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How would I take 10K and turn it into a million?
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What we're looking for is something that hits you in the head with like a 2 by 4.
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We don't need to know many things about many things.
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We need to know a lot about a little.
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Why do you think most people don't do that?
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Buffett always says, "The most important question to ask is, and then what?" Does he use Excel?
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Warren wouldn't be caught dead using Excel. Okay.
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Usually the best ideas when you finally figure that out they're very simple.
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You should be able to explain your thesis of a stock in about four or five sentences to a 10-year-old.
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Where do you even know where to look?
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I'm going to lay it out for you.
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It's going to be so easy.
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All someone has to do is Okay, here we go. Onish, welcome back. Round two.
0:53
Sean, it's always a pleasure. So, let's play a game. You're my coach.
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You're my investing coach, let's say. And I have $10,000.
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And I want to turn it into a million, right?
1:02
Podcast called My First Million.
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I want to go from 10K to a million. So, that's a 100X.
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How would I take 10K and turn it into a million?
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The thing about investing is that opportunities are not going to show up just because you have the cash.
1:15
So, I would make some tweaks to your thinking first about the 10K.
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So, I would say, "Okay, the 10K is a good starting point."
1:23
But I what I also want you to do separately from that is have a day job. Yeah. Okay.
1:29
And I want you to spend less than you're earning.
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And I want you to take the 10K, and I also want you to take your annual savings.
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Maybe that's 5, 10,000 a year, or whatever it is.
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And normally I would say put it into an index, right?
1:47
The index, like the S&P, is overheated. Mhm.
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We can't go there right now.
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Circa 2025, you cannot go into the S&P. Okay.
1:55
Okay, maybe 2035 we can, but not 2025.
1:58
So, what I would do is I would treat Berkshire Hathaway as the index.
2:00
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?
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And you keep doing that day in day out.
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And if we did that, you know, the the math is really simple.
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Even if we were doing 10% a year, right?
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I mean, uh which I think is pretty pretty reasonable for Berkshire.
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Rule of 72, we would double every 7 years.
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Life is all about doubles.
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Okay, let's say we had a 20-something guy with 10,000, and you go for 50 years or 49 years, it's seven doubles. Right. Okay. Seven doubles is um 128.
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Okay, it's 128 times your money.
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I gave you more than 100X. Right.
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I gave you 128X in 49 years.
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Without having to be a genius.
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Without doing anything, right? So, this is just plan B. Right.
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Where we put the 10,000 in, it becomes more than a million, 1.
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3 3 million with no taxes paid.
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There's no dividend, there's no taxes, there's nothing.
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And we haven't even gone to plan A yet, right?
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This is just sitting there.
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Now, the other thing is that every once in a while, there'll be opportunities that show up.
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And what we're looking for is something that hits you in the head with like a 2x4.
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So, the best investments are ones that make no sense.
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You cannot make sense of the numbers.
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It's too good to be true.
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It's just weird and all of those things.
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So, when when these kind of unusual things come together where things don't make sense, Right.
3:44
that's when we want to dive in.
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Give me an example of a great investment is one that doesn't make any sense.
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The numbers just seem wrong and you know, to you in the moment.
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Well, I'll I'll I'll give you one example where it was a money maker for me, but I didn't make even 3% of the money I should have. Okay.
4:04
You know, I mean it it was like uh it was given to me on a platter and I blew it.
4:08
I still made money, but you know, usually the best ideas when you finally figure that out, they're very simple. Mhm.
4:14
So, in in the year I think this was like around 2001 or 2002, uh I had encountered the this shipping company called Frontline.
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And Frontline was a company that owned a fleet of about 75 VLCCs, very large crude carriers.
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These are giant ships that transport crude from like Saudi Arabia to the US and they're they're just huge.
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The entire global fleet at that time was 300 ships. 300 VLCCs.
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75 of them were owned by Frontline, 25% of the market.
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The the guy who ran and was a founder of Frontline, John Fredriksen, had put the entire fleet on the spot market.
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So, there are two ways he could have dealt with his fleet.
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He could have done time charters, kind of 1-year, 3-year deals where he's guaranteed cash flows per day and all that, or be a gambler, put it on the spot market and play it.
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Whatever the price today is, I'll I'll take it.
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so he had put it on the spot market, the entire fleet.
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Now, these VLCCs, they have a cost with the crews and all of that of around $15,000 per day to break even.
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And at that time we had like the Iraq war and different things going on, so oil demand fell a lot.
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And there wasn't enough need for VLCCs.
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So, the shipping rates collapsed to the point they went to 7,000 per day.
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Okay, so now you have Frontline losing 8,000 per day * 75 ships. Right.
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Okay, and they're levered.
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Okay, and so basically the stock got taken out back and shot. Like a 90% drop, okay?
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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.
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They reward consistency of cash flows.
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Here, what we were seeing is consistency of losses.
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Okay, no one could tell you when these losses will abate.
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So, the the dynamics were the stock, I think, was down to like $3 per share.
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And when I looked at it, I noticed two things.
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Okay, the first thing I noticed is all their debt was non-recourse.
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Their debt was tied to individual ships.
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There was no debt at the parent.
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So, basically, if they defaulted on the debt of a ship, the bank could just take the ship.
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They couldn't really take the company, could just take that ship. They They got car loan. Right?
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And the second thing I noticed was that there's a very somewhat liquid market to buy and sell these ships.
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So, even when the rates went to 7,000 per day, the ships had dropped in price by something like maybe a third.
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25-30% drop from where they used to be. Right.
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So, what I realized is that if Frontline got into a crunch where they were having cash problems, they could just sell three ships.
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If they sold three ships, paid off the debt, they'd have enough cash left over to keep sustaining operations for 6 to 9 months.
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They could sell three more ships after that.
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So, I felt like there was really no way the company was a candidate for bankruptcy.
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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?"
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If they sold all the ships, paid off all the debt, you would end up with like nine or $10 a share. You're at three bucks. Right. Okay.
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So, you'd you'd make three times your money if they just liquidated the whole business.
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So, there was a arbitrage between the price of the stock and the net price of the assets in a distressed scenario, right?
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And so, I said, "Okay, we really can't lose money here."
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So, I put 10% of my fund into Frontline, right?
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Because it's I just couldn't see a way that we could lose money.
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After a few months, the rates start improving.
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The oil demand starts coming back up.
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The rates go to 15,000, then they go to 20,000. The stock's at 10 bucks. Okay. I sell my shares. Well done, Monish. Okay. Tripled my money.
8:51
Yeah, in in like eight months or something. Okay.
8:53
And I said, "Okay, this was exactly what I thought, right?"
8:58
Rates then go to 300,000 a day. Okay.
9:03
At 300,000 a day, they are making something like 285,000 a day times 75 ships. Okay.
9:13
That number is like infinity. Okay.
9:17
Yeah, I was trying to do the math.
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Just assume it's infinite.
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The stock goes up in the next 3 years, 80X. Oh, wow. Okay.
9:25
Here's stupid Monish, okay, patting himself on the back with the double.
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And I didn't even get a double.
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I got like 80% return on my money and that was that.
9:34
And so, that was an example of where I did first order thinking, but I did not do second order thinking.
9:42
So, the second order thinking was, you know, Buffett always says that the most important question to ask in investing is, and then what?
9:53
If I had been so smart as to ask the question, and then what?
9:55
So, you see that rates are terrible, you see the scrapping, you see that that fleet's going to shrink.
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So, even if oil demand doesn't come back the way it was, it's going to come into balance.
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Eventually, that those losses are going to go away, and then you do the next thing on then what, which is that when oil demand comes back, it takes 3 to 4 years to build one of these things.
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So, when the rates went to 30,000 or 50,000, and all these guys can see this is a great business now, well, when you go to the Korean shipyards, who are now inundated with orders, they're going to say, go to the back of the queue.
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I'll give you a ship in 5 years.
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And by the way, the ship is no longer 70 million, the new price is 120. Okay?
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Because I got more orders than I can handle, right?
10:52
So, we had this dynamic, if I had thought about it, that once the demand became tight, you really couldn't increase supply for at least 3 or 4 years.
11:02
So, what's 285,000 * 75 * 1,000 days?
