Mohnish Pabrai: How to be a top 1% investor

- May 22, 2026 (about 7 hours ago) • 01:45:32

Transcript

Start Time	Speaker	Text
00:00	Shaan Puri	What percentage of Americans who invest in stocks do you believe are good investors?
00:04	Mohnish Pabrai	Well under 1%. The game we are playing is transferring wealth from the active to the inactive. If you have that type of temperament, it is orgasmic activity, okay. If you are even a slightly above‑average investor, you can't help but get rich over a lifetime.
00:22	Shaan Puri	"What's the mistake that smart people are making?"
00:24	Mohnish Pabrai	> "Many people die at 25 and are buried at 75." I saw Charlie make investments six days before he died.
00:33	Shaan Puri	This is like life advice disguised as investing advice. Yeah — just a quick reaction: bullish or bearish on the S&P index right now?
00:41	Mohnish Pabrai	Bearish
00:42	Shaan Puri	"AI, how do you think about it as an investor?"</FormattedResponse>
00:44	Mohnish Pabrai	Invest in the pickaxe makers, because the Alphabets and Metas of the world are playing a game they haven't played before.
00:50	Shaan Puri	So, I want to ask you the hardest question, which is this: Monish Pabrai — he manages over $1 billion in investments, he's friends with Warren Buffett and Charlie Munger, and he is an absolute sage, a wealth of wisdom when it comes to investing. We're lucky enough to sit down with him and learn from him some of the best frameworks for investing. I call them the Ten Commandments of Investing. Monish, round three — here we are, elevated as always. We're on the pitch. "What percentage of Americans who invest in stocks do you believe are good investors?" </FormattedResponse>
01:31	Mohnish Pabrai	Well under 1%, but the good...
01:33	Shaan Puri	"And why is that?"
01:34	Mohnish Pabrai	But the good news is: a large number of investors invest in index funds.
01:39	Shaan Puri	Right.
01:41	Mohnish Pabrai	Index funds give you a great return without doing any work. You don't need to be a rocket scientist or understand businesses or any of that, and you get a pretty good outcome.
01:54	Shaan Puri	"Are you counting them in the 1%, or are you saying that's...?"
01:56	Mohnish Pabrai	A separate—no. I'm talking about the ones who are actually picking stocks. I'm just saying that you can take the approach of buying an index fund, and you'll be ahead of over 90% of the crowd, which is awesome. I mean, just think about doing some activity that takes no brain cells and getting into the top 10%.
02:16	Shaan Puri	Right.
02:16	Mohnish Pabrai	But if you decide that you want to actually study businesses and then invest in them after studying them, in that universe of people doing that there'll be a very small sliver who would do well with that.
02:31	Shaan Puri	Yeah — what's the mistake that smart people are making when it comes to investing?
02:35	Mohnish Pabrai	It's not a mistake; it's a lack of patience. Most of the nuances that lead to a great investment result have to do with temperament. They're not related to IQ or other things, but they have to do with temperament. It all comes back to watching paint dry. When we make an investment in a company, nothing may happen for three years or five years. It's just the nature of the beast — it may not do a whole lot for a while. Also, sometimes — in fact, many times — you make an investment that's a mistake, and you need to, at some point, reverse that mistake. So there is activity needed, appropriately. But basically, the less the activity, the better the outcomes.
03:30	Shaan Puri	You gave me one of the commandments — one of the truths about investing is: "Thou shall enjoy watching paint dry." Yes. I asked — I called your daughter in research for this podcast because I knew you were very into mental models and these frameworks of ways of thinking that produce benefits. I said, "What's one that he loves?" and she said, "The mistress is always hotter than the wife." So, explain.
03:52	Mohnish Pabrai	I didn't want to say that in front of my daughter. Unfortunately, I did.
03:56	Shaan Puri	That was the first one she mentioned.
03:59	Mohnish Pabrai	"Yeah. So what we own is the wife — we live with her every day. What we don't own is the mistress."
04:10	Shaan Puri	Right.
04:11	Mohnish Pabrai	The unknown has exciting attributes. One of the things we have to keep in mind is that the wife is someone we know extremely well, and we may be discounting some great attributes she has. The mistress is someone we don't know very well; she just looks hot.
04:36	Shaan Puri	Right.
04:36	Mohnish Pabrai	We don't know all the other nuances about her — temperament and other things. It's very tempting for an investor to say, "I own this company, but I think this other company which I don't own is better and I should make a swap." My friend Guy Spier says that he's very reluctant to take any action on his portfolio, and that "not being interested in taking action can give you a huge leg up." So sometimes we do need to take action, but in general you have to really be convinced — pretty unequivocally.
05:17	Shaan Puri	Right.
05:18	Mohnish Pabrai	"That the mistress is truly hotter."</FormattedResponse>
05:20	Shaan Puri	Right. </FormattedResponse>
05:21	Mohnish Pabrai	Right — and not just an appearance of being hotter. That is a difficult nuance to actually master in real life. </FormattedResponse>
05:31	Shaan Puri	The idea of the "wife versus the mistress" is: you have to have a very high bar for action. It's not that there's no action; it's that the bar needs to be very high to have the conviction level you need. You must become comfortable passing on everything below that bar. I think, in general, most of us would do well to raise our standards about all things in life: the people we're around, the investments we make. Exactly — this is actually like life advice disguised as investing advice. Yeah, right. </FormattedResponse>
05:56	Mohnish Pabrai	"My dad used to say that, 'to have a great life you need one good wife and one good friend.'" And so, less is more. Buffett says that, "if you hang out with people better than you, you get better. If you hang out with people worse than you, you get worse. There's a gravitational pull either way." So the good news is we don't need many of these. What we should be doing is trying to make sure that our relationships are with people we have deep admiration for.
