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

Episode 705: Shaan Puri ( https://x.com/ShaanVP ) sits down with Mohnish Pabrai ( https://x.com/MohnishPabrai ) about how to turn $10K into $1M. Show Notes: (0:00) Simple = Genius (28:00) Never over-leverage (30:30) Risk vs uncertainty (33:00) Too hard pile (35:30) Be 1 inch wide, 1 mile deep (39:00) Learn from losers (43:30) A case for napping (48:00) Having an owner’s manual (53:00) Dying with zero (1:10:00) India’s Greatest Investor — Links: • Want to invest like a Billionaire? Get Mohnish's investment playbook: https://clickhubspot.com/mnp • Value Investors Club - https://www.valueinvestorsclub.com/ • Japan Company Handbook - https://tinyurl.com/489czpkp • Dakshana - https://www.dakshana.org/ • BJ21 - https://bj21.com/ — Check Out Shaan's Stuff: • Shaan's weekly email - https://www.shaanpuri.com • Visit https://www.somewhere.com/mfm to hire worldwide talent like Shaan and get $500 off for being an MFM listener. Hire developers, assistants, marketing pros, sales teams and more for 80% less than US equivalents. • Mercury - Need a bank for your company? Go check out Mercury (mercury.com). Shaan uses it for all of his companies! Mercury is a financial technology company, not an FDIC-insured bank. Banking services provided by Choice Financial Group, Column, N. A., and Evolve Bank & Trust, Members FDIC — Check Out Sam's Stuff: • Hampton - https://www.joinhampton.com/ • Ideation Bootcamp - https://www.ideationbootcamp.co/ • Copy That - https://copythat.com • Hampton Wealth Survey - https://joinhampton.com/wealth • Sam’s List - http://samslist.co/ My First Million is a HubSpot Original Podcast // Brought to you by HubSpot Media // Production by Arie Desormeaux // Editing by Ezra Bakker Trupiano

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Shaan Puri?

  How would I take 10K and turn it into a million?

• 0:02Mohnish Pabrai?

  What we're looking for is something that hits you in the head with like a two by four. We don't need to know many things about many things. We need to know a lot about a little.

• 0:14Shaan Puri?

  Why do you think most people don't do that?

• 0:15Mohnish Pabrai?

  Buffett always says, the most important question to ask is, and then what?

• 0:21Shaan Puri?

  Does he use Excel?

• 0:23Mohnish Pabrai?

  Warren wouldn't be caught dead using Excel.

• 0:26Mohnish Pabrai?

  Usually the best ideas, when you finally figure it out, they're very simple. You should be able to explain your thesis of a stock in about four or five sentences to a 10 year old.

• 0:35Shaan Puri?

  Where do you even know where to look?

• 0:37Mohnish Pabrai?

  I'm going to lay it out for you. It's going to be so easy. All someone has to do is.

• 0:54Shaan Puri?

  Okay, here we go. Adish, welcome back, round two.

• 0:57Mohnish Pabrai?

  Sean, it's always a pleasure.

• 0:59Shaan Puri?

  So let's play a game. You're my coach, you're my investing coach, let's say. And I have $10,000 and I want to turn it into a million, right? Podcast called My First Million. I want to go from 10K to a million. So that's 100X. How would I take 10K and turn it into a million?

• 1:14Mohnish Pabrai?

  The thing about investing is that opportunities are not going to show up just because you have the cash. So I would make some tweaks to your thinking first about the 10K. So I would say, okay, the 10K is a good starting point. But what I also want you to do separately from that is have a day job.

• 1:33Shaan Puri?

  Yeah.

• 1:34Mohnish Pabrai?

  Okay. And I want you to spend less than your earning. And I want you to take the 10K and I also want you to take your annual savings. Maybe that's 5, 10,000 a year or whatever it is. And normally I would say, put it into an index, right? The index, the S and P is overheated. We can't go there right now. Circa 2025, we cannot go into the S and P.

• 1:59Shaan Puri?

  Okay.

• 1:59Mohnish Pabrai?

  Okay, maybe 2035 we can, but not 2025. So what I would do is I would treat Berkshire Hathaway as the index. So I would just say the default currently is you put it, you know, dollar cost average into the, into Berkshire Class B shares, right? And you keep doing that day in, day out. And if we did that. You know, the the math is really simple. Even if we were doing ten percent a year, right? I mean, which I think is pretty reasonable for Berkshire. Rule of seventy two, we would double every seven years. Life is all about doubles. Okay, let's say we had a twenty something guy with ten thousand. And you go for fifty years or forty nine years. It's seven doubles.

• 2:43Shaan Puri?

  Right.

• 2:44Mohnish Pabrai?

  Okay, seven doubles is one twenty eight. Okay, it's one twenty eight times your money. I gave you more than a hundred X.

• 2:53Shaan Puri?

  Right.

• 2:54Mohnish Pabrai?

  I gave you one twenty eight X in forty nine years.

• 2:57Shaan Puri?

  Without having to be a genius.

• 2:59Mohnish Pabrai?

  Without doing anything, right? So this is just plan B.

• 3:02Shaan Puri?

  Right.

• 3:02Mohnish Pabrai?

  Where we put the ten thousand in, it becomes more than a million, one point three three million with no taxes paid.

• 3:08Shaan Puri?

  Right.

• 3:09Mohnish Pabrai?

  There's no dividend, there's no taxes, there's nothing. And we haven't even gone to plan A yet, right? This is just sitting there. Now, the other thing is that every once in a while, there'll be opportunities that show up. And what we're looking for is something that hits you in the head with like a two by four. So the best investments are ones that make no sense. You cannot make sense of the numbers. It's too good to be true. It's just weird and all of those things. So when when these kind of unusual things come together where things don't make sense.

• 3:46Shaan Puri?

  Right.

• 3:47Mohnish Pabrai?

  That's when we want to dive in.

• 3:48Shaan Puri?

  Give me an example of a great investment is one that doesn't make any sense. The numbers just seem wrong, you know, to you in the moment.

• 3:55Mohnish Pabrai?

  Well, I'll I'll I'll give you one example where it was a moneymaker for me. But I didn't make even three percent of the money I should have.

• 4:07Shaan Puri?

  Okay.

• 4:07Mohnish Pabrai?

  You know, I mean, it it was like it was given to me on a platter and I blew it. I still made money.

• 4:12Shaan Puri?

  Right.

• 4:13Mohnish Pabrai?

  But you know, usually the best ideas, when you finally figure it out, they're very simple. So in in the year, I think this was like around two thousand one or two thousand two. I had encountered this this shipping company called Frontline. And Frontline was a company that.

• 4:32Mohnish Pabrai?

  Owned a fleet of about seventy five VLCCs, very large crude carriers. These are giant ships that transport crude from like Saudi Arabia to the US. And they're just huge. The entire global fleet at that time was three hundred ships, three hundred VLCCs. Seventy five of them were owned by Frontline, twenty five percent of the market. The guy who ran and was the founder of Frontline, John Frederickson, had put the entire fleet on the spot market. So there are two ways he could have dealt with his fleet. He could have done time charters, kind of one year, three year deals, where he's guaranteed cash flows per day and all that.

• 5:17Mohnish Pabrai?

  Or be a gambler, put it on the spot market and play it.

• 5:22Shaan Puri?

  Whatever the price today is, I'll take it.

• 5:25Mohnish Pabrai?

  So he had put it on the spot market, the entire fleet. Now, these VLCCs, they have a cost with the crews and all of that of around fifteen thousand dollars per day to break even. And at that time, we had like the Iraq war and different things going on. So oil demand fell a lot. And there wasn't enough need for VLCCs. So the shipping rates collapsed to the point they went to seven thousand per day. Okay, so now you have Frontline losing eight thousand per day times seventy five ships. Okay, and they're levered, okay?

• 6:07Mohnish Pabrai?

  And so basically, the stock got taken out back and shot. Like a ninety percent drop, okay? And most of it was valid because basically, you know, when we are making investments or when the equity markets look at a company, they want to see consistency of cash flows. They reward consistency of cash flows. Here, what we were seeing is consistency of losses, okay? No one could tell you when these losses will abate. So. The the dynamics were the stock, I think, was down to like three dollars per share. And when I looked at it, I noticed two things.

• 6:51Mohnish Pabrai?

  Okay, the first thing I noticed is all their debt was nonrecourse. Their debt was tied to individual ships. There was no debt at the parent. Right. So basically, if they defaulted on the debt of a ship, the bank could just take the ship. They couldn't really take the company, could just take that ship. They're like a car loan. Right. Right. And the second thing I noticed was that there's a very somewhat liquid market to buy and sell these ships. So even when the rates went to seven thousand per day, the ships had dropped in price by something like maybe a third, twenty five, thirty percent drop from where they used to be. Right.

• 7:32Mohnish Pabrai?

  So what I realized is that if Frontline got into a crunch where they were having cash problems, they could just sell three ships. If they sold three ships, paid off the debt, they'd have enough cash left over to keep sustaining operations for six to nine months. They could sell three more ships after that. So I felt like there was really no way the company was a candidate for bankruptcy. And there was really no way. And the other thing is I could I could look at the entire company and say, okay, what if they sold all the ships? If they sold all the ships, paid off all the debt, you would end up with like nine or ten dollars a ship. You're at three bucks. Right.