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That's the minimum number of time when that price is not going to come down.
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It's only after 3 or 4 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, right?
11:23
So, the thing is that there are always, like, you know, our friend Jim Cramer says, there's always a bull market somewhere. Okay?
11:33
So, basically if we if we are plan A, Berkshire Hathaway.
11:44
Plan B, looking for anomalies, right?
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Every so often, not not very often, every so often, you will find something weird.
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And we've got all the time in the world.
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We can research something for 3 months, it turns out it's not that great. Let it go. Right.
12:00
We got Berkshire still cranking. Okay?
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So, if you look at Warren Buffett, you know, in in his 2022 letter, he said that in 58 years of running Berkshire, there have been 12 decisions that have moved the needle for Berkshire stock.
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Now, in 58 years, he made more than three or 400 purchase decisions for stocks and businesses. Okay?
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Out of 300, if I take a conservative number, it's actually more than that, only 12 were exceptional.
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And he said there was one good idea on average every 5 years. Okay? This is Warren Buffett. Right. With a 4% hit rate. Okay?
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So, basically great investment ideas are rare.
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We're not going to run into them every week or every month or every year.
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So, plan A, stick it in the index.
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Plan B, keep running a Geiger counter over everything, looking at different things.
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And when something doesn't make sense, drill down, and every so often, you're going to hit the mother lode. Right.
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And when you find something that's a mother lode, you peel off 10-15% of what you have in Berkshire, put it into that, let it play out, then put it back into Berkshire. Right. Right?
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And just you keep doing that, and now your 100x is going to show up in half the time or less.
13:26
All right, let's take a quick break cuz I a little freebie for you.
13:27
So, if you're listening to this episode and you like what Manish is talking about, you might be like me.
13:32
You're trying to take notes.
13:33
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.
13:39
Well, the fine folks at HubSpot listened to this episode.
13:40
They took the transcript.
13:41
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.
13:46
So, you don't need to take notes. They did it all for you.
13:48
You can read that, learn from it.
13:50
That's a much better way to get more value out of these episodes.
13:52
It's in the show notes below.
13:53
Just go download that and enjoy.
13:58
So, you you tell me the story about these ships and when you explain it, I can see it just like you see it.
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Oh, that's the opportunity.
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But the thing I don't get is, why are you looking at crude oil ships?
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How do I get to like how do I even know where to look?
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And so what is that process for you?
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Do you Do you pick one industry and look at 100 companies in it?
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Do you read books on 50 industries?
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Do you look at what other investors are doing and try to reverse engineer?
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Like where do you even know where to look?
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I'm going to lay it out for you.
14:27
It's going to be so easy.
14:27
But but it takes a certain temperament. Okay.
14:31
So, first I want to talk about the temperament. Okay? Okay.
14:34
So, if we go back to Warren Buffett, when he was a teenager, he used to go to the racetrack in Omaha.
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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?
14:50
These are mostly losing tickets, right?
14:52
They just kind of tossed them from the garbage cans. He'd pull them one out.
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Then he'd go home and one by one look at every ticket.
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He would find Now, sometimes a horse would come in second and the ticket was for win or place.
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It was actually a winning ticket, but they didn't understand.
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They were drunk or whatever.
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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.
15:18
He couldn't go to the counter to collect the money.
15:19
So, he gave it all to his Aunt Alice, his favorite aunt.
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She used to go to the counter, collect the money, and give it to him. Okay?
15:29
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.
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And what he was doing with the Moody's manual, and you know, uh for nostalgia, I bought these on eBay, and I want you to see the Moody's manual, okay?
15:49
So, so this is Buffett Oh, hold this up.
15:52
Buffett was 23 years old.
15:55
This was his nighttime casual reading?
15:57
This was his So, what he did now with the Moody's manual, they were they were a number of these that came out.
16:03
So, like in the year 1953, this is just railroads, airlines, shipping, traction, buses, and truck lines.
16:09
And I don't even know what this is.
16:09
Is this the earnings reports of all of the companies? of that day. Okay.
16:14
Okay, so if you if I open the Moody's manual to any random page, okay?
16:21
What what it's doing is it's got like um two or three companies per page.
16:25
You can see how fine the print is. Okay? all right.
16:29
You need like a magnifying glass.
16:32
And it's basically giving you a summary of every company, right?
16:38
Now, Buffett went through Now, this is just one of them in 1953.
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For 1953, there were probably about seven or eight of these books that came out in 53.
16:49
Similar number in 54, 55, so on.
16:49
So, you're talking about a big stack of these, right?
16:54
He went through the these books two or three times.
16:59
He went through What he did is he read each one page by page, right?
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And he was looking What he was looking for, he was looking for anomalies.
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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.
17:22
So he would find something like Western Insurance, for example, where the stock price was 15 and the earnings last year were 25.
17:34
Okay, the stock is $15 a share, earnings are $25 a share, book value is $80 a share. Right. Okay?
17:41
That's what we call an anomaly, right?
17:43
Hitting you by a head head with a 2x4. Makes no sense, right?
17:48
He would make a list of all these companies that made no sense in the positive direction, okay?
17:54
And then he'd study them.
17:54
And then he would make investments, right?
17:56
Now, in order for Warren to find Western Insurance, he would he might have had to spend 14 hours a day, okay?
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Nonstop reading these for 3 months before he finds one or two of them.
18:16
But he only needs very few of them.
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And Warren's mind, uh you know, he's he's a prodigy, so his mind was programmed to have this intense the the work never bothered him.
18:30
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.
18:44
And So he went through the Moody's manual and basically started finding the anomalies and then started making investments in them and did well, etc.
18:54
Now, we have a shortcut, you know, because I know that your listeners are not going to do what Buffett did. Okay?
19:02
I cannot do what Buffett did.
19:02
I do not have the wherewithal and the ferocious intensity that Warren does. Almost no one does.
19:11
I think that he's just, uh, extreme anomaly on that front.
19:15
So, for example, there's a website called Value Investors Club. Mhm. Okay?
19:22
Now, if you go to Value Investors Club, it's free.
19:24
You don't have to pay anything whatever.
19:26
If you give them your email, you can see all ideas that are 60 days or older. Okay?
19:35
It's very difficult to become a member of Value Investors Club posting ideas.
19:40
So, it's like a curated website. Okay?
19:42
The members have to submit two ideas a year which get a decent rating in order to keep their membership.
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So, you have What I have found is the Value Investors Club has a lot of brain power.
19:56
It has brain power coming out of their ears. Okay? It's all free.
19:59
So, all someone has to do is sit down and read the write-ups on Value Investors Club.
20:08
So, there may be, I don't know, 6 or 700, 800 write-ups, maybe 500 write-ups in a year.
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Each write-up may be around 10 15 pages max.
20:20
Then there's comments and whatever.
20:23
But what I'm saying is that uh, it's much easier than the Moody's manual because someone is actually digesting the information for you.
20:31
And you could do one of those a day.
20:32
You could easily do one Well, one of one of those a day is pathetic.
20:35
Well, I'm saying even even you said if there's 300 total Yeah, but I'm just saying it would be easy for someone Right.
20:40
It would be for someone without getting putting too much work into it to read four or five ideas a day.
20:46
I mean, they could have a full-time job and easily do that.
20:49
That's not a difficult thing to do.
20:50
And you don't need to read the whole idea.
20:52
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. Right?
21:01
And what I do is I look at every idea that's posted. Right?
21:07
And I don't I don't care to really look at them right when they're posted because they actually uh those ideas will work even 5 years from now.
21:15
Uh like recently I started uh investing in a in a company where the original write-up was in 2021. Okay? It's 2025. Still valid. Okay?
21:29
Now, what you still have to do is you should use it only as an input to ideas.
21:35
Just like the Moody's manual is not telling you what to buy and sell. Right.
21:39
Once you see the idea, you do all your own work.
21:41
Do your research, do everything.
21:42
Make sure it's something you understand well.
21:45
Make sure it's within your circle of competence.
21:47
Uh whether you buy into the idea or not, etc.
21:49
And Buffett Buffett is still doing this. So, his Japanese bets.
21:57
So, there's a there's another uh book called the Japan Company Handbook. Okay.
