needle is inactivity and

so that's what you you got to be just you got to be very patient and be very inactive right you talked about uh Bezos being a capital allocator um Buffett obviously capital allocator for Berkshire and what you know who are the other I guess like if I just throw some names at you or some companies at you like I'm curious to hear your take on how well they allocate Capital because we know how maybe how good their brand is or their product is but uh we were talking about this yesterday there's a transition from you're

a product manager where your focus is Building Product and you're people manager where you're building an organization and then you're a money manager and you're now you know you're sitting on hundred billion dollars you have to figure out some way to invest it this is like you know so so tell me meta or Facebook what do you think how do you think they've done with uh Capital allocation well I think I think it was really surprising to see how um he did a 180 I mean uh I think uh Mark basically moved from being a

Spen Thrift to being a Patel you know uh he I mean literally I I just can't uh I think it was remarkable to see uh an entrepreneur pivot that way right so uh you know meta was a country club you know they had all this spending going on in all these areas and he really tightened it up I mean I was really I mean and it showed up up in the numbers uh they I mean Facebook is a great business you know all the different brands they have and different properties they have are tremendous um

it is the norm in capitalism that great businesses will be sloppy with how they execute I think normally it's very rare to find a great business which is also tightfisted and meta wasn't tightfisted but it is now M and uh so that was just wonderful to see so I think yeah I think the capital allocation there is excellent now right what do you think about uh Elon Musk fellow uh fellow Texas resident um the United States this is one of the just be most beautiful things about the United States is Elon wasn't born here okay

and he wasn't educated in his first 20 years of life over here we the United stes got a finished product basically and uh he's created tremendous value tremendous jobs and disrupted multiple Industries um I think I think Elon is a exceptional allocator Capital yeah it's terrific actually and Tesla gets a lot of there's a lot of conversation is Tesla overvalued is it undervalued is it you know too frothy I guess what's your take on uh when you look at a business like Tesla how does your mind analyze a business like T it would it goes

into the two hard pile I I would I would I would I would say this I would say that Elon is not human okay he's Beyond human um if you just think about all the things he's done I mean now the neuronet uh and and um you know boring company and uh you know what he's doing with SpaceX and all that it's uh it's just really very remarkable uh the execution is off the charts um and uh I think I think like I said I think it's just uh uh unbelievable in terms of what he's

been able to accomplish so I have a lot of respect I think I think Elon understands Capital allocation really well and I think uh all the businesses that he uh he gets involved with or he founds they do so well because he gets so much out of the people which basically means he gets so much out of the capital right I mean he's his hiring is so good uh the teams that he's building are so exceptional that uh I mean when you're hiring a software engineer uh there could be an engineer who's worth 10 10

million a year and they could be another guy worth 100,000 a year and he can tell the difference right and so he's that's that's a great skill to have yeah I love that uh we'll end with this we have Charlie uh you know here and he passed away and you were friends with him what's a uh maybe your your favorite story or lesson from uh from Charlie Munger yeah I mean I I obviously I miss Charlie I think uh he he was one of a kind I think he was just a and and I I've

been thinking last several weeks several months about so many of the lessons and things but one of the things Charlie said in one of the last interviews uh he gave um uh someone asked him I think uh what would you like on your gravestone and he said uh I tried to be useful and I think those those words I tried to be useful um encapsulate Charlie really well uh if you look at Warren Buffett's tribute to him that he did this year in the letter um Charlie selflessly helped Warren uh a lot I mean without

Charlie manga there's no burshire Hathaway um even though you had a Warren Buffett there and I twice I went to Charlie when I was facing uh difficult personal situations nothing related to investing right extremely helpful to me on point I just did exactly what he told me to do and those issues disappeared right and so Charlie always was trying to see how can I help the world uh in all the institutions that he touched uh you know his memorial was at the Harvard best Lake School in California and La um transformed that institution he was

at the board of the Good Sam Hospital transformed the hospital busha hathway transformed I met so many partners he had in different businesses always gave them the better deal and uh I think in every way possible he I think that was just absolutely correct he selfless ly tried to be useful and you know Charlie I don't think Charlie believed in God I don't think he believed in religion right and I think he didn't believe in Legacy he I think he believed that when we're gone we're gone it's Asher than dust right till one day before

he passed away he was in the hospital he knew he was dying he was trying to get one last Grant done to a nonprofit no upside to him he's dying right right uh um six days um six days before he passed away he was buying a stock okay you know a stock we discussed you know and uh i' send up a write up on so uh I'm just saying that I think Charlie extracted everything he could from his mind and his body the other thing was that he never complained lost sight in one eye uh

many decades ago he was almost blind in the other uh he cared most about reading right that was most important to him and I saw him one time when the second eye was giving him a very serious problem where he could have gone blind this was maybe 10 years ago in the second eye even when he was facing the prospect of complete blindness um he was so stoic never said oh poor me self-pity his respon to me was I'm going to have to learn Braille you know you know that's that's how he was going to

deal with it you know and so I think yeah there I think it's this great uh we have such a big Rich body of work that he left poor Charlie Almanac and uh I think a lot to learn from him right well thank you for sharing that and uh thank you for doing this this is hopefully your you know process of uh of sharing some of your wisdom so thank you for doing this it's a pleasure I really enjoyed the session thank you right on okay hey all right sounds good thank you great [Music]