• 8:14Mohnish Pabrai?

  Okay, so you you'd make three times your money if they just liquidated the whole business. So there was an arbitrage between the price of the stock and the net price of the assets in a distressed scenario, right? And so I said, okay, we really can't lose money here. So I put ten percent of my fund into Frontline, right? Because I just couldn't see a way that we could lose money. After a few months, the rates start improving. The oil demand starts coming back up. The rates go to fifteen thousand, then they go to twenty thousand. The stock's at ten bucks. Okay, I sell my shares. Well done, Mohnish. Okay. Tripped my money. Yeah, in in like eight months or something, okay? And I said, okay, this was exactly what I thought, right?

• 9:01Mohnish Pabrai?

  Rates then go to three hundred thousand a day. Okay, at three hundred thousand a day, they're making something like two hundred and eighty five thousand a day, times seventy five ships. Okay, that number is like infinity.

• 9:20Shaan Puri?

  Yeah, I was trying to do the math.

• 9:21Mohnish Pabrai?

  Just assume it's infinity. The stock goes up in the next three years, ADX. Okay, here's stupid Mohnish, okay, patting himself on the back with the double. And I didn't even get a double, I got like eighty percent return on my money and that was that. And so that was an example of where I did first order thinking, but I did not do second order thinking. So the second order thinking was, you know, Buffett always says that the most important question to ask in investing is, and then what? If I had been so smart as to ask the question, and then what?

• 10:00Mohnish Pabrai?

  So you see that rates are terrible, you see the scrapping, you see that that fleet's gonna shrink. So even if oil demand doesn't come back the way it was, it's gonna come into balance. Eventually, those losses are gonna go away. And then you do the next thing on then what, which is that when oil demand comes back, it takes three to four years to build one of these things. So when the rates went to thirty thousand or fifty thousand, and all these guys can see this is a great business now. Well, when you go to the Korean shipyards, who are now inundated with orders,

• 10:41Mohnish Pabrai?

  they're gonna say, go to the back of the queue, I'll give you a ship in five years. And by the way, the ship is no longer seventy million, the new price is one twenty.

• 10:52Shaan Puri?

  Right.

• 10:53Mohnish Pabrai?

  Okay, because I got more orders than I can handle, right? So we had this dynamic, if I had thought about it, that once the demand became tight. You really couldn't increase supply for at least three or four years. So what's two hundred and eighty five thousand times seventy five times one thousand days? Right. That's the minimum number of time and that price is not going to come down. It's only after three or four years more ships start getting delivered and you start getting more balance and all of that. But that's an insane amount of cash flow. Hmm. Right? So the thing is that there are always, like, you know, our friend Jim Cramer says, there's always a bull market somewhere. Okay?

• 11:39Mohnish Pabrai?

  So basically, if we, if we are Plan A Berkshire Hathaway, Plan B, looking for anomalies, right? Every so often, not, not very often, every so often, you will find something weird. And we've got all the time in the world. We can research something for three months. It turns out it's not that great, let it go. Right. We've got Berkshire's shell cracking. Okay? So if you look at Warren Buffett, you know, in his twenty twenty two letter, he said that in fifty eight years of running Berkshire, there have been twelve decisions that have moved the needle for Berkshire stock.

• 12:21Mohnish Pabrai?

  Now, in fifty eight years, he made more than three or four hundred purchase decisions for stocks and businesses. Okay? Out of three hundred, if I take a conservative number, it's actually more than that, only twelve were exceptional. And he said there was one good idea on average every five years. Okay? This is Warren Buffett. Right. With a four percent hit rate. Okay? So basically, great investment ideas are rare. We're not going to run into them every week or every month or every year. So Plan A, stick it in the index. Plan B, keep running a Geiger counter over everything, looking at different things.

• 13:05Mohnish Pabrai?

  And when something doesn't make sense, drill down. And every so often, you're going to hit the mother lode. Right. And when you find something that's a mother lode, you peel off ten, fifteen percent of what you have in Berkshire, put it into that, let it play out, then put it back into Berkshire. Right. Right? And just you keep doing that. And now your hundred X is going to show up in half the time or less.

• 13:29Shaan Puri?

  All right, let's take a quick break because I got a little freebie for you. So if you're listening to this episode and you like what Manisha is talking about, you might be like me, you're trying to take notes, you're trying to remember these principles that he's talking about because the dude is just a wealth of knowledge when it comes to investing. Well, the fine folks at HubSpot listened to this episode, they took the transcript, they put down the nine principles that he talks about, as well as the examples that he have, and they put it all in a PDF for you. So you don't need to take notes, they did it all for you. You could read that, learn from it, that's a much better way to get more value out of these episodes. It's in the show notes below, just go download that and enjoy. So you tell me the story about these ships, and when you explain it, I can see it just like you see it. Oh, that's the opportunity. But the thing I don't get is, why are you looking at crude oil ships? How do I get to like, how do I even know where to look?

• 14:13Shaan Puri?

  And so what is that process for you? Do you pick one industry and look at 100 companies in it? Do you read books on 50 industries? Do you look at what other investors are doing and try to reverse engineer? Like, where do you even know where to look?

• 14:27Mohnish Pabrai?

  I'm gonna lay it out for you. It's going to be so easy, but it takes a certain temperament.

• 14:33Shaan Puri?

  Okay.

• 14:34Mohnish Pabrai?

  So first, I want to talk about the temperament.

• 14:36Shaan Puri?

  Okay.

• 14:37Mohnish Pabrai?

  So if we go back to Warren Buffett, when he was a teenager, he used to go to the racetrack in Omaha. And one of the things he did at the racetrack, he was like 14 years old or something, is after all the races had been done, he'd pick up all the tickets that people had left, thrown on the ground, right? These are mostly losing tickets, right? They just kind of tossed them from the garbage cans, he'd pull them all out, then he'd go home and one by one, look at every ticket. He would find, now sometimes a horse would come in second, and the ticket was for win or place. He was actually winning ticket, but they didn't understand they were drunk or whatever.

• 15:13Shaan Puri?

  Right.

• 15:13Mohnish Pabrai?

  So he'd always find a bunch of tickets which were actually in the money, but they'd been discarded. So now, he was underage, he couldn't go to the counter to collect the money. So he gave it all to his Aunt Alice, his favorite aunt. She used to go to the counter, collect the money and give it to him. Okay? So when Warren, when Warren became older, let's say when he was, let's say 24 or 25 years old, he went through the Moody's Manual.

• 15:44Mohnish Pabrai?

  And what he was doing with the Moody's Manual, and you know, for nostalgia, I bought these on eBay and I want you to see the Moody's Manual, okay?

• 15:52Shaan Puri?

  So, so this is two.

• 15:53Mohnish Pabrai?

  Buffett was, Buffett was 23 years old.

• 15:58Shaan Puri?

  This was his nighttime casual reading?

• 16:00Mohnish Pabrai?

  This was his, so what he did now with the Moody's Manual, there were, there were a number of these that came out, like in the year 1953. This is just railroad, airline, shipping, traction, brass and truck.

• 16:12Shaan Puri?

  And I don't even know what this is. Is this the earnings reports of all of the companies?

• 16:15Mohnish Pabrai?

  This is the value line of that day.

• 16:17Shaan Puri?

  Okay.

• 16:17Mohnish Pabrai?

  Okay, so if you, if I open the Moody's Manual to any random page, okay? What, what it's doing is it's got like two or three companies per page. You can see how fine the print is.

• 16:30Shaan Puri?

  Yeah.

• 16:30Mohnish Pabrai?

  Okay, all right.

• 16:32Shaan Puri?

  You need like a magnifying glass.

• 16:33Mohnish Pabrai?

  And it's basically giving you a summary of every company, right? Now Buffett went through, now this is just one of them in 1953. For 1953, there were probably about seven or eight of these books that came out in 53. Similar number in 54, 55, so on. So you're talking about a big stack of these, right? He went through the, these books two or three times. He went through, what he did is he read each one page by page, right? And he was looking, what he was looking for, he was looking for anomalies.

• 17:14Mohnish Pabrai?

  So he used to host these MBA students and actually he bought, he brought for them printouts from the Moody's Manual to the ones that he made an investment in. So he would find something like Western Insurance, for example, where the stock price was 15 and the earnings last year were 25.

• 17:35Mohnish Pabrai?

  Okay, the stock is fifteen dollars a share, earnings are twenty five dollars a share, book value is eighty dollars a share. Right. Okay, that's what we call an anomaly, right? Hitting you by the head, head with a two by four. Makes no sense, right? He would make a list of all these companies that made no sense in the positive direction. Right. Okay, and then he'd study them. And then he would make investments, right? Now, in order for Warren to find Western Insurance, he would, he might have had to spend fourteen hours a day, okay, nonstop reading these for three months before he finds one or two of them. But he only needs very few of them.

• 18:20Mohnish Pabrai?