22:02
And and I'm going to bring the Japan Company Handbook. Okay?
22:06
All right, here we have it.
22:06
And I'm excited about this because you hear a lot about Buffett's, you know, See's Candy, Coke, Geico, like those kind of well-known Buffett's best bets. Yeah.
22:15
But as I understand it, Buffett made some incredible investments in Japan.
22:20
So, let me explain how no-brainer the total no-brainer nature of that bet. Okay?
22:27
So, these uh five Japanese trading companies had a 8% dividend dividend yield. Okay?
22:36
So, they were paying a 8% dividend. It was very cheap.
22:37
Japan has the index has not gone anywhere for like 30 years.
22:43
And uh Warren actually um got a insane return on these.
22:47
So, what he did is he borrowed the entire amount in yen at half a percent a year.
22:59
And it was not a small amount. It was like 5 billion. Yeah, yeah.
23:01
He put 5 billion, but he borrowed the 5 billion at half a percent. The whole thing. In yen in Japan, right?
23:06
So, now he's bought a Japanese company paying dividends in yen, which he's bought in yen, right?
23:14
The dividend coverage is 16 times his interest payment.
23:19
So, he put no equity, right?
23:22
And he's instantly making 7 and 1/2% on 5 billion, which is like, you know what?
23:31
About 350, 400 million out of nothing, right? It's just coming to him.
23:36
Now, what happens is because these companies are so cheap, in about 3 or 4 years, they all doubled in price, right?
23:43
So, now the 5 billion has become 10 billion.
23:45
Okay, the equity that went in is nothing, so it's infinite return.
23:49
They all raised the dividend.
23:52
The dividend, based on the original purchase price, is about 15%. Okay?
23:56
So, basically, and then after that, what he did is he increased the bet.
24:01
So, he was he was under 5% of all of them.
24:05
He's now approaching 10% on all of them.
24:07
And anyone could have looked at the Japan company handbook.
24:11
Basically, I think it's it's a matter of how hungry are you?
24:16
It's the same as any entrepreneur, right?
24:18
I mean, basically, uh anyone who starts a business, whatever, they've they got to go all in.
24:24
You know, intense passion, 18 hours a day, all in, very strong belief.
24:26
It's the same thing here.
24:30
If you truly are focused on it, you can do very well.
24:35
I mean, the universe is going to conspire to help you with whatever your passion is.
24:38
And it's just a matter of whether you want it.
24:42
By the way, does he use Excel?
24:44
Well, no, he does not use Excel, for sure. Okay? He uses his computer.
24:46
Now, now he uses Google and all that, but he uses computer mainly to play bridge.
24:51
I mean, Warren wouldn't be caught dead using Excel. Okay?
24:55
And well, because the thing is that he's looking for things that hit you in the head with a 2x4. Right?
25:02
So, when he's going through Japan company handbook or the Moody's manual, there is no Excel needed.
25:09
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. Okay?
25:17
When when the dividend yield is 8% and you're borrowing at 1/2%. You don't need Excel. Okay?
25:23
In fact, if you need Excel, it's an automatic pass.
25:29
Because it means that there's something complicated there which is not fitting in.
25:33
Did I need Excel for Frontline?
25:33
No, I didn't need Excel for Frontline.
25:36
I mean, I look up the liquidation price of the ships, I look up the where the ships are at.
25:42
I look at all I mean, the thing is all these things are very basic numbers.
25:46
You don't need Excel for it.
25:49
You know, recently I was talking to a friend of mine looking He's looking at some international stock exchange. Okay?
25:56
This international stock exchange trades at a trailing PE of like 30. Okay?
26:02
It's growing at 15 20% a year. Very rapid growth. Okay?
26:08
60% of revenue is profit. Okay?
26:11
And as they grow, that 60% might become 70% because they got operating leverage.
26:16
So, if you just forward two or three years, the PE becomes less than 10. Okay?
26:21
There is no need for Excel.
26:25
You can just do it all in your head. Okay?
26:28
It's got $10 of earnings today.
26:28
It's going to have $12 a year from now, $14 $15 two years from now.
26:35
Maybe $17 or $18 three years from now. Stock's at 300.
26:43
Now, when you're at 18, you're already at a 15 multiple. Right?
26:46
You already cut it in half. But, it's growing.
26:48
By that time, it may be trading It should be trading at even more than 30 times earnings.
26:52
So, the stock may be at like, you know, 6 or 700 by then. Right?
26:58
It's just just just the math of all of that.
27:00
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.
27:08
So, another important thing is you should be able to explain your thesis of a stock in about four or five sentences to a 10-year-old. Okay?
27:19
If you can't do that, it's a pass.
27:23
You can't sit down with a 10-year-old with an Excel spreadsheet. Okay?
27:27
They're not going to like you and they're not going to be interested. Right.
27:31
Einstein used to say there's like four levels of intelligence.
27:35
Smart, intelligent, genius, simple. Okay?
27:40
The highest level of intellect is simplicity. Right.
27:45
And the other thing about investing is that you have to have conviction.
27:49
It's very difficult to have conviction if you keep needing to go back and look at your Excel model. Right.
27:54
You need it in your head.
27:54
So, Buffett never needs to go anywhere, it's in his head.
27:57
He knows what the dividend yield is. He knows what he paid.
28:00
He knows what the yen is. He knows all of that. It's pre-programmed. Right.
28:06
So, we have don't use Excel.
28:08
Don't over complicate it is really what that means.
28:10
And the second is leverage.
28:11
So, don't over leverage and I think the the story here that I like is there should be a third bust on this on this table next to us.
28:20
Somebody's missing that was an original partner with them. Can you tell that story?
28:25
I think that his name is Rick.
28:28
So, actually Warren, Charlie, and Rick Guerin used to do deals together and they were all independent doing their thing, but they used to share ideas and sometimes they'd go in together.
28:41
Rick found Blue Chip Stamps for them and I think he also might have been the guy that See's Candy contacted and so on.
28:48
After the early '70s, we never heard about Rick.
28:49
He kind of fell off the radar.
28:51
So, when I met Warren for lunch, I asked him just a very innocent question.
28:56
I said, "Warren, what happened to Rick?
28:59
You know, it used to be three of you, and then we never heard from him after that."
29:01
And Warren said that Charlie and I knew that we would get very rich, and we were not in a hurry."
29:12
And he said, "Rick was in a hurry."
29:15
And uh so, Rick was always using some leverage.
29:18
Uh and then, when the '73, '74 downturn came, uh that was a very intense That was a crash in slow motion, basically. Okay.
29:27
Uh over a 2-year period, your stocks went down like more than 40, 50%.
29:29
It was a big uh big drawdown.
29:31
And Rick got margin calls.
29:37
And uh and Warren said that when he got the margin calls, "I bought his Berkshire Hathaway for $40 a share."
29:46
The stock that's now $700,000, right?
29:49
So, Rick was forced to sell it at a time when it was probably the worst time to sell. Right. Right?
29:55
And so, then Warren actually went one step further, because he's always trying to add value to these lunches and all that.
30:00
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."
30:16
Tell me about the difference between risk and uncertainty.
30:20
Yeah, well, that's an important concept to understand, uh because Wall Street gets confused between the two.
30:26
And in fact, when Wall Street gets confused between the two, is where the greatest opportunities lie.
30:32
Okay, so, we talked about Frontline.
30:35
Frontline was an example of a situation where uncertainty was extremely high, and risk was very low. Right?
30:43
What Wall Street is looking for is certainty. Okay?
30:48
So, if we look at a company like ADP, you know, they process payroll, right?
30:54
I don't know, they've had some like 50 years of non-stop growth.
30:56
Because, you know, your payroll you're running payrolls is going to keep going up, your cash flow is going to go up.
31:04
It's all in a straight line. That's beautiful.
31:09
And Wall Street will reward you extremely well for that. Right.
31:13
And it's priced accurately.
31:16
It'll be priced for euphoria. Mhm. It'll be overpriced. Okay. Because they love that.
31:20
That's what they're looking for.
31:23
On the other hand, Yeah, I mean, that's that's that's music to the ears.
31:26
On the other hand, if a company exhibits high uncertainty, it will be taken out back and shot. Right?