06:28	Shaan Puri	Mm-hmm.
06:28	Mohnish Pabrai	People who can make us rise.
06:31	Shaan Puri	Right.
06:31	Mohnish Pabrai	And I feel that, you know, I randomly stumbled onto investing. I'd never been in this field, etc. And I remember—there's another mental model which is a very powerful model. </FormattedResponse>
06:44	Shaan Puri	Alright, let's take a quick break because I got a little freebie for you. If you're listening to this episode and you like what Manish is talking about, you might be like me: you're trying to take notes and remember the principles he's discussing. The guy is a wealth of knowledge when it comes to investing. The fine folks at HubSpot listened to this episode. They took the transcript and laid out the nine principles he talks about, along with the examples he gives. They put it all in a PDF for you, so you don't need to take notes — they did it for you. You can read that and learn from it; it's a much better way to get more value out of these episodes. It's in the show notes below. Just go download it and enjoy.
07:16	Mohnish Pabrai	Charlie used to talk to me about "introducing randomness in your life." </FormattedResponse>
07:19	Shaan Puri	Introduce randomness... your... and...
07:22	Mohnish Pabrai	Just to tell you the impact that had — which I didn't even understand when it happened in 1994. I was at Heathrow Airport with my wife, looking for something to read on the flight back. I picked up one of Peter Lynch's books, "One Up on Wall Street." I had never invested in a stock, wasn't really interested in investing, and didn't even know much about it. I read the book and loved it. I'm an engineer running an IT company, so I thought, "I want to read more of this." There was another Peter Lynch book, "Beating the Street." I read that and loved it too. After that, there were no more Peter Lynch books, but in one of those two books he talks about Buffett — and I had never heard about Buffett. So I decided to find out about this guy. I was very lucky: the first couple of biographies on him had just come out the year before, and I read those. That led me to the Berkshire letters — the partnership letters — and a huge world opened up. I started to invest using that approach. I had been doing the Buffett investing and really kind of overdosed on it. In 1997 the thought came to me: should I go to the annual meeting? I was thinking, "The transcripts get published and all of that. I don't know anyone, and I have young kids," so I was very much on the fence about going. In the end I decided, "Let's go. Let's see what the hoopla is all about." The annual meeting opened up another big world. Now some of my best friends are folks I met in Omaha. Reading the Peter Lynch book introduced randomness, and one thing I came to realize — and tell people when they go to the annual meeting — is that when you're flying to Omaha on a Friday, the two people sitting next to you are both going to Omaha for the meeting. They're both above-average humans, so just start talking to them.
09:26	Shaan Puri	Right.
09:26	Mohnish Pabrai	Right, because it's not the average person going there, right?
09:30	Shaan Puri	Pre-filtered.</FormattedResponse>
09:31	Mohnish Pabrai	And so, when I look back now on my life, so much of it has come from the whole Buffett orbit. What I realized is when I got to know Charlie Munger and I started playing bridge with him, I got to know Charlie's friends. I used to have dinner with him, and one by one I met a bunch of his friends. Charlie's friends were some of the highest-quality people I've ever met. They were much older, but I worked on building those friendships, and that was such an awesome thing.
10:04	Shaan Puri	Right.
10:05	Mohnish Pabrai	And literally every time when I talk to some of these guys, the way the conversation was, I said, "Wow — you know, hang out with people better than you. Introduce randomness." This is what Munger calls the latticework of mental models. When you start putting these things together and using them all at the same time, that's when one plus one becomes 11. If you put four models together, it's "one + one + one + one" and it can be over 1,000. That's when you start getting what Charlie calls lollapalooza effects, and that's when you get a huge leg up on humanity. There are other people who may be a lot smarter. Other people may work a lot harder. Let's take Elon, for example — I forget what he called it, the "idiot factor" or something.
10:55	Shaan Puri	"Idiot Index."
10:56	Mohnish Pabrai	Idiot—yeah, the "idiot index," right? That's right. So what he says is: "They look at some part that they need and they'll say, 'Oh, this part is $5,000.'" Then Elon asks them, "What are the materials that go into this part?"
11:11	Shaan Puri	Raw material.
11:12	Mohnish Pabrai	Raw materials — yeah. And what is the price of the raw materials on the London Metal Exchange?
11:18	Shaan Puri	Right.
11:18	Mohnish Pabrai	Okay, and they'll calculate that and say, "It's $270." So then they'll say, "We're going to make it ourselves, and we're going to make it for $500."
11:32	Shaan Puri	Right.
11:32	Mohnish Pabrai	Right. So the thing is that none of his competitors think like that. None of them have this "idiot index." Without that, there's no Tesla. There's no SpaceX. There's nothing—no Boring Company.
11:46	Shaan Puri	Any of that?
11:46	Mohnish Pabrai	So, it's one of those core—foundational models. But the other thing about humans is that Boeing is aware of this model, and all the car companies are aware of this model. It's not in their DNA.