  And Warren's mind, you know, he's, he's a prodigy. So his mind was programmed to have this intense, the, the work never bothered him, just like no other teenagers were going and collecting all those tickets on the floor and then going through each one with the optimism that I am going to find something that is basically a free lunch. Right. Right? And so he went through Moody's Manual and basically started finding these anomalies and then started making investments in them and did well, et cetera. Now, we have a shortcut, you know, because I know that your listeners are not going to do what Buffett did.

• 19:04Mohnish Pabrai?

  Okay, I cannot do what Buffett did. I do not have the wherewithal and the ferocious intensity that Warren does. Almost no one does. I think that he's just an extreme anomaly on that front. So, for example, there's a website called Value Investors Club. Okay, now, if you go to Value Investors Club, it's free. You don't have to pay anything, whatever. If you give them your email, you can see all ideas that are sixty days or older. Okay, and if you don't give them your email, you can see all ideas that are one twenty days and old. It actually doesn't matter because there's ideas in Value Investors Clubs that are ten years old, fifteen years old.

• 19:47Mohnish Pabrai?

  It's very difficult to become a member of Value Investors Club posting ideas. So it's like a curated website.

• 19:53Shaan Puri?

  Right.

• 19:54Mohnish Pabrai?

  Okay, the members have to submit two ideas a year which get a decent rating in order to keep their membership. So you have, what I have found is the Value Investors Club has a lot of brain power. It has brain power coming out of their ears. Okay, it's all free. So all someone has to do is sit down and read the write-ups on Value Investors Club. So there may be, I don't know, six or seven hundred, eight hundred write-ups, maybe five hundred write-ups in a year. Each write-up may be around ten, fifteen pages max. Then there's comments and whatever. But what I'm saying is that it's much easier than the Moody's manual.

• 20:39Shaan Puri?

  Right.

• 20:39Mohnish Pabrai?

  Because someone is actually digesting the information for you.

• 20:42Shaan Puri?

  And you could do one of those a day.

• 20:44Mohnish Pabrai?

  You could easily do one. Well, one of those is pathetic.

• 20:47Shaan Puri?

  I'm saying even, but even you said if there's three hundred total, that's less than a year.

• 20:51Mohnish Pabrai?

  It would be easy for someone without getting, putting too much work into it to read four or five ideas a day.

• 20:58Shaan Puri?

  Right.

• 20:59Mohnish Pabrai?

  I mean, they could have a full-time job and easily do that. That's not a difficult thing to do. And you don't need to read the whole idea. What I would say is you read the first few paragraphs and see if this is something that's interesting you or not, or something that's grabbing you or not.

• 21:12Shaan Puri?

  Right.

• 21:13Mohnish Pabrai?

  Right? And what I do is I look at every idea that's posted. Right? And I don't, I don't care to really look at them right when they're posted because they actually, those ideas will work even five years from now. Like recently, I started investing in a, in a company where the original write-up was in twenty twenty-one. Okay, it's twenty twenty-five, still valid. Okay? Now, what you still have to do is you should use it only as an input to ideas, just like the Moody's manual is not telling you what to buy and sell. Once you see the idea, you do all your own work, do your research, do everything.

• 21:55Mohnish Pabrai?

  Make sure it's something you understand well, make sure it's within your circle of competence. Whether you buy into the idea or not, et cetera. And Buffett, Buffett is still doing this, so his Japanese bets. So there's a, there's another book called The Japan Company Handbook.

• 22:13Shaan Puri?

  Okay.

• 22:14Mohnish Pabrai?

  And, and I'm gonna bring the Japan company handbook.

• 22:17Shaan Puri?

  Okay. All right, here we have it. And I'm excited about this because you hear a lot about Buffett's, you know, Sees Candy, Coke, Geico, like those kind of well-known Buffett's best bets.

• 22:26Mohnish Pabrai?

  Yeah.

• 22:27Shaan Puri?

  But as I understand it, Buffett made some incredible investments in Japan.

• 22:31Mohnish Pabrai?

  So let me explain how no-brainer, the total no-brainer nature of that bet.

• 22:37Shaan Puri?

  Right.

• 22:38Mohnish Pabrai?

  Okay, so these five Japanese trading companies had a 8% dividend yield. Okay, so they were paying a 8% dividend, it was very cheap. Japan has, the index has not gone anywhere for like 30 years. And Warren actually got a insane return on these. So what he did is, he borrowed the entire amount in yen at half a percent a year.

• 23:09Shaan Puri?

  And it was not a small amount, it was like 5 billion.

• 23:11Mohnish Pabrai?

  Yeah, yeah, he put 5 billion, but he borrowed the 5 billion at half a percent.

• 23:15Shaan Puri?

  The whole thing.

• 23:16Mohnish Pabrai?

  In yen.

• 23:17Shaan Puri?

  Yeah.

• 23:17Mohnish Pabrai?

  In Japan, right? So now he's bought a Japanese company paying dividends in yen, which he's bought in yen, right? The dividend coverage is 16 times his interest payment. So he put no equity, right? And he's instantly making 7.5% on 5 billion, which is like, you know, what? About 350, 400 million out of nothing, right? It's just coming to him. Now, what happens is because these companies are so cheap, in about three or four years, they all doubled in price, right? So now the 5 billion has become 10 billion, okay? The equity that went in is nothing, so it's infinite return. They all raised the dividend.

• 24:02Mohnish Pabrai?

  The dividend based on the original purchase price is about 15%. Okay, so basically, and then after that, what he did is he increased the bet. So he was, he was under 5% of all of them. He's now approaching 10% on all of them. And anyone could have looked at the Japan company handbook. Basically, I think it's, it's a matter of how hungry are you? It's the same as any entrepreneur, right? I mean, basically, anyone who starts a business, whatever, they've, they've got to go all in. Right. Intense passion, 18 hours a day, all in, very strong belief. It's the same thing here. If you truly are focused on it, you can do very well.

• 24:45Mohnish Pabrai?

  I mean, the universe is going to conspire to help you with whatever your passion is. And it's just a matter of whether you want it. By the way, does he use Excel? Well, no, he does not use Excel for sure. Okay, he uses his computer. Now, now he uses Google and all that, but he uses his computer mainly to bridge. I mean, Warren wouldn't be caught dead using Excel. Okay, because the thing is that he's looking for things that hit you in the head with the two by four. Right, so when he's going through Japan company handbook or Moody's manual, there is no Excel needed. What, what, what will Excel help you with when the earnings are $25 a share and the stock is $15? You don't need Excel. Right.

• 25:26Mohnish Pabrai?

  Okay, when, when the dividend yield is 8% and you're borrowing at half percent, you don't need Excel. Right. Okay, in fact, if you need Excel, it's an automatic pass. Because it means that there's something complicated there, which is not fitting in. Did I need Excel for frontline? No, I didn't need Excel for frontline. I mean, I look up the liquidation price of the ships. I look up the, where the ships are at. I look at all, I mean, the thing is, all these things are very basic numbers. You don't need Excel for it. Right. You know, recently I was talking to a friend of mine, looking, he's looking at some international stock exchange. Okay, this international stock exchange trades at a trailing PE of like 30. Okay.

• 26:11Mohnish Pabrai?

  It's growing at fifteen, twenty percent a year, very rapid growth, okay? Sixty percent of revenue is profit, okay? And as they grow, that sixty percent might become seventy percent because they've got operating leverage. So if you just forward two or three years, the P becomes less than ten, okay? There is no need for Excel. Right. You can just do it all in your head, okay? It's got ten dollars of earnings today, it's gonna have twelve dollars a year from now, fourteen, fifteen dollars two years from now. Maybe seventeen or eighteen dollars three years from now. Stock's at three hundred. Now, when you're at eighteen, you're already at a fifteen multiple, right?

• 26:55Mohnish Pabrai?

  You've already cut it in half, but it's growing. By that time, it may be trading, it should be trading at even more than thirty times earnings. So the stock may be at like, you know, six or seven hundred by then, right? It's just the math of all of that. So what I'm saying is that if you can't do the math in your head, it's an automatic pass. Because that means there's something complicated. So another important thing is, you should be able to explain your thesis of a stock in about four or five sentences to a ten-year-old. Okay, if you can't do that, it's a pass. You can't sit down with a ten-year-old with an Excel spreadsheet, okay? They're not gonna like you and they're not gonna be interested. Right.

• 27:39Mohnish Pabrai?

  Einstein used to say there's like four levels of intelligence. Smart, intelligent, genius, simple, okay? The highest level of intellect is simplicity. Right. And the other thing about investing is that you have to have conviction. It's very difficult to have conviction if you keep needing to go back and look at your Excel model. Right. You need it in your head. So Buffett never needs to go anywhere, it's in his head. He knows what the dividend yield is, he knows what he paid, he knows what the yen is, he knows all of that. It's pre-programmed.

• 28:15Shaan Puri?

  Right, so we have, uh, don't use Excel. Don't overcomplicate it is really what that means. And the second is leverage. So don't over-leverage. And I think the story here that I like is, uh, there should be a third bust on this, on this, uh, table next to us. Somebody's missing. That was an original partner with them.

• 28:35Mohnish Pabrai?

  Yeah.

• 28:36Shaan Puri?

  Can you tell that story? I think his name is Rick.

• 28:38Mohnish Pabrai?