31:34
And those are where the opportunity lies.
31:37
So, one of the cues to look for is is this a business with low risk and high uncertainty?
31:46
The combination of the two.
31:46
And when you get to the combination of the two, low risk plus high high uncertainty equals high rewards.
31:56
I was looking at your portfolio and you have this uh company you invested in Turkey that's like a Coke bottling company.
32:02
Would you say that's a good example of the of kind of the risk and uncertainty mismatch?
32:07
Yeah, we we actually um made money on it, but we exited. Okay.
32:12
And the reason I exited is that uh so, the Coke bottler basically had a parent company which was the dominant beer bottler in Turkey and several other countries.
32:24
Their largest operations were in Russia where they had a they have number one market share uh 50/50 joint venture with AB InBev.
32:33
And Russia has effectively nationalized that business. I see.
32:38
And I think they did it because they were somewhat upset with Erdogan about something, so they went and did that.
32:41
Uh what is support for Ukraine or something.
32:45
And when that happened, it became went in the too hard pile for us.
32:51
Explain the too hard pile.
32:51
That's something I stole from you last time I was here.
32:55
it's a it's a Warren thing.
32:55
We'll get to that in a second.
32:57
But basically, uh it was something I couldn't handicap. Sure.
33:01
So, we were sitting at a gain and we have this event take place.
33:07
I get to get my bet back with some added return, and we close it.
33:12
I said, "Where do I sign?" Right. Right?
33:15
I can go find something else to play with.
33:16
But the too hard pile is uh actually a physical box on Warren's desk. Okay?
33:24
And so, actually, if you Google it, if you just Google Warren Buffett too hard, that image will probably pop up. Okay?
33:28
So, he has a box on his desk which he calls too hard, and he says that 99% or more of investment ideas that you encounter should go into that box.
33:42
Because we're not going to be able to figure it out.
33:43
So, one of the things to understand is that if there's 50,000 stocks in the world, we are not really going to understand more than a few hundred of them at the most after quite a while of studying them.
33:57
So, most companies that we would encounter should go into that box. Okay?
34:03
So, it's the one of the important things in investing is humility.
34:08
Humility to understand I mean, Warren has no issues with the humility to know that he doesn't know most things, right?
34:16
That most things are not going to be able to be figured out or handicapped or any of that. And we don't need to.
34:22
If you can understand a very small sliver of things, and you know when those things get overpriced and underpriced, that's all you need. Right.
34:34
You don't need anything else.
34:35
There's a a a guy who owns a bunch of real estate, but like in a very small area, right? Arrillaga. Yeah, what's his story?
34:41
Cuz it sounds like it's it's a good example of this.
34:42
A very thin kind of circle of competence, but he knew the pricing and was able to So, John Arrillaga uh was a billionaire.
34:52
He passed away maybe like 2 3 years ago, pretty recent.
34:55
And his daughter's married to Marc Andreessen. That's right, yeah.
34:58
You know, so it's billionaire to the power of billionaire. Okay.
35:01
So, um anyway, uh John Arrillaga uh basically had a very narrow circle of competence.
35:08
He didn't understand most things, but he only invested in real estate within 2 mi of the Stanford campus. Okay, that's all he did.
35:17
Usually just right around the campus.
35:21
And if you walked with him around the campus, every single building, he could tell you the full history of the building.
35:27
When was built, what the current value was, what the rents were, who the owners were, and what the history was. Right.
35:34
He knew that about every building.
35:34
And you know, so he was a he was a inch wide and a mile deep.
35:40
And that is a really good trait for an investor is to be very narrowly focused. Right. Right?
35:46
Now, what John Arrillaga did is he ran, generally speaking, a very under-levered portfolio.
35:53
He uh his portfolio always not much not much debt.
35:58
When the downturn came, he aggressively bought because all these distressed properties around I mean, this is the most prime real estate you can think of. Yeah.
36:07
Other than Park Avenue or something. Okay?
36:09
And so, he would just buy these things up when everyone was getting foreclosed and bankrupt and go to banks and buy it from them and all of that.
36:18
And then, you know, get them all leased and fair value and all of that.
36:25
Again, take the leverage down.
36:25
And again, next down cycle again the same thing. And he he stuck to that.
36:28
So, the thing is he didn't wander into oh, let me go to Mountain View and do it.
36:34
Okay, let me go to oh, in California and do it. He didn't do all that.
36:37
I mean, he's basically oh, let me invest in tech or something.
36:42
He didn't do any of that. He stuck to real estate. That's all he did.
36:46
And he did it extremely well.
36:46
And he died a billionaire.
36:48
We don't need to know many things about many things.
36:53
We need to know a lot about a little.
36:57
And that's the important thing. Right.
36:59
Know a lot about a little. Right?
36:59
So, like for example, if I'm looking at Frontline, I should learn everything I can about shipping.
37:07
I should learn everything I can about oil shipping, about tankers, about the history of who makes them, and every nuance about it, right?
37:13
The deeper I go, the better it's going to be for me.
37:19
Okay, I shouldn't be spending time next week on airplanes.
37:21
Okay, let's leave it alone. Like one by one by one. Right.
37:26
Why do you think most people don't do that?
37:27
Because you when I hear that, I think ah, there's a blueprint to just say I'm going to go deep and in this 2-mi radius, I need to become super knowledgeable and I don't need to get distracted by everything else and I'll hold forever, right?
37:39
Like that's that's a blueprint.
37:42
you think about it, I think it was Nick Sleep who has this this quote.
37:43
He said, "The best investors are entrepreneurs who never sold."
37:49
So, if you think about entrepreneurs, that's what they are.
37:55
They are John Arriaga, right?
37:56
So, if I look at Sam Walton, Sam Walton is John Arriaga. All he did was retail.
38:02
All he did was visit competitor stores.
38:04
He never bothered with anything else, right?
38:08
Sam Walton, founder of Walmart. Yeah.
38:10
And what what what do you mean?
38:10
Tell tell me more about him.
38:12
We can Well, so Sam Walton uh 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.
38:25
Okay, whenever he'd go on vacation with his family and they were passing a retail, so he's I'll be back in 20 minutes.
38:31
And he'd go And what is he doing in there? What what did he do?
38:35
So, I'll give you I'll give you an example.
38:36
One time he went into the store and this manager says to him, "That was such a badly run operation."
38:46
And Sam says to him, "Yes, but did you see the candle display?"
38:50
"Did you see how fantastic that candle display was?"
38:53
So, his perspective was, "I can learn from losers."
38:55
Okay, I want to learn the spark that's there in something that's a total loser, right?
39:02
So, he was going in and now one time uh in Brazil in this this uh retail store, they find this older guy flat on the ground.
39:12
They call the paramedics.
39:15
It turns out it's Sam Walton.
39:15
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.
39:25
He laid and you know, the space between the aisles is a very important data point for a retailer because you're going to either waste square footage or be too narrow and the people won't enjoy the experience.
39:35
So, you have to get that right, right?
39:37
And so, he was in Brazil saying, "How are they doing it?
39:43
Am I 3 in just too wide in Walmart?
39:43
Am I 3 in just too narrow?
39:46
What am I What's going on here?" Right?
39:47
So, that was This was a game of inches.
39:51
That's who Sam Walton was.
39:51
And in fact, Walmart has not innovated at all.
39:59
For at least for the first 20 25 years that Walmart ran, everything came from somebody else who was already a competitor.
40:06
They took a lot from Sears.
40:09
They took a lot from Kmart and then they killed them.
40:11
And they kept learning from one competitor after another.
40:13
Sam Walton actually used to say, "I'm not the smartest tool in the toolbox.
40:20
I'm not a smart guy, but I'm a learning machine.
40:24
I'm going to keep at this, and what others have become."
40:27
So, you know, it's very funny.
40:29
He goes and visits Sol Price, the founder of Price Club, which eventually leads to Costco. Right?
40:36
And he looks at Price Club, and he says, "This is fantastic."
40:39
And he creates creates Sam's Club. Right?
40:41
And Costco was also taken from Price Club.
40:47
So, both Sam's Club and Costco, they would not have existed So, Sam's Club is Sam Walton?
40:53
I don't even I don't even know that. of Walmart.