12:00	Shaan Puri	Right.
12:00	Mohnish Pabrai	This is not how they think. They're not going to adopt it. So, the other thing—another mental model to understand—is humans are very poor at cloning. They all understand that Elon has "kicked their ass." They also understand why he kicked their ass. Yeah, they know everything; he's an open book. Okay. You talk to people.
12:19	Shaan Puri	"They literally publish the book, right?"
12:23	Mohnish Pabrai	What you need to do is also known, but after knowing all of that there is no movement toward that. Right? There's no movement.
12:32	Shaan Puri	By the way, we wouldn't be here right now if not for cloning. The story of this set right now is that my friend Chris Williams said he did a podcast here. He sent us a video and was like, "I'm doing this crazy shoot — LED wall, 3D, got this film crew here..." I thought, "Wow, that looks cool," but my first reaction was, "Buddy, it's a podcast. What do we do? What are we doing? Does anyone really care if it's in IMAX 4K? Does that really make a difference?" It seemed like a lot of effort and a lot of cost, so I sort of wrote it off. Then it comes out. The first time I clicked — or, even before I clicked, when I saw the thumbnail [video thumbnail] — I was like, "Wow, that looks different." I clicked because I'm a lizard-brain human: if something is different and interesting, I click it before I even think. I started watching, and it's interesting and entertaining. So immediately I recognized my mistake. I had thought this was not important. It turns out, actually, this is important.
13:32	Mohnish Pabrai	So, you had to travel a little bit — in the sense that your first reaction was to stay in your comfort zone.
13:40	Shaan Puri	Right.
13:40	Mohnish Pabrai	"Right, but the second leap you made—which is, after seeing it, you acted. So, moving from admiring it to acting on it is a huge leap."
13:51	Shaan Puri	Right.
13:52	Mohnish Pabrai	It's like 90% of humans will not do that, right? So Sam Walton — not that smart a guy. Okay, hardworking, founded Walmart. Yeah, very hardworking, all-American, but not that smart, okay, and no original ideas, okay. Every single thing at Walmart came from somewhere else. Everything was copied. He goes to meet Sol Price, who's the founder of Price Club, which is the predecessor of Costco. He meets Sol Price and he looks at Price Club and he says, "no brainer." He sets up Sam's Club, okay, and Price eventually sells to Costco. And so now we have Costco and Sam's, right? And Sam Walton would tell you in ten lifetimes he could never come up with the concept of a Sam's Club.
14:44	Shaan Puri	Right.
14:44	Mohnish Pabrai	He could not come up with the concept of a Walmart. Walmart came from Kmart. Sam Walton said: > "There is no human who has come before me who has stepped into more retail stores of my competitors than I have." </FormattedResponse>
15:02	Shaan Puri	Right.
15:02	Mohnish Pabrai	And no human after me will ever beat that record. Okay. Anytime he traveled anywhere—even when he was on vacation with his family—if he passed a retail store he'd stop the car, tell his family, "Hang on here," do a fifteen- or twenty-minute tour of the place, then come back and make notes of what he saw. One time he took a bunch of his managers into a neighboring competitor's store. They came out of the store, and one of the managers said to him, "Sam, that was such a poorly run operation; it was a mess compared to Walmart." Sam replied, "Yes, but did you see the candle display? The candle display was fantastic."
15:43	Shaan Puri	Finding the one golden nugget.
15:45	Mohnish Pabrai	So Sam said, "You can learn from anyone. You can learn from the biggest idiot operator." Sam would go early in the morning, like 5:30 AM, to the Walmart distribution centers with donuts. He'd sit down with the drivers because the drivers were going to the stores every day, and he'd ask them, "What do you see when you go in?" The drivers would tell him things like, "Well, at such-and-such store I saw the garbage; there was stuff thrown out that shouldn't be thrown out." Sam would make notes and then go fix all those issues. But what I'm saying is that everything at Walmart came from somewhere else.
16:23	Shaan Puri	Right.
16:24	Mohnish Pabrai	The reason cloning works so well is no one's willing to do it. Look at Tesla's market cap, and then look at the market cap of the next car company.
16:35	Shaan Puri	I believe it's more than the next fifteen car companies. </FormattedResponse>
16:37	Mohnish Pabrai	All of them combined—you can take the whole industry combined—they won't get there. If you look at Blue Origin and SpaceX, they have completely different approaches to how they do things. SpaceX wants to blow up rockets; their focus is to blow up rockets. Blue Origin focuses on not blowing [them] up.
16:57	Shaan Puri	Up rockets.
16:58	Mohnish Pabrai	Right, and he's miles ahead.
17:00	Shaan Puri	Right.
17:01	Mohnish Pabrai	And in fact, he's clobbered the industry — landing these things backwards and reusing them. People laughed at him for that, and he got it done.