  So actually, uh, Warren, Charlie and Rick Gurin used to do deals together and, uh, they were all independent doing their thing, but they used to share ideas and sometimes they'd go in together. Rick found blue chip stamps for them and I think he also might have been the guy sees candy contacted and so on. After the early seventies, we never heard about Rick. He kind of fell off the radar. So when I met Warren for lunch, I asked him just a very innocent question. I said, Warren, what happened to Rick? You know, it's been three of you. And then we never heard from him after that. And Warren said that Charlie and I knew that we would get very rich and we were not in a hurry.

• 29:21Mohnish Pabrai?

  And he said, Rick was in a hurry. And so Rick was always using some leverage. Uh, and then when the seventy-three, seventy-four downturn came, uh, that was a very intense, that was a crash in slow motion, basically.

• 29:37Shaan Puri?

  Okay.

• 29:37Mohnish Pabrai?

  Uh, over a two-year period, the stocks went down like more than forty, fifty percent. It was a big, uh, big drawdown. And Rick got margin calls. And, uh, and Warren said that when he got the margin calls, I bought his Berkshire Hathaway for forty dollars a share. The stock that's now seven hundred thousand, right? So Rick was forced to sell it at a time when it was probably the worst time to sell.

• 30:04Shaan Puri?

  Right.

• 30:04Mohnish Pabrai?

  Right? And so then Warren actually went one step further because he's always trying to add value of these lunches and all that. So he says, he says to me and Guy, he said, if you're even a slightly above average investor and you spend less than you earn and you use no leverage, you cannot help but get rich in a lifetime.

• 30:25Shaan Puri?

  Tell me about the difference between risk and uncertainty.

• 30:29Mohnish Pabrai?

  Yeah, well, that's an important concept to understand because Wall Street gets confused between the two. And in fact, when Wall Street gets confused between the two is where the greatest opportunities lie. Okay, so we talked about frontline. Frontline was an example of a situation where uncertainty was extremely high and risk was very low, right? What Wall Street is looking for is certainty. Okay, so if we look at a company like ADP, you know, the processed payroll, right? I don't know, they've had some like 50 years of nonstop growth because you know, your payroll, your running payrolls is going to keep going up, your cash flow is going to go up, it's

• 31:14Mohnish Pabrai?

  all in a straight line. That's beautiful. And Wall Street will reward you extremely well for that.

• 31:23Shaan Puri?

  Right. And it's priced accurately.

• 31:26Mohnish Pabrai?

  It'll be priced for euphoria. It'll be overpriced because they love that. That's what they're looking for. On the other hand.

• 31:33Shaan Puri?

  That's their type.

• 31:34Mohnish Pabrai?

  Yeah, I mean, that's, that's, that's music to the ears. On the other hand, if a company exhibits high uncertainty, it will be taken out back in short, right? And those are where the opportunity lies. So one of the cues to look for is, is this a business with low risk and high uncertainty? The combination of the two. And when you get to the combination of the two, low risk plus high uncertainty equals high rewards.

• 32:05Shaan Puri?

  I was looking at your portfolio and you have this company invested in Turkey that's like a Coke bottling company. Would you say that's a good example of kind of the risk and uncertainty mismatch?

• 32:17Mohnish Pabrai?

  Yeah, we, we actually made money on it, but we exited.

• 32:21Shaan Puri?

  Okay.

• 32:21Mohnish Pabrai?

  And the reason I exited is that, so the Coke bottler. Basically had a parent company, which was the dominant beer bottler in Turkey and several other countries. Their largest operations were in Russia, where they had a, their number one market share, a fifty fifty joint venture with Amimbev. And Russia has effectively nationalized that business.

• 32:46Shaan Puri?

  I see.

• 32:47Mohnish Pabrai?

  And I think they did it because they were somewhat upset with Erdogan about something. So they went and did that, what is support for Ukraine or something. And when that happened, it became, went in the two hard pile for us.

• 33:01Shaan Puri?

  Explain the two hard pile. That's something I stole from you last time I was here.

• 33:04Mohnish Pabrai?

  It's a, it's a warrant thing. We'll get to that in a second. But basically, it was something I couldn't handicap.

• 33:10Shaan Puri?

  Sure.

• 33:10Mohnish Pabrai?

  So we were sitting at a game and we have this event take place. I get to get my bet back with some added return and we close it. I said, where do I sign?

• 33:23Shaan Puri?

  Right.

• 33:24Mohnish Pabrai?

  Right? I can go find something else to play with. But the two hard pile is actually a physical box on Warren's desk. Okay. And so actually, if you Google it, if you just Google Warren Buffett, two hard, that image will probably pop up. Okay. So he has a box on his desk, which he calls two hard. And he says that ninety nine percent or more of investment ideas that you encounter should go into that box because we're not going to be able to figure it out. So one of the things to understand is that if there's fifty thousand stocks in the world, we are not really going to understand more than a few hundred of them at the most, after quite a while of studying them. So most companies

• 34:07Mohnish Pabrai?

  that we would encounter should go into that box. Okay. So it's the, one of the important things in investing is humility. Humility to understand. I mean, Warren has no issues with the humility to know. That he doesn't know most things, right? That most things are not going to be able to be figured out or handicapped or any of that. And we don't need to. If you can understand a very small sliver of things and you know when those things get overpriced and underpriced, that's all you need.

• 34:42Shaan Puri?

  Right.

• 34:43Mohnish Pabrai?

  You don't need anything else.

• 34:44Shaan Puri?

  There's a guy who owns a bunch of real estate, but like in a very small area, right?

• 34:48Mohnish Pabrai?

  Yeah, that's John Ariega.

• 34:49Shaan Puri?

  Yeah, what's his story? Cause it sounds like it's a good example of this. A very thin kind of circle of competence, but he knew the pricing and was able to.

• 34:57Mohnish Pabrai?

  So John Ariega was a billionaire. He passed away maybe like two, three years ago, pretty recent. And his daughter's married to Mark Andreessen.

• 35:05Shaan Puri?

  That's right, yeah.

• 35:06Mohnish Pabrai?

  You know, so it's billionaire to the power of billionaire. So anyway, John Ariega basically had a very narrow circle of competence. He didn't understand most things, but he only invested in real estate within two miles of the Stanford campus. Okay, that's all he did, usually just right around the campus. And if you walked with him around the campus, every single building, he could tell you the full history of the building, when it was built, what the current value was, what the rents were, who the owners were and what the history was.

• 35:40Shaan Puri?

  Right.

• 35:40Mohnish Pabrai?

  He knew that about every building. And you know, so he was a, he was an inch wide and a mile deep. And that is a really good trait for an investor is to be very narrowly focused.

• 35:52Shaan Puri?

  Right.

• 35:52Mohnish Pabrai?

  Right? Now, what John Ariega did is he ran, generally speaking, a very underlevered portfolio. He, or his portfolio always not much, not much debt. When the downturns came, he aggressively bought because all these distressed properties around, I mean, this is the most prime real estate you can think of.

• 36:13Shaan Puri?

  Yeah.

• 36:14Mohnish Pabrai?

  Other than Park Avenue or something. Okay. And so he would just buy these things up and everyone was getting foreclosed and bankrupt and go to banks and buy it from them and all of that. And then, you know, get them all. Lease and fair value and all of that. Again, take the leverage down and again, next down cycle, again, the same thing. And he stuck to that. So the thing is, he didn't wander into, oh, let me go to Mountain View and do it.

• 36:41Shaan Puri?

  Right.

• 36:42Mohnish Pabrai?

  Okay, or let me go to Irvine, California and do it. He didn't do all that. I mean, he's basically, oh, let me invest in tech or something. He didn't do any of that. He stuck to real estate. That's all he did. And he did it extremely well. And he died a billionaire. We don't need to know many things about many things. We need to know a lot about a little. That's the important thing.

• 37:05Shaan Puri?

  Right.

• 37:05Mohnish Pabrai?

  Know a lot about a little, right? So like, for example, if I'm looking at frontline, I should learn everything I can about shipping. I should learn everything I can about oil shipping, about tankers, about the history, who makes them and every nuance about it, right? The deeper I go, the better it's going to be for me.

• 37:25Shaan Puri?

  Right.

• 37:25Mohnish Pabrai?

  Okay, I shouldn't be spending time next week on airplanes. Okay, just leave it alone, like one by one by one.

• 37:33Shaan Puri?

  Right. Why do you think most people don't do that? Because when I hear that, I think, ah, there's a blueprint. To just say, I'm going to go deep and in this two mile radius, I need to become super knowledgeable and I don't need to get distracted by everything else and I'll hold forever, right? Like that's a blueprint.

• 37:48Mohnish Pabrai?

  If you think about it, I think it was Nick Sleep who has this quote. He said, "The best investors are entrepreneurs who never sold." So if you think about entrepreneurs, that's what they are. They are John Ariega, right? So if I look at Sam Walton, Sam Walton is John Ariega. All he did was retail. All he did was visit competitor stores. He never bothered with anything else.

• 38:14Shaan Puri?

  So Sam Walton, founder of Walmart.

• 38:16Mohnish Pabrai?

  Yeah.

• 38:16Shaan Puri?

  What do you mean? Tell me more about him.