40:55
Oh, I didn't even know that. Oh, yeah. It's part of Walmart.
40:56
And it was it was completely cloned from Price Price Club, which was a predecessor to Costco. Right?
41:02
So, Sol Price was an incredible entrepreneur.
41:05
Uh someone goes to him and says, "You know, uh 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 Sinegal, the founder of Costco, in a major way.
41:18
I mean, these are the the the pillars.
41:21
And then these two companies uh influenced Amazon. Right. Right?
41:27
So, it's all coming from Sol Price.
41:29
So, someone told Sol Price, you know, "You are like the father of retailing in the US, and actually globally.
41:37
What do you think of that?"
41:39
He said, "I wish I'd worn a condom." That's too good. That's amazing.
41:50
So, so so Sam Walton is Yeah, but I just want to say that, you know, this book Sol Price This is a very good book, and it's out of print, and it's hard to find.
41:59
But, I think that it's one of the best uh books on retailing. Right.
42:06
And so, for example, some of the things that Costco does, Costco pays 50% more than Walmart pays its employees.
42:14
So, the entry-level people are making 50% more. Okay?
42:16
Hasn't a hasn't hurt their profitability.
42:20
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. Mhm.
42:30
Just like Henry Ford said, I want my workers to be able to buy my cars.
42:32
You know, at that time they were cars were automobiles were for the rich. Right.
42:38
And Henry Ford said, "No, I want them for everyone." Right?
42:40
So, he wanted to drop the price.
42:41
And and uh So, um I think at at Costco the lowest wage is like 20 bucks an hour.
42:51
You know, like when you're starting out or whatever.
42:52
And then they have tuition reimbursement and all kind of other things.
42:54
And uh they get a lot of productivity out of their people Yeah. because of that.
42:59
You've got these books here and we're sitting in your We're at your house. We're in your library.
43:03
You've got I don't How many books do you think you have in here?
43:06
This is a thousand books? A few thousand. A few thousand books. Yeah.
43:10
This I mean, just to set the scene.
43:10
So, that your office at your computer's over there. Yeah.
43:14
We're surrounded by a cave of of books on every topic.
43:17
So, I see I see some business books over here. I see investing books.
43:20
You got You just brought a retail book about Sol Price, the founder of Price Club, from over there.
43:25
There's science, I think, on that wall.
43:29
This What does this door go to? What is it What is this? Is it That's my bedroom. That's a bedroom. Okay.
43:32
So, you you live in the library, essentially.
43:35
And you nap every day, I think. Absolutely. Yeah. So, we're both nappers.
43:39
I've been I've been uh so used to napping that if I don't nap, my productivity goes down.
43:45
And so, I I actually don't like to work if I'm not productive.
43:49
And and what I find is that even if I, you know, lay down for half an hour, 45 minutes, it's I'm re-energized. Right.
43:58
And I think for the work I do, I need to be all in. Yeah.
44:01
So, I can't I actually can't do this work if I'm tired, you know.
44:05
Yeah, there's a this athlete um Conor McGregor and they asked him about his training schedule and he said, you know, one of the big mistakes I made is that I was always trying to train all the time.
44:13
I wanted to come to the gym three times, four times a day.
44:16
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 Mhm.
44:25
and therefore you can never turn on and be as bright and as effective as you could be.
44:28
And this flickering dim light, it's not doing you any justice.
44:30
And so I've used that in my own model of like where's my light right now?
44:34
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 goal.
44:41
Well, uh Jeff Bezos, you know, he said all decisions, important decisions, in the morning. Mhm.
44:47
And uh he's very particular.
44:47
He needs a solid eight hours at night. Right.
44:52
And he he leaves work at a normal time, right?
44:55
But he says that they don't do these important decisions in the afternoon. Right.
45:01
It's the first thing in the morning.
45:03
Because he wants the highest energy levels.
45:04
And in in fact, what I also try if I find my best work is in the morning.
45:08
I'm curious about your style because I came over to your house once and you were you're very calm.
45:12
You weren't like it didn't seem like you were on the clock.
45:15
You're moving from one meeting to the next.
45:17
Uh didn't There was not a big bustling team of analysts and junior people and and uh it didn't seem You seemed like you keep a pretty clear calendar. Um is that intentional?
45:26
Do you think that's Is that just what you like or is that effective?
45:29
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 5 years, right? I'm doing well.
45:40
And so this is not a situation where having some packed schedule or whatever.
45:45
I think the thing is that um this is a this is a case where you're taking in a lot of information.
45:53
But there's not much action, right?
45:53
And so you're basically trying to improve your mental models.
45:56
You're trying to understand more about the businesses that you already own.
46:00
And uh I'm going through like, you know, Value Investors Club and SumZero and that sort of thing, and just looking at what else is there. Right.
46:09
And and sometimes I find a amazing idea, whatever, and then now then there's the deep dive. Right. Right.
46:16
And then that might take a while.
46:18
I was reading something interesting.
46:18
So, in our first episode we talked about your how you got started.
46:21
You were actually an entrepreneur first, and then basically So, you said this great thing.
46:25
You go, "I realized that as an entrepreneur, maybe 3 to 5% of my brainpower was on strategic decisions, really clear thinking, you know, coming up with the right answer.
46:35
And then 95% of my time was blocking and tackling."
46:37
And you're like, "As an investor, it's great cuz that 3% becomes 95%."
46:42
I'm just It's just about clear thinking and making the right strategic move, and not I don't have to busy myself.
46:47
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 What is this?
47:03
I I didn't understand what what you did.
47:05
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.
47:23
And I had become a lot more interested in investing.
47:29
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?
47:37
And so, very accidentally, I was with these two industrial psychologists, and they basically did a 360 on me.
47:46
So, they had me take a bunch of tests.
47:47
They talked to my direct reports.
47:51
They talked to my friends, family, spouse, so on.
47:53
And they built a kind of 360 view of who I was.
48:00
And then they gave me what I call my owner's manual.
48:05
And I think everyone should have their owner's manual.
48:06
Like it comes with a appliance you bought.
48:08
Yeah, I mean it's it's you know, we show up, we don't have a owner's manual.
48:10
And each one of us each one of us is programmed differently.
48:13
So, what they said is look, the way a human is, his traits, likes, dislikes, and what passions they are, that is hard-coded at the age of five. Mhm.
48:27
And that is not going to change from the age of five to the age of 95. Okay?
48:29
You might try to So, you cannot change traits.
48:36
You can try to change behaviors, but you cannot change traits.
48:38
So, traits are between your genetics in the first five years of life hard-coded.
48:41
Now, the problem most humans have, which I had, is we don't know what those traits are.
48:50
Uh what most of us try to do is we do what what they call mirroring.
48:52
We look at what the world considers acceptable, and we adapt our behaviors so that we kind of fit in. Mhm.
49:02
But that can be a big disservice.
49:02
Okay, so so basically um what they were able to tell me is they said, "Look, uh you you are a person they said when we look at the company you're running, and we look at who you are, we don't even know how you can go to you functioning?
49:23
Yeah, we don't know and actually I was in pain. Oh. I was in a lot of pain.
49:25
And the the the thing was that I loved that business when it was just me. Mhm.
49:33
And I loved the business as it was growing until we got to the first 10, 15 people.
49:39
And then as it started growing beyond that, my life became and my job description became HR. I'm just herding cats. I'm not a cat herder.
49:46
Okay, that's not who I am. Okay?
49:48
So, uh what they said is that that business that you have, you need to get rid of it in some way as soon as you can.
50:01
And I was just thinking at that time, this was in March or April of 20 1999, I was just thinking of starting Pabrai Funds, right?
50:07
They looked at it and they said, "This is perfect for you.
50:10
This is going to work extremely well for you."
50:14
In fact, one of them invested.
50:14
He's one of the first investors who came in.
50:17
He was so He put his skin in the game.
50:19
He was like, "I'm going to do it." 2,000 to do this.
50:20
You're giving me 100,000.
50:22
I really don't want to lose your money."
50:24
They said, "I don't have any doubts, Mohnish.
50:30
You're going to do very well.
50:30
So, I don't see any risk here, right?"
50:32
And he did extremely well.