17:11	Shaan Puri	I'll give you a story of two of your models combined. As you said, I wanted to introduce randomness. There was a time after I sold my first company when I was thinking about what to do next. I kept shuffling through ideas and couldn't figure out which one to pursue. I realized I was sitting in San Francisco, meeting the same people, talking about the same things, going to the same tech events over and over. I had this gut instinct: I needed to introduce more randomness into my life. I heard about an event called FarmCon — a farmers' conference in Kansas City — so I signed up. I went and I was the only tech guy there. I literally felt like a fish out of water: I was dressing wrong, I didn't know anything about farming, and when I got there I kept thinking, "I don't know what the hell I got myself into." I took Ben with me. They were talking about soybean futures — we didn't even know what soybeans were — so we were completely out of our depth. But it was a great way to just shake up the snow globe a little, to introduce randomness and serendipity. While we were there we met a guy named Kevin Van Trump. He owned the conference. I asked, "How'd you get all these people? How'd you get so many farmers to come? There are 4,000 farmers here and they all love you — how do they even know you?" He said, "I've been writing this newsletter for 20 years for farmers. Half of it is just memes, just funny jokes, because the farmers just want to laugh in the morning, and half of it is a letter about what's going on in the markets today for farmers." We left one of the conference rooms and decided to clone [the newsletter idea]. I had met you for the podcast and you had this great analogy about "who's the dumbest guy in the world." We decided that the dumbest guy in the world is the guy with the gas station across the street from the more successful gas station. You can be unsuccessful, but if you're staring at the gas station across the street and he's winning and doing everything right, and you're just not doing those things — that's on you.
19:00	Mohnish Pabrai	Yeah.
19:00	Shaan Puri	And so I'm sitting here. I'm watching Kevin van Trump, and he's got his newsletter for farmers. At this time, crypto had just started becoming very interesting. I said, "You know, Ben, what if we created a newsletter for crypto just like this guy's done for farming? We'll do it for people who want to keep up with the crypto news. It'll be half memes, it'll be half news."
19:17	Mohnish Pabrai	Yeah.
19:17	Shaan Puri	And let's do this: we'll just write the first edition tonight. So we wrote the first edition while we were there, and we named it something themed after the conference. It was called "The Milk Road" — like a dairy name. And in one year, we built the largest crypto newsletter in the world.
19:32	Mohnish Pabrai	Oh, great.</FormattedResponse>
19:32	Shaan Puri	And we sold it for millions of dollars and never hired an employee. We had one employee — it was the best business I ever did at the time, just in terms of simplicity. Yeah, and it was all because we strung together two of these models: introducing randomness and then cloning on top of that.
19:47	Mohnish Pabrai	I think that humans complicate things a lot. McDonald's had this whole big department on figuring out where to put the next McDonald's. Right? Location is very important. Burger King had two guys. They just looked at, "Where's the McDonald's going, right?" They would look at where McDonald's are going, and they'd put it across the... [sentence trails off]
20:04	Shaan Puri	Street, right?
20:05	Mohnish Pabrai	Right, and that was their model — phenomenal — because all the work's already done.
20:10	Shaan Puri	Right.
20:10	Mohnish Pabrai	Cloning gives you a huge advantage. Now, another bedrock model — I think no mental models work without this model — is take a simple idea and take it seriously. To me, none of the other models, cloning or not using Excel or anything else, works unless you buy into this first model. So you have to go all in. I made my first trip to Turkey purely on a limb, kinda like you going to the farmers' conference, just because it was seeming cheap. I just wanted to take a look at this market, which was seeming so cheap, and that was in 2018. What I learned is that the average Turkish public company cycles through its float every 17 days. That means, like, let's say a founder owns 40% of the company—the other 60%...
21:02	Shaan Puri	The shareholder base will turn over.
21:03	Mohnish Pabrai	Literally about 4% of the shares are trading every day. Every seventeen days you get a new set of shareholders. > "The stock market is a mechanism to transfer wealth from the active to the inactive." — Buffett This is hyperactive. If you look at something like Berkshire Hathaway and how frequently its shareholder base changes, it might be the slowest in the world — it could be ten years or more for the float. Here you have seventeen days. I compared Turkey and India. In Turkey, almost all the investors are gamblers and speculators: they want to buy at 10:00, sell at 3:00, and make 10% — that's their model. In India, out of 5,000 public companies, there are maybe 100–150 companies with good governance that are investable. A lot of research has been done on those by many smart people in India, and they've piled into those companies. They trade at stratospheric valuations — very expensive. I would look at a Coke bottler in India and a Pepsi bottler in India, and then a Coke bottler in Turkey — the valuation differentials were massive for the same business. I'd look at an airport operator in Turkey versus one in India: huge valuation differences again, because in India everyone was looking long term.
22:48	Shaan Puri	And so all of you are picking, like, poker tables to sit at?
22:50	Mohnish Pabrai	So, when you take the first model: take a simple idea and take it seriously. I said, "India—no, we're not interested." Okay. Even though I'm Indian, Turkey—I'm going all in. What I decided is to be an inch wide and a mile deep. I said, "I understand the nuances of the Turkish market. I want to study everything in here. I want to be the person—this is my Buddhist manual, right?—go through every single thing." What I found is whether it's a useless company in Turkey or a great company in Turkey, they're all cheap. So this is great—we'll focus on the great, right? And no one's interested. You've got all these people buying and selling shares, and so we were able to make some investments which we couldn't have made anywhere else in the world, at valuations we couldn't have made. Just the simple thing of taking the first model gives you an edge. So I think the mental model just carries so much weight that it makes your journey very light.
23:59	Shaan Puri	Right.
23:59	Mohnish Pabrai	Because they just carry the... they do the heavy lifting, right? And all you have to do is not violate them.