• 38:18Mohnish Pabrai?

  We can, well, so Sam Walton, I mean, he said that there is, there is no human who has ever lived or ever will live, who has spent more time in competitor stores than me. Okay, whenever he'd go on vacation with his family and they were passing a retail, so he said, I'll be back in 20 minutes. And he'd go.

• 38:39Shaan Puri?

  And what is he doing in there? What did he do?

• 38:41Mohnish Pabrai?

  So I'll give you, I'll give you an example. One time he went into the store and this manager says to him, "That was such a badly run operation." And Sam says to him, "Yes, but did you see the candle display?" Did you see how fantastic that candle display was? So his perspective was, I can learn from losers. Okay, I wanna learn that spark that's there in something that's a total loser, right? So he was going in, and now one time in Brazil, in this retail store, they find this older guy flat on the ground. They call the paramedics. It turns out it's Sam Walton.

• 39:24Mohnish Pabrai?

  And what he was doing is, he was measuring the space between the aisles. And he didn't have a tape. With his body. So he laid down. He laid, and you know, the space between the aisles is a very important data point for a retailer, because you're gonna either waste square footage or be too narrow and the people wanna enjoy the experience. So you have to get that right, right? And so he was in Brazil saying, how are they doing it? Am I three inches too wide in Walmart? Am I three inches too narrow? What am I, what's going on here? Right. So that was, this was a game of inches. That's who Sam Walton was. And in fact, Walmart has not innovated at all. At least for the first twenty, twenty-five years that Walmart ran,

• 40:09Mohnish Pabrai?

  everything came from somebody else who was already a competitor. They took a lot from Sears, they took a lot from Kmart, and then they killed them. And they kept learning from one competitor after another. Sam Walton actually used to say, I'm not the smartest tool in the toolbox. I'm not a smart guy, but I'm a learning machine. I'm gonna keep at this. And what others have become, so you know, it's very funny. He goes and visits Sol Price, the founder of Price Club, which eventually leads to Costco, right? And he looks at Price Club and he says, this is fantastic. And he creates Sam's Club, right? And Costco was also taken from Price Club.

• 40:53Mohnish Pabrai?

  So both Sam's Club and Costco. They would not have existed.

• 40:57Shaan Puri?

  So Sam's Club is Sam Walton? I didn't even know that.

• 41:00Mohnish Pabrai?

  It's part of Walmart.

• 41:01Shaan Puri?

  Oh, I didn't even know that.

• 41:02Mohnish Pabrai?

  Oh, yeah, it's part of Walmart. And it was it was completely cloned from Price, a Price Club, which was a predecessor to Costco. Right? So Sol Price was an incredible entrepreneur. Someone goes to him and says, you know, no one has had more impact on retailing than Sol Price. Because Sol Price influenced Sam Walton in a major way. And he influenced Jim Senegal, the founder of Costco, in a major way. I mean, these are the the pillars. And then these two companies influenced Amazon.

• 41:31Shaan Puri?

  Right.

• 41:31Mohnish Pabrai?

  Right? So it's all coming from Sol Price. So someone told Sol Price, you know, you are like the father of retailing in the U.S. And actually globally, what do you think of that? He said, I wish I'd worn a condom.

• 41:51Shaan Puri?

  Too good. That's amazing. So Sam Walton is...

• 41:56Mohnish Pabrai?

  Yeah, but I just want to say that, for example, some of the things that Costco does, Costco pays 50% more than Walmart pays its employees. So the entry level people are making 50% more. Okay? Hasn't hasn't hurt their profitability. In fact, Sol Price's view was similar to Henry Ford's view that I want the people who work in my stores to be able to shop in my stores. Just like Henry Ford said, I want my workers to be able to buy my cars. You know, at that time, their cars were automobiles were for the rich.

• 42:28Shaan Puri?

  Right.

• 42:28Mohnish Pabrai?

  And Henry Ford said, no, I want them for everyone. Right? So he wanted to drop the price. And so I think at Costco, the lowest wage is like 20 bucks an hour. You know, like when you're starting out, whatever. And then they have tuition reimbursement, all kinds of other things. And they get a lot of productivity out of their people.

• 42:47Shaan Puri?

  Yeah.

• 42:47Mohnish Pabrai?

  Because of that.

• 42:48Shaan Puri?

  You've got these books here, and we're sitting in your, we're at your house, we're in your library. You've got, how many books do you think you have in here? This is 1,000 books?

• 42:57Mohnish Pabrai?

  A few thousand.

• 42:58Shaan Puri?

  A few thousand books. I mean, just to set the scene, so that your office, your computer's over there. We're surrounded by a cave of books on every topic. So I see some business books over here. I see investing books. You just brought a retail book about Sol Price, the founder of Price Club, from over there. There's science, I think, on that wall. This, what does this door go to? What is this?

• 43:20Mohnish Pabrai?

  That's my bedroom.

• 43:21Shaan Puri?

  That's a bedroom. Okay. So you live in the library essentially? And you nap every day, I think?

• 43:26Mohnish Pabrai?

  Absolutely.

• 43:26Shaan Puri?

  Yeah. So we're both nappers.

• 43:28Mohnish Pabrai?

  I've been, I've been so used to napping that if I don't nap, my productivity goes down. And so I, I actually don't like to work if I'm not productive. And, and what I find is that even if I, you know, lay down for half an hour, 45 minutes, it's, I'm re-energized.

• 43:46Shaan Puri?

  Right.

• 43:47Mohnish Pabrai?

  And I think for the work I do, I need to be all in.

• 43:49Shaan Puri?

  Yeah.

• 43:50Mohnish Pabrai?

  So I can't, I actually can't do this work if I'm tired, you know?

• 43:54Shaan Puri?

  Yeah, there's a, uh, this athlete, Conor McGregor, and they asked him about his training schedule. And he said, you know, one of the big mistakes I made is that I was always trying to train all the time. I wanted to come to the gym three times, four times a day. I thought that's how you win. And the, his coach was basically, you're like a light that's always just dimly flickering because you never turn off. And therefore you can never turn on and be as bright and as effective as you could be.

• 44:17Mohnish Pabrai?

  Yeah.

• 44:18Shaan Puri?

  And this flickering dim light, it's not doing you any justice. And so I've used that in my own model of like, where's my light right now? And if I need to just shut it down briefly, 30 minutes, an hour, whatever it is, to come back full brightness. That's, that's the move.

• 44:30Mohnish Pabrai?

  Jeff Bezos, you know, he said, all decisions, important decisions in the morning. And he's very particular. He needs a solid eight hours at night.

• 44:39Shaan Puri?

  Right.

• 44:40Mohnish Pabrai?

  And he, he leaves work at a normal time.

• 44:43Shaan Puri?

  Right.

• 44:44Mohnish Pabrai?

  But he says that they don't do these important decisions in the afternoon.

• 44:49Shaan Puri?

  Right.

• 44:49Mohnish Pabrai?

  It's the first thing in the morning because he wants the highest energy levels. And in fact, what I also try, I find my best work is in the morning.

• 44:57Shaan Puri?

  I'm curious about your style because I came over to your house once and you were, you were very calm. You weren't like, it didn't seem like you were on the clock. You're moving from one meeting to the next. There was not a big bustling team of analysts and junior people. And, and it didn't seem, you seem like you keep a pretty clear calendar. Is that intentional? Do you think that's, is that just what you like? Or is that effective?

• 45:17Mohnish Pabrai?

  Well, in the business I'm in, if I can find a couple of things to buy in a year, in the case of Buffett, one thing to buy every five years, right? I'm doing well. And so this is not a, a situation where having some packed schedule or whatever, I think the thing is that this is a case where you're taking in a lot of information. But there's not much action, right? And so you're basically trying to improve your metal models. You're trying to understand more about the businesses that you already own. And I'm going through like, you know, value versus club and some zero and that sort of thing. And just looking at what else is there.

• 45:54Shaan Puri?

  Right.

• 45:54Mohnish Pabrai?

  And, and sometimes I find a amazing idea, whatever. And then now then there's a deep dive.

• 46:00Shaan Puri?

  Right.

• 46:01Mohnish Pabrai?

  And then that might take a while.

• 46:02Shaan Puri?

  I was reading something interesting. So in our first episode, we talked about your, how you got started. You were actually an entrepreneur first and then basically. So you said this great thing, you go, I realized that as an entrepreneur, maybe three to 5% of my brain power was on strategic decisions, really clear thinking, coming up with the right answer. And then 95% of my time was blocking and tackling. And you're like, as an investor, it's great because that 3% becomes 95%. I'm just, it's just about clear thinking and making the right strategic move and not, I don't have to busy myself. But one thing I thought was cool was I read that you took some personality test or you got some analysis done on you that basically helped you, you know, they sort of told you your temperament is for single player games. What is this?

• 46:47Shaan Puri?

  I didn't understand what, what you did.

• 46:49Mohnish Pabrai?

  Yeah, so this was kind of accidental that happened. And I think it turned out to be one of those great things that happened in my life is that in, in 1999, actually I was at a crossroads where it was very clear to me that the business that I had built, my IT business, I had lost interest in it. And I had become a lot more interested in investing. And it was a difficult time because I had like 170 people in the company who thought I'm motivated and I can't fake it, you know? And so very accidentally, I was with these two industrial psychologists and they basically did 360 on me. So they had me take a bunch of tests.