50:35
Uh and so, uh they were actually right because now it's been 26 years since I've been running it and I haven't got bored.
50:43
So, what did your owner's manual say?
50:45
So, they said, "Don't like that."
50:47
My owner's manual basically said that um well, first of all, they said that I had very high horsepower, right?
50:53
And they said that I was one of the smartest guys they'd come across, etc. , which was great.
50:59
But they said that you are a guy who likes to play single-player games.
51:04
Uh 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.
51:15
They say you do They say you seek out games which are single-player games where you think you have some edge.
51:24
And when you think you have some edge and it's that sort of game, you will kill it.
51:27
And actually, what I've noticed is like, so for example, I got banned in Vegas playing blackjack, right? Okay.
51:34
I I got to know this story.
51:36
I I figured out a system which basically beat them. Okay? Counting cards? What were you doing?
51:43
And actually did it without counting cards, right?
51:45
And and in fact, it it took the casino almost a year of watching me.
51:50
So, I used to go every like 6 weeks or something, and they played those tapes over and over because uh the markers that they look for were not there.
52:02
And uh but we'll talk about that in a second.
52:04
So, what I'm saying is that So, what are the games I like? I I like blackjack. I like bridge. Mhm. I like investing.
52:13
And even Dakshana for instance, the Dakshana Foundation, that's also a game, right?
52:18
Uh these are That's your philanthropy.
52:20
Yeah, but they're all mathematical games.
52:22
Even Dakshana is a mathematical game because what I'm looking at is input-output ratios.
52:25
People think People think I'm doing all this good in the world and all that.
52:29
What they don't understand is I'm a game player, okay?
52:33
And what I'm trying to do with Dakshana is how much money is going in and what's coming out, right?
52:38
And that's the only thing I'm focused on is what's going in what And what what ended up happening with the entity like Dakshana is you know, Warren Buffett wrote me a letter saying that this is the best, right?
52:48
I mean, like he took the time to write the letter like this is the best, okay?
52:52
He never done that for any philanthropy that he's looked at.
52:56
And the reason is because there's a game player who's not focused on, you know, name and lights or bunch of fancy pictures in the annual report.
53:05
We have no pictures in the annual report, you know, it's just like the Berkshire report, right?
53:07
But it's it's about an honest input to output singular.
53:13
So, what I did is every year that we ran Dakshana Well, explain what it is. I don't even know.
53:18
If you take a step back and say, "Okay, I want to give money away to make the world a better place."
53:24
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?
53:33
So, social return on invested capital should be extremely high.
53:37
Now, most nonprofits don't even think this way. They're all heart.
53:41
There's a homeless guy, let me help the guy, right?
53:45
They don't really do an analysis of, okay, what is going in and what is coming out.
53:49
So, I ran into this model this guy was running in I think in 2006 I ran into it where he was taking 30 kids who were very very poor in India in in Bihar and most of these kids were coming from illiterate parents etc.
54:05
but they have very high IQs.
54:09
And he prepped them for about 10 months and he had them take the IIT entrance exam.
54:15
The IITs are the you know the they're the best uh uh technical institutes in the world.
54:20
And uh now the thing about the IITs is that there's about a 1.
54:24
3 million uh kids applying for 16,000 seats. It's about a 1. 3% admit rate, okay?
54:38
Princeton is about a 5% admit rate.
54:41
Harvard is about 5 or 6%. This is 1. 3%.
54:44
And if you get into the IITs, it's basically free to attend.
54:48
The government subsidizes it.
54:49
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?
55:00
And but getting in is expensive because the coaching is expensive.
55:03
So, what this guy had done is he had made the coaching free for these very poor kids.
55:09
And now what was happening is you had a family that was making $60 a month, let's say.
55:18
And the kid graduates and Google hires him for 120,000 a year. Okay?
55:21
I mean, you know, the the transformation and in 5 years the guy is making 300,000 a year, right?
55:28
And so that just a tap and he was spending $800 per kid.
55:31
On the training, the person test prep.
55:34
So, you spend $800 and you take a family from $60 a month to $10,000 a month. Right. Okay.
55:42
I mean, what's the ROI on that?
55:45
And you're going to do that for this whole lifetime and you're going to reset the extended family and all of that.
55:50
It's a The ROI is off the charts, right?
55:52
So, when I saw that, I said, "Wow, this is the holy grail."
55:56
So, I went to the guy and I said, "I'd like to fund you." Right?
55:58
He said, "I don't want to scale. I do 30 kids.
56:02
I don't want even 31 kids.
56:04
I don't want to take outside money, none of that."
56:05
So, I'm the shameless cloner.
56:09
So, I told him, "Do you mind if I clone your model?"
56:11
He said, "No, this is a very good thing.
56:12
I think you should clone it. It'd be great.
56:14
I'll help you in any way I can."
56:15
So, I took his model and that's what Dakshana is.
56:19
So, we we are spending Dakshana spends about three or four million dollars a year.
56:26
Just imagine what the output of that is.
56:30
You know, when when you look at it from each family and then you and we're doing three, four million.
56:35
We've been doing it for 17 years.
56:37
So, basically what we get out of three million dollars a year, a lot of other nonprofits would not get out of you in a hundred million a year. Right.
56:47
So, we actually uh you know, have a footprint that is much larger than what it should be in terms of impact. Right.
56:55
And to take it back, it's a math game. Right.
57:01
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.
57:11
3% of the kids who apply.
57:15
They accept 70% of our kids. That's amazing.
57:20
So, now what I'm doing is I have a game which puts two models together.
57:24
So, one day before I die, I want to have $10,000 left.
57:33
Okay, so basically inheritances just don't do much, right?
57:35
I mean my kids already have they're doing well.
57:39
Yeah, what is your philosophy on that?
57:40
In general, large inheritances are going to do more harm than good.
57:45
And you know, basically you don't want a person to be on a IV drip for their whole life.
57:50
I mean that's just the worst thing you can do to someone. Right.
57:54
And so Buffett has a great quote.
57:54
He said, "I want to give my kids enough money for them to do anything they want, but not enough to do nothing." Okay. Okay.
58:04
So, because I am investing for a living and we have this kind of compounding going, uh I'm going to end up with more than I need.
58:13
I mean, basically I don't need to spend any more than I'm spending.
58:15
I could not increase happiness by spending more, so there's no point to spending more.
58:21
I mean, I'm very happy with the with the lifestyle and everything else, right?
58:25
So, everything else basically needs to get recycled.
58:28
But it needs to get recycled at high returns.
58:30
So, on one hand, I have a compounding engine and a net worth that's growing.
58:38
On the other hand, I have to give it away.
58:39
So, God Google told me that on June 11th, 2054, I'll be leaving planet Earth. Okay? So, You you asked AI? What what did you do?
58:53
If you if you if you if you go to God Google and just say, "Hey, I'm you know, 52 years old and tell me when I'm going to die." He will tell you. Okay?
59:03
And now that we have the date, so what you know, my birthday is June 12th.
59:07
Just to make it poetic, I made it June 11th. Okay. Okay.
59:10
So, we have an exact the number.
59:12
So, basically, uh 2054 means I've got like 29 years and change left, right?
59:19
Um and at any kind of compounding rate, it's a ridiculous amount of you know, uh assets that get built over the time, but I want to end on June 10th with $10,000.
59:29
Okay, so there's one game which is to give it away.
59:34
And the other game is to make it.
59:34
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.
59:43
So like the 3 million a year needs to go to 5, 10, 15 eventually and so on.
59:50
And so for me, you know, it's the same as playing blackjack. It's just a math game.
59:56
These are both math games, right?
59:58
And yeah, there are a lot of families getting helped.
1:00:00
And my investors are happy, and so then that's fine.
1:00:05
Okay, so what was your blackjack system? I'm I'm skeptical.
1:00:08
So the the blackjack system it would destroy the casino.
1:00:13
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 what's going on here.
1:00:20
There's a publication called bj21, bj21. com.
1:00:23
Okay, we're going to bj21. com.
1:00:27
And you give them a 100 bucks.
1:00:29
They going to give you a PDF.
1:00:29
It gives you the odds of every blackjack table in North America. Okay?
1:00:37
So for example, if I go to the Wynn Las Vegas, right?