24:04	Shaan Puri	So I want to ask you about violating them, because sometimes I can see a world where they clash, or where the definitions get fuzzy. For example, one idea is "invest in your circle of competence," but with Turkey [the country] it wasn't your circle of competence—you sort of made it your circle of competence. In that sense, how do you think about that? It sounds like some of the best bets for you and others have been when you decide to go get smart about a space, even though you weren't a complete beginner in that space maybe six months prior.
24:35	Mohnish Pabrai	Well, so, for example, before I went to Turkey I had already studied Coke and Pepsi bottlers. I'd studied the Coke and Pepsi business quite a bit, just because Buffett had made the investment. The Coke concentrate (syrup) business is phenomenal — it's like a software company. It's got roughly an 80% margin. The bottlers are not as good a business as Coke, but they are oligopolies and most of them do really well. I mean, they have more capex and all that, but it's a good business. When I'm looking at a Coke or Pepsi bottler anywhere in the world, one of the things to keep in mind is they have to be approved to become a Coke or Pepsi bottler. Coke and Pepsi are very particular about who they're going to allow, especially at this stage because they've got global brands. So to me it was relatively easy. For example, when I went into the Coke bottler in Turkey, it wasn't surprising to me that the management team was super high quality. The management team was multinational — they weren't Turks. The CFO was from Ukraine, and he had worked in Delhi before that. You could just see that this was a global team running the business. Similar to the airport operator, I looked at other airport operators. I started by using guardrails, and I focused on the simplest businesses — the ones that were the easiest to understand. One of the things about investing to also understand is that the businesses you spend the least amount of time studying tend to be the ones that make you the most money, because they tend to be the simplest — they're obvious. But yes, you have to couple the circle of competence with the introduction of randomness. Those two are not in conflict with each other. The introduction of randomness is how you grow, and that's how the circle is going to expand over time naturally. You don't need to focus on expanding it.
26:56	Shaan Puri	Hey — real quick: if you're watching this episode and you like it, I have only one ask for you. This podcast is entirely free; we never charge anyone anything. But there is one thing you do have to do, and that is what we call the "gentleman's agreement." You must go ahead — hit subscribe, like the video, and leave a comment. That's all we ask. The gentleman's agreement will hold you to it. In your book, you have some great stories. The one I remember is the American Express...
27:19	Mohnish Pabrai	The Salad Oil Crisis
27:20	Shaan Puri	"Salad Oil Crisis" — I didn't know about this. </FormattedResponse>
27:22	Mohnish Pabrai	This is a little bit before.
27:23	Shaan Puri	"My time to tell the story. It's an amazing story."
27:25	Mohnish Pabrai	American Express, at that time, had — and they've always had — a number of different businesses that we don't think about. One of their businesses was an asset-based lending business. There was a kind of crooked guy who basically got them to finance his inventory of salad oil, claiming, "I've got these warehouses filled with salad oil."
27:47	Shaan Puri	He's not a financier — a literal "salad oil."
27:49	Mohnish Pabrai	"Yeah, salad oil."
27:50	Shaan Puri	Right in barrels.
27:51	Mohnish Pabrai	Yeah, so they financed it, and there wasn't any salad oil. It was seawater. Okay.
27:57	Shaan Puri	So, somebody figured this out. How did they know? There was just seawater in the barrels.
28:01	Mohnish Pabrai	Well, later it came out. Basically, when they went to collect, the guy had already taken the money — he's a crook and he's gone. When they retrieved the asset and inspected it, they found that they got nothing; they'd basically been duped.
28:14	Shaan Puri	Right.
28:15	Mohnish Pabrai	It was a very significant loss for Amex — a big dent on the balance sheet. When they reported it, the stock collapsed. Warren Buffett felt that the big value of Amex was in its brand. His question was: is confidence shaken in the credit cards? For example, if I'm a restaurant owner and I accept the Amex card, in effect Amex owes me money. So he went to a number of different restaurants in Omaha and just stood by the cash register to see whether the restaurants had any concern about accepting the Amex card. He saw zero concern of any kind. He felt that the moat — Amex was unaffected and the trust and confidence in the brand wasn't affected. The stock, on the other hand, had collapsed. He actually put 40% of his fund into Amex — a very large single-stock position. It may have been about $3,040,000,000 of capital; maybe around $1,015,000,000 or so went in. The crisis abated. Amex started to get its balance sheet straightened out, and of course the stock eventually recovered because these businesses were fantastic and their credit-card business at that time was growing gangbusters — it was just on a rocket ship. The interesting thing is he met Walt Disney once just before Disney died. He felt funny and went to see Snow White. He said, "I went to see Snow White with my briefcase, because everyone else is there with their kids. I went to actually study the business — study what Snow White is all about." I think he owned about 5% of Disney. For him at that time there was no "buy and hold" — it was just look for the next cheap thing. He had significant ownership in Amex and significant ownership in Disney, and he sold all of these at a good profit.
30:24	Shaan Puri	Right.
30:24	Mohnish Pabrai	But he could have just carried them on. If he had kept them for 20–30 years, they would have done extremely well.
30:29	Shaan Puri	"I'm trying to piece together this puzzle of: what are some of the traits or behaviors that can lead to great investing? When I think of an investor, I think of finance, strategy, numbers, Excel spreadsheets — that's where my brain goes. That's the picture mental model, the picture I had in my brain. But when you're describing it, it's like he goes to the movie theater to observe; he stands outside the restaurant; he asks the guy a question. These are not spreadsheets. This is like journalism — it's research, it's firsthand research. It's maybe gut, I guess. For you, do you do the same? Tell me about that."