• 47:32Mohnish Pabrai?

  They talked to my direct reports, they talked to my friends, family, spouse, so on. And they built a kind of 360 view of who I was. And then they gave me what I call my owner's manual. And I think everyone should have their owner's manual. Like it comes with a appliance you bought. Yeah, I mean, it's it's we show up, we don't have a owner's manual. And each one is each one of us is programmed differently. So what they said is, look, the way a human is, his traits, likes, dislikes, and what passions they are, that is hardcoded at the age of five. And that is not going to change from the age of five to the age of ninety five.

• 48:14Mohnish Pabrai?

  Okay, you might try to so you cannot change traits. You can try to change behaviors, but you cannot change traits. Traits are between your genetics in the first five years of life, hardcoded. Now, the problem most humans have, which I had, is we don't know what those traits are. What most of us try to do is we do what what they call mirroring. We look at what the world considers acceptable. And we adapt our behaviors so that we can fit in. But that can be a big disservice. Okay, so so basically, what they were able to tell me is they said, look, you you are a person, they said, when we look at the company you're running,

• 48:59Mohnish Pabrai?

  and we look at who you are, we don't even know how you can go to. How you're functioning. Yeah, we don't know. And actually, I was in pain. I was in a lot of pain. And the the thing was that I loved that business when it was just me. And I loved the business as it was growing until we got to the first ten fifteen people. And then, as I started growing beyond that, my life became and my job description became HR. I'm just herding cats. I'm not a cat herder. Okay, that's not who I am. Okay, so what they said is that that business that you have.

• 49:39Mohnish Pabrai?

  You need to get rid of it in some way as soon as you can. And I was just thinking at that time, this was in March or April of 201999, I was just thinking of starting Pabrai funds, right? They looked at it and they said, this is perfect for you. This is going to work extremely well for you. In fact, one of them invested, he's one of the first investors who came in. He was so, he put a skin in the game. Yeah, and I told him, listen, you know, I'm paying you guys 2,000 to do this. You're giving me 100,000. I really don't want to lose your money. They said, I don't have any doubts, Mohnish, you're going to do very well. So I don't see any risk here, right? And he did extremely well.

• 50:17Mohnish Pabrai?

  And so they were actually right because now it's been 26 years since I've been running it and I haven't gotten bored. So what did your owner's manual say? So I said, don't like that. My owner's manual basically said that, well, first of all, they said that I had very high house power, right? And they said that I was one of the smartest guys they had come across, et cetera, which was great. But they said that you are a guy who likes to play single player games. You are not the kind of guy who would be happy being in a soccer team, for example, where you're one of the forwards or whatever, and your performance depends on the team. Right.

• 50:56Mohnish Pabrai?

  They say you do, they say you seek out games which are single player games where you think you have some edge. And when you think you have some edge and it's that sort of game, you will kill it. And actually, what I've noticed is like, so for example, I got banned in Vegas playing blackjack, right? Okay, I gotta know this story. I figured out a system which basically beat them, okay? Counting cards, what were you doing? And actually did it without counting cards, right? And, and in fact, it, it took the casino. Almost a year of watching me. So I used to go every like six weeks or something and

• 51:35Mohnish Pabrai?

  they played those tapes over and over because the markers that they look for were not there. And but we'll talk about that in a second. So what I'm saying is that so what are the games I like? I like blackjack. I like bridge. I like investing. And even Dakshina, for example, Dakshina Foundation, that's also a game, right? These are That's your philanthropy. Yeah, but they're all mathematical games. Even Dakshina is a mathematical game because what I'm looking at is input output ratios. People think, people think I'm doing all this good in the world and all that. What they don't understand is I'm a game player. Okay. And what I'm trying to do with Dakshina is how much money is going in and what's coming out.

• 52:20Mohnish Pabrai?

  Right. And that's the only thing I'm focused on is what's going on. And what what ended up happening with the entity like Dakshina is, you know, Warren Buffett wrote me a letter saying that this is the best, right? I mean, like, he took the time to write the letter like this is the best. Okay. Never done that for any philanthropy that he's looked at. And the reason is because there's a game player who's not focused on, you know, name and lights or a bunch of fancy pictures in the annual report. We have no pictures in the annual report. And it's just like the Berkshire report, right? But it's it's about an honest input per output singular. So what I did is every year that we ran Dakshina. Well, explain what it is. I don't even know.

• 53:00Mohnish Pabrai?

  If you take a step back and say, okay, I want to give money away to make the world a better place. So the natural second step you would get to with that is I want very high returns on the money I'm putting out, right? So social return on invested capital should be extremely high. Now, most nonprofits don't even think this way. They all heart. There's a homeless guy. Let me help the guy, right? They don't really do an analysis of, okay, what is going in and what is coming out? So

• 53:34Mohnish Pabrai?

  I ran into this model, this guy was running in, I think in two thousand and six I ran into it, where he was taking thirty kids who were very, very poor in India, in, in Bihar. And most of these kids were coming from illiterate parents, et cetera, but they have very high IQs. And he prepped them for about ten months and he had them take the IIT entrance exam. The IITs are the, you know, the, they're the best technical institutes in the world. And now the thing about the IITs is that there's about one point three million kids applying for sixteen thousand seats. It's about a one point three percent admit rate, okay?

• 54:19Mohnish Pabrai?

  Princeton is about a five percent admit rate. Harvard is about five or six percent. This is one point three percent. And if you get into the IITs, it's basically free to attend, the government subsidizes. So if you're a very poor person and you get into the IITs, well, now Microsoft will hire you, Google will hire you, anyone will hire you, right? And, but getting in is expensive because the coaching is expensive. So what this guy had done is he had made the coaching free for these very poor kids. And now what was happening is you had a family that was making sixty dollars a month, let's say, and the kid graduates and Google hires him for one hundred and twenty thousand a year.

• 55:04Mohnish Pabrai?

  Okay? I mean, you know, the, the transformation, in five years, the guy is making three hundred thousand a year, right? And so they're just a debt. And he was spending eight hundred dollars per kid. And the training, the test prep. So you spend eight hundred dollars and you take a family from sixty dollars a month to ten thousand dollars a month. Right. Okay, I mean, what's the ROI on that? And you're gonna do that for this whole lifetime and you're gonna reset the extended family and all of that. It's a, the ROI is off the charts, right? So when I saw that, I said, wow, this is the holy grail. So I went to the guy and I said, I'd like to fund you, right? He said, I don't wanna scale. I do thirty kids, I don't want even thirty one kids, I don't wanna take outside money, none of that. So I'm the shameless cloner.

• 55:50Mohnish Pabrai?

  So I told him, do you mind if I clone your model? He said, no, this is a very good thing. I think you should clone it. It'd be great. I'll help you in any way I can. So I took his model and that's what Dakshina is. So we, we are spending, Dakshina spends about three or four million dollars a year. Just imagine what the output of that is. Right. You know, when, when you look at it from each family and then you, and we're doing three, four million. We've been doing it for 17 years. So basically, what we get out of three million dollars a year, a lot of other nonprofits would not get out of in a hundred million a year. Right.

• 56:29Mohnish Pabrai?

  So we actually, you know, have a footprint that is much larger than what it should be in terms of impact. Right. And to take it back, it's a math game. Right. So basically, we, we had two or three things that were important. And that's how I looked at this. The first was the yield. So the IITs accept 1.3% of the kids who apply. They accept 70% of our kids. That's amazing. So now what I'm doing is I have a game which puts two models together. So one day before I die, I want to have $10,000 left.

• 57:14Mohnish Pabrai?

  Okay, so basically inheritances just don't do much, right? I mean, my kids already have, they're doing well. Yeah, what is your philosophy on that? So. Well, in general, large inheritances are going to do more harm than good. And, you know, basically you don't want a person to be on an IV drip for their whole life. I mean, that's just the worst thing you can do somewhere. Right. And so Buffett has a great quote. He says, I want to give my kids enough money for them to do anything they want. But not enough to do nothing. Okay. Okay, so because I am investing for a living and we have this kind of compounding going, I'm going to end up with more than I need.

• 57:56Mohnish Pabrai?

  I mean, basically, I don't need to spend any more than I'm spending. I could not increase happiness by spending more, so there's no point to spending more. I mean, I'm very happy with the with the lifestyle and everything else, right? So everything else basically needs to get recycled. But it needs to get recycled at high returns. So on one hand, I have a compounding engine and a network that's growing. On the other hand, I have to give it away. So God, Google told me that on June 11, 2054, I'll be leaving Planet Earth. Okay, so. You asked AI, what did you do? If you. Average life expectancy?

• 58:38Mohnish Pabrai?

  If you go to God, Google and just say, hey, I'm, you know, fifty two years old and tell me when I'm going to die, he will tell you. Okay, and now that we have the date, so, you know, my birthday is June 12th, just to make it poetic, I made it June 11th. Okay. Okay, so we have an exact number. So basically, 2054 means I've got like twenty nine years and change left, right? And at any kind of compounding rate, it's a ridiculous amount of, you know, assets that get built over time. But I want to end on June 10th with ten thousand dollars. Okay, so there's one game, which is to give it away. And the other game is to make it.