1:00:41
The Wynn Las Vegas has a bunch of different blackjack games, single deck, double deck, six decks, whatever else.
1:00:47
Every single one of those it gives you the odds if you play perfect blackjack.
1:00:51
And these odds vary depending on how competitive.
1:00:57
So if I'm going to some, you know, riverboat in Indiana, I'm not going to get the same odds as Vegas.
1:01:02
Vegas strip is going to be more more efficient because it's more competitive.
1:01:07
Uh so usually the house will end up with something like a . 3, .
1:01:12
4% all the way to like 2% edge edge over the over the better.
1:01:20
Which means every bet you're making, if you make a $100 bet, every bet you're making you're losing a 50 cents or whatever.
1:01:25
So, there's a casino in Vegas called the El Cortez.
1:01:30
And the El Cortez is a small casino.
1:01:30
So, in order to kind of induce people to come, they kind of improve the odds.
1:01:37
Okay, still in their favor, but the single deck game at the El Cortez has the thinnest house edge of any blackjack table on the planet. Okay. The house edge is 0. 18%. Okay?
1:01:56
So, if you look at a BJ 21, if you look at all the all of the they have the edges of every table, this one is the is the lowest, right?
1:02:04
So, this is a very thin and and I have a system where which took them a long time to figure out.
1:02:13
They play single deck blackjack, right?
1:02:15
But they only deal half the deck.
1:02:17
Right, then they shuffle.
1:02:18
So, the reason they deal half the deck is so they they can uh just make it difficult for the counters.
1:02:24
Because you may be counting cards, the deck becomes very favorable, but then they shuffle. Right. Right?
1:02:30
So, you you the the high cards are the back, but they never get dealt.
1:02:34
So, the counters get screwed, right?
1:02:34
Uh so, I I had a system where it basically relied on the fact that blackjack occasionally has streaks.
1:02:43
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.
1:02:54
And what I did in the betting was that usually when I was losing, it was always the minimum bet. Mhm.
1:03:01
And when I when I was winning, the bets were increasing.
1:03:03
So, with the variance of that, what happened is I was able to overcome the 0. 18. 0. 18. Right. Right?
1:03:11
So, I don't want to go more than that. That gives you enough.
1:03:15
And what I'm going to do is when the cameras turn off, I'll explain it to you. Okay, great.
1:03:19
So when you go to next time when you go to the hotel, 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. Minimum bet, yeah.
1:03:36
In my case, there was a brand new shoe, there was a high bet.
1:03:40
So they said we just shuffled. Right. The whole deck is there.
1:03:42
There's no odds edge he has on that deck because the entire deck is there. He has a high bet.
1:03:50
Did they ever figure it out or did they just Okay.
1:03:53
It took them So what happened is I'm playing blackjack, the general manager who was very friendly to me comes and sits around next to me and tells the dealer stop dealing. Okay?
1:04:01
So she's in the middle of a hand, she just continued dealing.
1:04:03
She He says he screams at her stop dealing now.
1:04:05
She had never heard that before.
1:04:10
Okay, like literally middle of the night she said she said shuffle. Right. We're done.
1:04:14
We're not dealing anymore.
1:04:15
Then he tells me that Mr. Purbrai uh I like you. Okay, I read your book. I watched your videos.
1:04:23
And you have a system that we cannot beat. Right.
1:04:30
So I said I I told him I said you know you know I'm not counting cards.
1:04:35
He said that's what threw us off.
1:04:37
He said we know you're not counting cards.
1:04:40
And we know you'll beat us.
1:04:42
And so you can come to this casino anytime you want.
1:04:45
But you cannot sit down at a blackjack table.
1:04:47
Then I'm thinking why would I come here? Okay, why?
1:04:52
I'll go to the hotel if I'm not going to play blackjack. And so that was it.
1:04:56
But you know, whenever I like I go someplace to talk or something and you know they're introducing me.
1:05:01
I always tell them listen just say that I have a lifetime ban in Vegas.
1:05:06
Yeah, I mean street cred through the roof.
1:05:09
I really don't care about everything else on my CV.
1:05:11
That's really irrelevant. Yeah.
1:05:14
And that's what's relevant.
1:05:16
It's just like if you you get into Harvard, wow, that's impressive.
1:05:19
You're a Harvard dropout, that's the higher status signal.
1:05:23
And so you're good at Blackjack, made money in Blackjack, I was banned from a casino, that is the highest status.
1:05:30
Yeah, so I I I mean I I took them for like about 150,000 or something.
1:05:32
And and and you know, this was a very low table limit. Right.
1:05:36
The table limit was only 2,000.
1:05:39
But at 2,000 I took them.
1:05:39
So they they said, "Okay, we're done." You know. I love it.
1:05:44
You you've run into all these characters.
1:05:45
We've talked about Warren, we've talked about Charlie, but I want to know about some of the other characters.
1:05:48
Your stories are amazing.
1:05:48
I could listen to your stories all day. So uh Michael Burry.
1:05:54
One of my favorite movies is The Big Short and Michael Burry is this kind of mysterious character.
1:05:59
Did you ever meet Michael Burry?
1:06:03
what you're going to end up when we finish this conversation is you're just going to know that my middle name is Forrest Gump.
1:06:07
Okay, that's really where we're going to end up.
1:06:10
So you know, I always tell people that God loves me.
1:06:15
He loves me more than other people and I'll explain why, right?
1:06:18
In 2008, okay, so the financial crisis is not yet happened.
1:06:22
It's like March or April of 2008, right?
1:06:25
So things are getting topsy-turvy, right?
1:06:30
And uh I was visiting San Jose for some something I was going to San Jose.
1:06:35
And I knew Michael Burry had an office in San Jose.
1:06:40
And I didn't know him, but I sent him an email saying, you know, "Mr.
1:06:42
Burry, I'm I like you, admire you, etc."
1:06:45
and uh I would love to visit you.
1:06:49
So he was kind of well known?
1:06:51
He was not very well known, but he was he was like posting on Value Investors Club and things like that.
1:06:55
He was like he was there a little bit.
1:06:56
And and I liked the way he thought, you know.
1:07:01
And uh he said, "Why don't you stop by?" Okay.
1:07:03
So um I I go to I go to his office in um in San Jose and there's a few kind of analysts sitting outside.
1:07:14
It's a very kind of a seems like a very depressing place, okay?
1:07:16
And there are a few it's kind of a little dark and there's a few analysts there.
1:07:19
And then I go into the office.
1:07:23
And there's huge piles of paper everywhere.
1:07:26
And he immediately launches into CDSs, okay?
1:07:31
And he says, "Look, Mohnish, I want to tell you something about something that's going to make you extremely wealthy." Okay?
1:07:36
And he then downloads to me at 1 million miles an hour.
1:07:44
I've never heard of a CDS, okay?
1:07:44
And he's talking about housing crash and the coming implosion and all this stuff, you know?
1:07:51
And housing's never crashed, okay? In the US. None of that.
1:07:54
And 80% 90% what he said went straight over my head, okay?
1:08:00
Like he was just he just gave me a full core dump in half an hour.
1:08:07
My subhuman intelligence couldn't handle it. Okay, I couldn't.
1:08:12
And you know, so I come out of the meeting, my head is spinning.
1:08:14
And I say, "Okay, well, that was interesting." Okay?
1:08:18
And then, you know, of course he rides off into the sunset, right?
1:08:21
And then the movie comes out, right?
1:08:23
And then he's exactly like they show in the movie, right? That's how he is, right?
1:08:29
And 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, right?
1:08:40
The best teacher to have.
1:08:44
And the idiot Mohnish blew it.
1:08:48
But that's the way it is, you know?
1:08:51
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 Well, I mean I think I think this has happened to me a lot.
1:09:05
I mean in the sense that like I said, you know, we put 98, 99% on two hard pile, right?
1:09:12
Even now, I think it was right of me to not do anything with it because I couldn't understand it. Right.
1:09:17
Even after the financial crisis, it took me a while to understand the CDS's. Right.
1:09:22
And all these tranches and how they were like doing all this stuff and all that.
1:09:25
I mean, that took me a while to like really get my arms around that.