31:06	Mohnish Pabrai	One of my ten commandments of mental models is: "Thou shall not use Excel." Another model is: if you cannot explain your investing thesis to a ten-year-old in about four sentences — so the child can understand it — it's a pass. Basically, at the end of the day every investment has to be very simple. It may start off as a complex thing, but when you've understood it, it needs to be distilled down to those four sentences. I think the way it works is we have about 50,000 stocks around the world if you're just investing in public markets. The dataset is too large. No one is ever going to know 50,000 companies. A large number of those businesses — something like 90%, 95%, or even 98% — should go into the "too hard" pile. Buffett has a box on his desk labeled "Too Hard." Once, when I visited his office, I told him, "Warren, the 'Too Hard' box is empty." He always said, "98% goes in the 'Too Hard' box."
32:19	Shaan Puri	And.
32:20	Mohnish Pabrai	He immediately took a bunch of papers and put it there, like, "Oh, it's full — it's all full." In his case, he made the metaphor real with the "too hard" pile. Most businesses that we would encounter or look at usually have two problems. One is it's either outside my circle of competence, or it's too hard. This is an exercise in honesty — an inner scorecard and all of that — where you have to be honest with yourself and not be delusional that you know everything about everything. So, an exercise in humility. Peter Lynch used to say that when you're looking at businesses to invest in, he said, "Make a list of everything you use." Right? "What shoes do you...?"
33:08	Shaan Puri	Wear right.
33:08	Mohnish Pabrai	What clothes do you wear? What brands? Where do you go to eat? Make a list of everything that you consume and study those companies. Many of those companies are publicly traded. It's very difficult for a company to get even a dollar from you. All of us are discerning about how we want to spend our money, and we make very specific choices. If you are already a consumer of a product, you understand that product. That gives you a basis to try to understand the business, because you are a consumer of the product — and then you can go from there. We are in a business which Buffett says has no called strikes. If you're a baseball player, three strikes and you're out: if the ball is within the strike zone you have to swing at it, even if it's not in the sweet spot. In investing, we can let 10,000 balls go. It's only when we get the fattest pitch in the center of our sweet spot that we need to act. If those conditions are not satisfied, just let it go. What you mentioned is true: entrepreneurs are all about action. Investors are also about action, but the action is below the surface. A person like Warren Buffett spends all his time studying businesses. Usually not much comes of it — we only see the whale when it surfaces. The whale is swimming all the time. The activity investors need to enjoy, if they're going to be good at this field, is just turning the pages one after the other. There used to be a racetrack in Nebraska called Ak-Sar-Ben [Nebraska spelled backwards]. When I first went to the Berkshire meeting in the '90s and early 2000s, the meeting used to be at the Ak-Sar-Ben racetrack — about 10,000 people. Buffett used to go to that racetrack when he was 11 or 12 years old. What he did was gather all the tickets lying on the floor or in trash cans, take them home, and study each ticket one by one. Some drunk may have thrown away a winning ticket; people might not have looked carefully. Some things in horse racing are complicated — win, place, show — so a thrown-away ticket could still be a winner. Because he was 12, he couldn't go to the window to claim them. He'd give winning tickets to his Aunt Alice; she would go to the racetrack, collect on those tickets, and give him the cash. In his early twenties he went through the Moody's Manuals. I bought one of these on eBay because they don't publish them anymore. They're on very thin paper with very small text and include financials about three or four companies on one page. He went through all of them in the early '50s two or three times, turning one page at a time, looking for anomalies. Ajit Jain made a comment at this year's Berkshire meeting. He said that when they hire people in the insurance business, his instruction is: "Whenever someone comes to you for any deal, always say no. Say no to every single thing presented to you." Then he'll say: you'll see a deal that hits you in the head like a two-by-four and you can't believe the deal. That's when you bring it to me, and then we look at it. Investing is the same way. When Buffett was going through the Moody's Manuals, he was looking to get hit in the head by a two-by-four. He found a company, for example, Western Insurance: the stock was at $15, they made $25 last year, and they had $40 of cash on the balance sheet — that's hitting you in the head with a two-by-four. He pulls that out, invests in it, studies the company, and then moves on. For the next thousand companies, nothing. Then he finds something else. Recently, in the last four or five years, he made a bet in the Japanese trading companies. Those came out of something like the Japan Company Handbook, an English publication updated once a quarter, with two public Japanese companies on every page. He's been going through the Japan Company Handbook for at least twenty years. This is the first time after twenty years of going through it that he made these bets — and it was a huge home run because it again hit him with a two-by-four. In this case, all of those Japanese trading companies had dividends of 8–9%. He borrowed the entire ¥5,000,000,000 that he put into these companies in Japanese yen, so it was 100% levered at 0.5% a year. The companies were paying 8–9% a year, so he was getting about 7.5% cash just for holding these investments. In the next three to four years they doubled their dividends, so now it's ~16% and the stocks doubled. The ¥5,000,000,000 became ¥10,000,000,000, and the ¥10,000,000,000 is paying ¥800,000,000 a year. It was almost fully risk-free.