• 59:19Mohnish Pabrai?

  And we need the two curves to be where the giving away becomes probably in the next few years needs to become very much more dominant. Right. Like the three million a year needs to go to five, ten, fifteen eventually and so on. And so for me, you know, it's the same as playing blackjack. It's just a math game. These are both math games, right? And yeah, there are a lot of families getting helped and my investors are happy. And so then that's fine. Okay, so what was your blackjack system? I'm skeptical. So the the blackjack system, it would destroy the casino. They would have to either change the game or something. But basically, I'll give you I'll give you some pointers of kind of what's going on here.

• 1:00:02Mohnish Pabrai?

  There's a there's a there's a publication called BJ21, BJ21.com. Okay, if you go to BJ21.com. And you give them a hundred bucks. They're gonna give you a PDF. It gives you the odds of every blackjack table in North America. Okay, so for example, if I go to the Win Las Vegas, right? The Win Las Vegas has a bunch of different blackjack games. Single deck, double deck, six decks, whatever else. Every single one of those, it gives you the odds. If you play perfect blackjack. And these odds vary depending on how comparative. So if I'm going to some, you know, riverboat in Indiana, I'm not gonna get the same odds as Vegas.

• 1:00:46Mohnish Pabrai?

  Vegas strip is gonna be more, more efficient because it's more comparative. So usually the house will end up with something like a point three, point four percent, all the way to like two percent. Edge. Edge over the, over the better. Which means every bet you're making, if you make a hundred dollar bet, every bet you're making, you're losing your fifty cents or whatever. So there's a casino in Vegas called the El Cortez. And the El Cortez is a small casino. So in order to kind of induce people to come, they kind of improve the odds. Okay, still in their favor. But the single deck game at the El Cortez

• 1:01:30Mohnish Pabrai?

  has the thinnest house edge of any blackjack table on the planet. Okay. The house edge is point one eight percent. Okay, so if you look at that BJ twenty one. The best one. All of that, they have the edges of every table. This one is the, is the lowest, right? So this is a very thin. And, and I have a system which took them a long time to figure out. They play single deck blackjack, right? But they only deal half the deck. Correct, and they shuffle. So the reason they deal half the deck is so they, they can just make it difficult for the counters. Because you may be counting cards. The deck becomes very favorable, but then they shuffle. Right.

• 1:02:14Mohnish Pabrai?

  Right, so you, the, the high cards are the back, but they never get dealt. Right. So the counters get screwed, right? So I, I had a system where it basically relied on the fact that blackjack occasionally has streaks. It has streaks where you may win six or seven or eight hands in a row. Or you may lose six, seven or eight hands in a row. And what I did in the betting was that usually when I was losing, it was always the minimum bet. And when I was winning, the bets were increasing. So with the variance of that, what happened is I was able to overcome.

• 1:02:53Shaan Puri?

  The point one eight.

• 1:02:54Mohnish Pabrai?

  Point one eight.

• 1:02:55Shaan Puri?

  Right.

• 1:02:55Mohnish Pabrai?

  Right? So I don't want to go more than that.

• 1:02:57Shaan Puri?

  Sure, sure, sure.

• 1:02:57Mohnish Pabrai?

  That gives you, you know, and what I'm going to do is when the cameras turn off, I'll explain it to you.

• 1:03:02Shaan Puri?

  Okay, great.

• 1:03:02Mohnish Pabrai?

  So when you go to the next time and you go to the all court, but now what happens is so what happened with them, what, what really confused them, which they had never dealt with before is normally what the counters do is on a brand new shoe, it's a low bet.

• 1:03:18Shaan Puri?

  Minimum bet, yeah.

• 1:03:19Mohnish Pabrai?

  In my case, there was a brand new shoe, there's a high bet. So they said, we just shuffled.

• 1:03:25Shaan Puri?

  Right.

• 1:03:26Mohnish Pabrai?

  The whole deck is there. There's no odds edge he has on that deck because the entire deck is there.

• 1:03:31Shaan Puri?

  Right.

• 1:03:31Mohnish Pabrai?

  He has a high bet.

• 1:03:34Shaan Puri?

  Did they ever figure it out or did they just?

• 1:03:36Mohnish Pabrai?

  They took them. So what happened is I'm playing blackjack. The general manager, who's very friendly to me, comes and sits around next to me and tells the dealer, stop dealing. Okay, so she's in the middle of her hand. She just continued dealing. She's, he says, he screams at her, stop dealing now. She'd never heard that before. Okay, like literally middle of the, she said, she said shuffle.

• 1:03:57Shaan Puri?

  Right.

• 1:03:57Mohnish Pabrai?

  We're done. We're not dealing anymore. Then he tells me that, Mr. Pabrai, I like you. Okay, I read your book. I watch your videos. And you have a system that we cannot beat.

• 1:04:12Shaan Puri?

  Right.

• 1:04:13Mohnish Pabrai?

  So I said, I, I told him, I said, you know, you know, I'm not counting cards. He said, that's what threw us off. He said, we know you're not counting cards and we know you'll beat us. And so you can come to this casino anytime you want, but you cannot sit down at a blackjack table. Then I'm thinking, why would I come here? Okay.

• 1:04:39Mohnish Pabrai?

  And so that was, but you know, whenever I like, I go someplace to talk or something and you know, they're introducing me, I always tell them, listen. Just say that I have a lifetime ban in Vegas.

• 1:04:50Shaan Puri?

  Yeah, I mean, street cred through the roof.

• 1:04:52Mohnish Pabrai?

  I really don't care about everything else on my CV. That's really irrelevant. And that's what's relevant.

• 1:05:00Shaan Puri?

  It's just like if you you get into Harvard. Wow, that's impressive.

• 1:05:04Mohnish Pabrai?

  Yeah.

• 1:05:04Shaan Puri?

  You're Harvard dropout. That's the higher status signal. And so you're good at blackjack, made money in blackjack. I was banned from a casino. That is the highest status.

• 1:05:13Mohnish Pabrai?

  Yeah, so I I mean, I I took them for like about one hundred and fifty thousand or something. And and you know, this was a very low table limit.

• 1:05:20Shaan Puri?

  Right.

• 1:05:20Mohnish Pabrai?

  The table limit was only two thousand. But at two thousand, I took them. So they they said, OK, we're done, you know.

• 1:05:27Shaan Puri?

  I love it. You you've run into all these characters. And we've talked about Warren, we've talked about Charlie, but I want to know about some of the other characters. Your stories are amazing. I could listen to your stories all day. So.

• 1:05:38Shaan Puri?

  Michael Burry. One of my favorite movies is The Big Short, and Michael Burry is this kind of mysterious character. Did you ever meet Michael Burry?

• 1:05:47Mohnish Pabrai?

  What you're gonna end up when we finish this conversation is you're gonna know that my middle name is Forrest Gump. OK, that's really where we're gonna end up. So, you know, I always tell people that God loves me. He loves me more than other people, and I'll explain why, right? In two thousand eight, OK, so the financial crisis is not yet happened. It's like March or April of two thousand eight, right? So things are getting topsy-turvy, right? And. I was visiting San Jose for some. Something I was going to San Jose, and I knew Michael Burry had an office in San Jose. And I didn't know him, but I sent my email saying, you know, Mr. Burry, I like you, admire you, etc., and.

• 1:06:32Mohnish Pabrai?

  I would love to visit you.

• 1:06:33Shaan Puri?

  So he was kind of well known?

• 1:06:34Mohnish Pabrai?

  He was not very well known, but he was he was like posting on Value Investors Club and things like that. He was like, he was there a little bit. And and I liked the way he thought, you know. And he said, oh, yeah, stop by. OK, so I go to his office in San Jose, and there's a few kind of analysts sitting outside. It's a very kind of a seems like a very depressing place. OK, because a few is kind of a little dark, and there are a few analysts there. And then I go into the office. There's huge piles of paper everywhere. And he immediately launches into CDSs. Okay. And he says, Mohnish, I want to tell you something about something that's going to make you extremely wealthy. Okay.

• 1:07:17Mohnish Pabrai?

  And he then downloads to me at one million miles an hour. I've never heard of a CDS. Okay. And he's talking about housing crash and the coming implosion and all this stuff, you know. And housing's never crashed. Okay. In the U.S., none of that. And eighty percent, ninety percent, what he said went straight over my head. Okay. Like, he was just, he just gave me a full core dump in half an hour. My subhuman intelligence couldn't handle it. Okay, I couldn't. And, you know, so I come out of the meeting, my head is spinning. And I say, okay, well, that was interesting. Okay. And then, you know, of course, he rides off into the sunset. Right.

• 1:08:03Mohnish Pabrai?

  And then the movie comes out, right? And then he's exactly like the show in the movie, right? That's how he is, right? So I felt like, okay, you know, God, who loves me so much, takes me to the epicenter of the epicenter of what would have been the best place to be.

• 1:08:19Shaan Puri?

  Right.

• 1:08:20Mohnish Pabrai?