1:09:26
And even after knowing all that, I've been skeptical about that bet. So, hats off to him. Right.
1:09:33
I mean, he figured it out.
1:09:33
A few people figured it out, but it was a very small number of people who figured it out. Right. You know.
1:09:39
Um tell me about the greatest investor from India.
1:09:43
Who is the greatest investor from India?
1:09:45
Well, the greatest investor from India would be Rakesh Jhunjhunwala.
1:09:48
I never I never met Rakesh.
1:09:48
I mean, I I know his friends uh quite well. Guy actually met him.
1:09:53
Guy actually went to his office and and uh and met him. Uh wonderful guy.
1:09:57
Died relatively young Mhm. few years back.
1:10:02
But uh Rakesh was a very interesting kind of split brain in the sense that he'd have like three or four Bloomberg screens in front of him and he had all these charts and everything going on.
1:10:13
Rapid-fire trading going on.
1:10:13
But on the other hand, he had these two or three stocks that he never touched.
1:10:20
So, he had I mean, I I I don't know anyone like that. Who's Okay.
1:10:24
Who's And he was great at both, but the ones that he never touched, I mean, they just went through the roof.
1:10:31
Like there there's a company in India called uh Titan Industries.
1:10:32
And Titan Industries uh does uh branded jewelry.
1:10:39
Branded jewelry basically didn't exist in India, you know. It was all mom-and-pop. Yeah.
1:10:43
Uh and there was a trust deficit, right?
1:10:45
So, you go to a jeweler in India, and in India they have like 22-karat gold, right?
1:10:49
And you're buying the gold, you don't know whether it's half gold, 80% gold, or what the hell's going on, right?
1:10:54
The The knows, but you don't, right?
1:10:57
Uh the the the Titan brand is owned by the Tatas who are very high integrity.
1:11:01
So, basically they were able to take a a sector which had a huge trust efficient uh deficiency and um I mean they've I think Titan is still in its infancy. Right.
1:11:14
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.
1:11:23
And you know, he started with like uh $10,000 borrowed.
1:11:28
You know, didn't didn't even have that on his own.
1:11:29
Someone lent him the money. What made him great?
1:11:31
Was he a brilliant mathematical mind?
1:11:32
Was he you know, cuz what was the trait that really helped him?
1:11:36
I think what So, he was a trained uh CPA.
1:11:40
India's equivalent CPA chartered accountant.
1:11:42
So, he obviously understood numbers well.
1:11:44
And just before he died, so he had figured out that uh Indigo, which is a low-cost carrier in India, they have like something like 70% market share growing really rapidly.
1:11:57
It might become the largest airline in the world.
1:11:58
I mean they've got like Wow.
1:12:00
1,000 planes on order or something.
1:12:02
Okay, so they're they're growing very fast.
1:12:05
He had done well as an investor in Indigo.
1:12:08
But then he took the next step.
1:12:08
And he set up a clone of Indigo.
1:12:10
I mean just think about the the guts you need to set a bloody airline.
1:12:16
Okay, from being a passive investor.
1:12:18
And while he was dying, you know, he was like in bad shape in hospital and all of that.
1:12:22
And that uh airline's up and running and cranking and all of that and uh doing great.
1:12:29
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.
1:12:41
Yeah, he said something like if he had lived longer this idea of like runway and how early you start Yes. matters a ton. Yes.
1:12:49
Um even Buffett, I think you've said that if had he not been giving away so much money along the way wealthiest guy. Yeah.
1:12:57
He'd be the wealthiest guy in the world in the world right now. Yeah.
1:13:00
And um, you know, I guess when you think when you go talk to people are you just sort of like you know, you should have started 30 years ago.
1:13:07
Is that the number one message?
1:13:10
what we started our conversation with, right?
1:13:12
I think the important thing is that if there's a young person listening it's really important that they start you know, the funny thing is that if you look at the rules for a IRA or a Roth IRA there's no minimum age.
1:13:32
Um, you could be 6 months old and have an have an IRA. Right.
1:13:37
The only rule is that you can only put in wages that you earn.
1:13:41
And I was just reading the Wall Street Journal.
1:13:44
There's some entrepreneur who's hired his kids who are like 4 years old and like 6 years old to do like different things in the business because he's putting like 6,000, 7,000 into their Roth IRAs. Right.
1:14:01
Which is equal to their W-2 earnings, right?
1:14:03
I'm probably stretching the limits of what he can get away with with the IRS. That's beautiful.
1:14:10
I mean, the thing is that but but even if you're not doing that, if you start at 22 I mean, that's the important thing is that when you when you start earning at 22 a small amount saved at 22 is more important than a larger amount saved at 32. Right?
1:14:27
Because you get started earlier. Right.
1:14:29
So, it's really important to have the whole spend less than you earn and put it into Berkshire. Set it and forget it. Right.
1:14:37
Uh, yeah, because then then if you start at 22 and you're 22 today you're going to live over 100. Right.
1:14:44
You know, you're going to go to 100, 110 by the time, you know, with all the advances taking place. That's a 90-year runway.
1:14:52
I mean, a 90-year runway is something, I mean, if you're talking about a even a 10% return, uh we are only going to look at doubles, right?
1:15:01
So, every 7 years, that's 2 to the power of 13.
1:15:06
2 to the power of 10 is a thousand.
1:15:08
That's 2,002 That's 8,000 X.
1:15:12
Okay, the first 10,000 you invested is at 8 million. Right.
1:15:16
The second town 10,000 is another eight 8 million.
1:15:19
You know, so the thing is, it's a mind-blowing amount of money if you start early.
1:15:24
So, the length of the runway is really important.
1:15:28
Do you pay attention to the macro?
1:15:29
Because, you know, my head starts to spin.
1:15:32
It's interest rates, and then there's wars, and there's all these different factors that you could pay attention to.
1:15:37
And there are some people who really pay attention to that.
1:15:39
Do you pay attention to the macro?
1:15:41
I can't handicap, and uh I wouldn't know what to do with the information.
1:15:44
So, I always try to keep the bet simple.
1:15:45
I need to be able to explain to a 10-year-old in five sentences. Right.
1:15:51
I'm not going to be able to figure out the macro.
1:15:52
That's why I couldn't make that CDS bet. Right.
1:15:55
You know, it was like so much stuff going on about the housing's going to crash, this is going to happen, that's going to happen.
1:15:59
I mean, I just couldn't get my arms around it, you know.
1:16:03
In my world, everybody's talking about AI.
1:16:04
Do you think about AI at all?
1:16:06
The The problem is I bring nothing to that party. Mhm.
1:16:09
And I'm probably going to get my head handed to me if I try to participate.
1:16:13
It's not in the no-brainer category.
1:16:16
It's not something where I have an edge.
1:16:18
Of course, I do believe that it's transformational.
1:16:23
But, you know, I knew the internet was transformational.
1:16:25
Uh we've known electricity is transformational.
1:16:27
We've known the App Store is transformational.
1:16:31
But, in investing, you can do extremely well without understanding all these things.
1:16:37
You go back to John Arrillaga, you know, don't understand any of these things. Or even Warren Buffett.
1:16:41
And and you know, Apple Apple is in the rearview mirror.
1:16:44
They've they've sold most of it. Yeah.
1:16:46
And they might have sold all of it by now.
1:16:47
But uh but basically uh that was a one and done.
1:16:50
But basically, yeah, I think that we don't need to understand flavor of the day.
1:16:58
We don't need to understand Nvidia. Mhm.
1:17:01
We don't need to understand AI.
1:17:03
Uh if you understand it, more power to you. That's awesome.
1:17:06
And if you know how to leverage your understanding into dollars you can make, that's even better. But that's not me.
1:17:11
So, we all have to play to our strengths. Yeah.
1:17:17
Okay, well, Manish, this is uh been incredible.
1:17:18
Part two, uh I'm happy with it.
1:17:21
This is I I asked you at the beginning, I said, "Is this like one of those Hollywood sequels where the first one was incredible and the second one they just they just did it?"
1:17:27
But no, I think we did a good job.
1:17:29
I think the sequel was, if not better, at least as good. No, I it was fun. I enjoyed it. It was awesome. Awesome. Thanks for doing it. Okay, thank you.