39:12	Shaan Puri	Right
39:12	Mohnish Pabrai	"Right. So, basically, that is the nature of investing: the game we are playing is continuous activity of a different kind than the way an entrepreneur [operates]. But it is orgasmic activity, okay, if you have that type of temperament."
39:30	Shaan Puri	Right.
39:30	Mohnish Pabrai	Right. If you really enjoy looking for needles in haystacks, then the payoffs are huge.
39:38	Shaan Puri	At the Berkshire meeting, Buffett had this line that I loved: "The stock market is like a church with a casino attached to."
39:45	Mohnish Pabrai	It. Yeah.
39:46	Shaan Puri	And he said, "Seems like a lot of people — that casino's getting crowded. Yeah, it seems like a lot of people are visiting that casino nowadays, and I'm curious what you think about that, especially in the context of prediction markets, Robinhood, options, two-day options, and leverage. There are so many ways to play the casino."
40:06	Mohnish Pabrai	And I think all of that, from my view, makes it better for me.
40:11	Shaan Puri	"The wealth transfer."
40:12	Mohnish Pabrai	Exactly. I mean, the thing is: the more hyperactive people get, the better it is for me. It is unfortunate because the stock market serves a very important function — allowing gifted leaders and entrepreneurs to get the capital to pursue their dreams. That's really the reason why we have capital markets: basically to funnel capital to the best uses of the capital. Of course, a side effect of that is all the casino activity that comes with the "church" [possible mis-transcription]. The interesting thing is that after that, there was a big bubble in the UK — the South Sea Bubble — where there was a big speculation orgy, prices went crazy, and eventually a lot of people lost money. The British government's response to that was to ban public markets for 200 years. Interestingly, even when there were no public markets, a number of great businesses got created in the UK and capital still found its way to them. So it doesn't always need to be through an auction-driven market. But the main purpose of the New York Stock Exchange, the Hong Kong Stock Exchange, and so on is to funnel and allow capital to go into the Teslas of the world, into the SpaceXs of the world, and allow those businesses to improve a lot of humanity. Of course, the side effect of that is all the casino activity going on — as we've seen with Robinhood and so on — and so it's a negative for humanity. The more that becomes prevalent, the more negative it is. But when I look at it from an individual...
42:02	Mohnish Pabrai	From my own self-centered, self-interested point of view, the more the merrier. You know, that's just going to be more helpful to someone like me.
42:12	Shaan Puri	I don't know if this is fully accurate, but the New York Times said this on Polymarket: > "1% of the users have 60% of the profits right now." They also said something like 2,000 traders had made like $500 million this year — it's just 2,000. Yeah, so it was an immense wealth transfer from the...
42:29	Mohnish Pabrai	Yeah.
42:29	Shaan Puri	Yeah: casual gambler to what's likely an insider just sitting there who has more knowledge, or a bit of a "sharp" who's being more selective.
42:37	Mohnish Pabrai	The simple thing is: if you look at something like horse racing, the track takes 21% of every dollar because physically paying for horses to run is expensive. Whereas, let's say I go play blackjack at a great game in Vegas. The house has a 2%, 3%, or 4% edge. So every time a gambler bets, 49.5% or more is coming back to them, right? It's a 49.5% odds that they will win that bet—it's pretty decent. Whereas in horse racing, you've already lost—the 20% is gone already. But the thing is, there are people who make a livelihood only betting on horses.
43:30	Shaan Puri	Mmm-hmm.
43:30	Mohnish Pabrai	And the way they make the money is the same as what's happening in poly markets. They watch all the horses and all the races, and they pick the one where the odds make no sense. They know the horses. They know the races. The odds are set based on how much is being bet.
43:52	Shaan Puri	Right.
43:52	Mohnish Pabrai	Just like the stock market—the way... [fragment]
43:55	Shaan Puri	"Betting against the other bettors."
43:56	Mohnish Pabrai	Yeah, we're betting against the other bettors, right? And that's what's happening in poly markets as well.
44:00	Shaan Puri	Right, I was looking through all the stories you've done, and one of the craziest ones is that you paid $650,000 to have lunch with Warren Buffett. Was it worth it?
44:11	Mohnish Pabrai	In 2007, my net worth hit $84,000,000, I think. Most of it was because of the intellectual property of Warren Buffett, which I had paid nothing for.
44:25	Shaan Puri	Right.</FormattedResponse>
44:25	Mohnish Pabrai	Right. I felt like I wanted to thank him, look him in the eye, and tell him how grateful I was. Now, when Buffett does these lunches, his agenda is that whatever someone paid they should feel like they got a bargain. So from his point of view he just wants to make sure that there's tremendous value delivered. Before we met for the lunch, there was about a one-year gap between the time I won and when we actually sat down for lunch. His assistant had asked for bios of everyone who was attending, and he'd studied all of those. When he got there he basically told us, "My entire afternoon is free, so whenever you guys get sick and tired of me just let me know and I'll leave."
45:13	Shaan Puri	"What was the one thing you took away now, twenty years later?"
45:17	Mohnish Pabrai	Yeah, I made some notes after the lunch. I think we had a total—between everyone—of over 50 questions that we asked him. Of course, you know, Warren has this great skill of taking lemon questions and converting them to lemonade. Sometimes I asked him questions that were just innocuous, just an update. For example, I asked him, "What happened to Rick Goran?"
45:43	Shaan Puri	"Explain who Rick is, so Warren."