  The best teacher to have. And the idiot Mohnish blew it. Okay. But that's the way it is, you know?

• 1:08:29Shaan Puri?

  That's, I mean, what, where does that rank in terms of like, you know, sort of the the best calls or, or, you know, foresight in terms of that you've seen in your career? Was he on it?

• 1:08:42Mohnish Pabrai?

  I think this has happened to me a lot. I mean, in the sense that, like I said, you know, we put ninety-eight, ninety-nine percent are too hard pile, right? Even now, I think it was right of me to not do anything with it because I couldn't understand it.

• 1:08:55Shaan Puri?

  Right.

• 1:08:56Mohnish Pabrai?

  Even after the financial crisis, it took me a while to understand the CDSs.

• 1:09:00Shaan Puri?

  Right.

• 1:09:00Mohnish Pabrai?

  And all these tranches and how they were like doing all this stuff and all that. I mean, that took me a while to like really get my arms around it. And even after knowing all that, I would have been skeptical about making that bet. So hats off to him.

• 1:09:11Shaan Puri?

  Right.

• 1:09:11Mohnish Pabrai?

  I mean, he figured it out, a few people figured it out, but it was a very small number of people who figured it out.

• 1:09:16Shaan Puri?

  Right. Tell me about the greatest investor from India. Who is the greatest investor from India?

• 1:09:22Mohnish Pabrai?

  Well, the greatest investor from India would be Rakesh Janjwal. I never met Rakesh. I mean, I know his friends quite well. Guy actually met him. Guy actually went to his office and met him. Wonderful guy, died relatively young, a few years back. But Rakesh was a very interesting kind of split brain in the sense that he'd have like three or four Bloomberg screens in front of him and he had all these charts and everything going on, rapid fire trading going on. But on the other hand, he had these two or three stocks that he never touched. So he had, I mean, I don't know anyone like that. Who's, okay, who's, and he was great at both, but the ones that he never touched.

• 1:10:06Mohnish Pabrai?

  I mean, they just went through the roof. Like there's a company in India called Titan Industries. And Titan Industries does branded jewelry. Branded jewelry basically didn't exist in India, you know, it was all mom and pop.

• 1:10:20Shaan Puri?

  Yeah.

• 1:10:21Mohnish Pabrai?

  And there was a trust deficit, right? So you go to a jeweler in India and in India they have like 22 karat gold, right? And you're buying the gold, you don't know whether it's half gold, 80% gold or what the hell is going on, right? The jeweler knows, but you don't, right? The Titan brand is owned by the Tatas, who are very high integrity. So basically, they were able to take a sector which had a huge trust deficient deficiency. And I mean, they, I think Titan is still in its infancy.

• 1:10:51Shaan Puri?

  Right.

• 1:10:51Mohnish Pabrai?

  And I think Rakesh made a huge, huge, I mean, Rakesh, I think compounded at north of 40% a year for several decades. It's unbelievable. And you know, he started with like $10,000 borrowed. You know, didn't even have that on his own. Someone lent him the money.

• 1:11:08Shaan Puri?

  What made him great? Was he a brilliant mathematical mind? Was he, you know, because what was the trait that really helped him?

• 1:11:13Mohnish Pabrai?

  I think, so he was a trained CPA. India is equivalent CPA, Chartered Accountant. So he obviously understood numbers well. And just before he died, so he had figured out that Indigo, which is a low cost carrier in India, they have like something like 70% market share growing very rapidly. It might become the largest airline in the world. I mean, they've got like 1,000 planes on order or something. Okay. So they're growing very fast. He had done well as an investor in Indigo, but then he took the next step and he set up a clone of Indigo. I mean, just think about the guts you need to set up bloody airline. Okay, from being a passive investor. And while he was dying, you know, he was like

• 1:11:58Mohnish Pabrai?

  in bad shape in hospital and all of that. And that airline's up and running and cranking and all of that and doing great. So if he had lived longer, I think he would have gone not just as an investor, but also shown that he could be an operator.

• 1:12:17Shaan Puri?

  You said something like if he had lived longer, this idea of like runway and how early you start matters a ton. Even Buffett, I think you've said that if, had he not been giving away so much money along the way.

• 1:12:31Mohnish Pabrai?

  Oh yeah, he'd be the wealthiest guy, yeah.

• 1:12:33Shaan Puri?

  He'd be the wealthiest guy in the world right now. And I guess when you go talk to people, are you just sort of like, you know, you should have started 30 years ago? Is that the number one message?

• 1:12:44Mohnish Pabrai?

  What we started our conversation with, right? I think the important thing is that if there's a young person listening, the funny thing is that if you look at the rules for IRA or Roth IRA, there's no minimum age. You could be six months old and have an IRA.

• 1:13:06Shaan Puri?

  Right.

• 1:13:06Mohnish Pabrai?

  The only rule is that you can only put in wages that you earn. And I was just reading in the Wall Street Journal, there's some entrepreneur who's hired his kids who are like four years old and like six years old to do like different things in the business because he's putting like 6,000, 7,000 into their Roth IRAs.

• 1:13:29Shaan Puri?

  Right.

• 1:13:29Mohnish Pabrai?

  Which is equal to their W2 earnings, right? And probably stretching the limits of what he can get away with, with the IRS. That's beautiful. I mean, the thing is that, but, but even if you're not doing that, if you start at twenty two, I mean, that's the important thing is that when you, when you start earning at twenty two, a small amount saved at twenty two is more important than a larger amount saved at thirty two. Right? Because you get started earlier.

• 1:13:58Shaan Puri?

  Right.

• 1:13:58Mohnish Pabrai?

  So it's really important to have the whole spend less than you earn and put it into Berkshire, set it and forget it.

• 1:14:06Shaan Puri?

  Right.

• 1:14:06Mohnish Pabrai?

  Uh, yeah, because then, then if you start at twenty two and you're twenty two today, you're gonna live over a hundred.

• 1:14:13Shaan Puri?

  Right.

• 1:14:13Mohnish Pabrai?

  You know, you're gonna go to hundred, hundred and ten by then, you know, got all the advances taking place. That's a ninety year runway. I mean, a ninety year runway is something. I mean, if you're talking about a, even a ten percent return, uh, we are only going to look at doubles, right? So every seven years, that's two to the power of thirteen. Two to the power of ten is a thousand. That's two thousand, that's eight thousand X. Okay, the first ten thousand you invested is at eight million.

• 1:14:44Shaan Puri?

  Right.

• 1:14:45Mohnish Pabrai?

  The second thou- ten thousand is another eight, eight million, you know? So the thing is, it's a mind blowing amount of money if you start early. So the length of the runway is really important.

• 1:14:57Shaan Puri?

  Do you pay attention to the macro? Because, you know, my head starts to spin, it's interest rates, and then there's wars, and there's all these different factors that you could pay attention to. And there are some people who really pay attention to that. Do you pay attention to the macro?

• 1:15:10Mohnish Pabrai?

  No, because I can't handicap and I wouldn't know what to do with the information. So I always try to keep the bet simple. I need to be able to explain to a ten year old in five sentences.

• 1:15:19Shaan Puri?

  Right.

• 1:15:20Mohnish Pabrai?

  I'm not gonna be able to figure out the macro. That's why I couldn't make that CDS bet.

• 1:15:24Shaan Puri?

  Right.

• 1:15:24Mohnish Pabrai?

  You know, it was like so much stuff going on about housing's gonna crash, this is gonna happen, that's gonna happen. I mean, I just couldn't get my arms around it, you know?

• 1:15:32Shaan Puri?

  In my world, everybody's talking about AI. Do you think about AI at all?

• 1:15:35Mohnish Pabrai?

  The, the problem is I bring nothing to that party. And I'm probably gonna get my head handed to me if I try to participate. It's not in the no brainer category. It's not something where I have an edge. Uh, of course, I do believe that it's transformational.

• 1:15:52Mohnish Pabrai?

  But you know, I knew the internet was transformational. We've known electricity is transformational. We've known the app store is transformational. But in investing, you can do extremely well without understanding all these things. You go back to John Ariega, you know, don't understand any of these things. Or even Warren Buffett. And you know, Apple, Apple is in the rearview. They sold most of it.

• 1:16:15Shaan Puri?

  Yeah.

• 1:16:15Mohnish Pabrai?

  And they might have sold all of it by now. But, but basically, that was a one and done. But basically, yeah, I think that we don't need to understand flavor of the day. We don't need to understand Nvidia. We don't need to understand AI. If you understand it, more power to you. That's awesome. And if you know how to leverage that understanding into dollars you can make, that's even better. But that's not me. So we all have to play to our strengths.

• 1:16:44Shaan Puri?

  Yeah. Okay, well, Mohnish, this has been incredible. Part two, I'm happy with it. This is, I asked you at the beginning, I said, is this like one of those Hollywood sequels? Where the first one was incredible and the second one, they just, they just did it? But no, I think we did a good job. I think the sequel was, if not better, at least as good.

• 1:17:02Mohnish Pabrai?

  No, it was fun. I enjoyed it. It was awesome.

• 1:17:04Shaan Puri?

  Awesome. Thanks for doing it.

• 1:17:05Mohnish Pabrai?

  Okay, thank you.