45:45	Mohnish Pabrai	Warren and Charlie were partners for decades — several decades. Originally there were three of them: Warren, Charlie, and Rick Goren. In the sixties they did a bunch of stuff together. In the early seventies, Rick Goren disappeared off the radar — we never heard from him. I just wanted to know what happened to Rick, so I asked Warren and he converted that question. > "Charlie and I always knew we were going to be rich, but we were not in a hurry, and Rick was in a hurry." He then talked about how Rick was always levered; he always had margin loans. When the downturn of 1973–1974 came, it was a very severe stock market correction — a crash in slow motion. The markets went down more than 50% over that two-year period. Rick got a number of margin calls, and Warren said that he bought Rick's Berkshire shares from him for $40 a share. Those shares are over $700,000 now, right? Warren then said, "If you are even a slightly above-average investor and spend less than you earn and do not use leverage, you can't help but get rich over a lifetime." He wanted to communicate the message about the ills and follies of leverage, but I felt there were so many lessons. There was another important thing he talked about. He said that there are two ways you can live your life: you can live your life with an outer scorecard, which is what people think of you and you react to that; or you can live your life with an inner scorecard, which is you measure yourself with internal metrics, not external metrics. He asked: > "Would you prefer to be the greatest lover in the world but known as the worst, or the worst lover in the world but known as the greatest? If you know how to answer that question, you've got it made." So I think this inner and outer scorecard is, to me, a really fundamental mental model — you have to be true to yourself.
48:10	Shaan Puri	Right.
48:11	Mohnish Pabrai	Because we can be easily swayed by external inputs and external stimuli, keeping it centered is awesome.
48:20	Shaan Puri	I've thought about that one a lot. I think I read in his biography. I think he called that the most important lesson his father taught him: "to live life with the inner scorecard." How does one do that? How do you go from the outer scorecard to the inner?
48:32	Mohnish Pabrai	You've got critics who are very harsh. They want to pull you down, taking you below where, you know, reality is. One of the things I frequently run into is that I've met people who criticize Gandhi a lot, criticize Buffett a lot, and criticize some folks who I think have lived remarkable lives. They nitpick — "oh, what about this, what about that." So the way I look at it is: if they can criticize Gandhi, then I'm fair game. Just understand that the Gandhis of the world are being criticized, and don't be shocked when, anytime you have any kind of public presence, you are going to get all of the above.
49:25	Shaan Puri	Berkshire has something like... almost $400 billion in cash. </FormattedResponse>
49:30	Mohnish Pabrai	Yeah, $3.80.
49:31	Shaan Puri	"Yeah—what are they doing? What are they waiting for?"
49:34	Mohnish Pabrai	Well, I think this has been the history of Berkshire: cash builds up, then they find opportunities and put it to work. They're not suffering right now because Treasuries are performing pretty well, so they're making decent money. But the second point is that we get dislocations, and we don't know when these dislocations will come. We had dislocations during COVID; we had dislocations in the financial crisis. If I were to make a guess, I would say that five years from now the cash may be half—or less—of what it is today.
50:07	Shaan Puri	Mmm-hmm.
50:08	Mohnish Pabrai	Berkshire used to be run by a great capital allocator. Now it is run by a great operator and a pretty good capital allocator. Berkshire's going to get phone calls, and Warren used to say, "When they call you on a Saturday, that's when you know you're going to make a great deal." He said the Saturday calls are the best.
50:32	Shaan Puri	"Because it's the most desperate call."
50:33	Mohnish Pabrai	Because usually they need...
50:34	Shaan Puri	"Things are at their worst."
50:35	Mohnish Pabrai	They need the deal done before Tokyo opens on Sunday night, U.S. time. When there is a crisis and Berkshire is a little better known now than it used to be, Greg will get the call. The investing game is interesting because you need extreme patience with extreme decisiveness. Charlie used to say: > "It's like standing by a stream with a spear, looking for salmon going by. You might be there for a while, but then suddenly a juicy salmon comes in, and when a juicy salmon is passing by you have to act fast. You can't start contemplating your navel at that." Right, right. So you have to be very patient while you have the spear. You don't know whether it happens in the next five minutes, the next five hours, or the next twelve hours — but you're ready, right?
51:29	Shaan Puri	"In your whole investing career, what one investment has been the best for you?"
51:34	Mohnish Pabrai	So I had two more-than-100-bagger investments — they went up more than 100x before I started the funds. I started investing on my own in 1994 or 1995, and by the time I got to 2000 I had two businesses that performed exceptionally well. One went up about 140x, and the other went up about 100x. In one case, I had invested just $10,000 in 1994; it became $1,400,000. There was another business I invested in which became more than $10,000,000. Those two were the outliers: the original million became like $14,000,000 or so, but it was driven by these two investments. More recently, the company in Turkey that we bought at 3% of liquidation value is just about hitting a 100x now. "Which one is that?" "That's Resas."
52:47	Shaan Puri	"Resas, is that the warehouse or the..."
52:48	Mohnish Pabrai	Yeah, the warehouse operator. Okay. I mean, so what happened there is that we were buying a company. I think when we first started buying, it was a $1,516,000,000 market cap; liquidation value was about $800,000,000, and...
53:02	Shaan Puri	What was the big misunderstanding? Like, you know, you've told me these words before: I look for what's hated and unloved, or where people have confused risk with uncertainty. Or was it something else in the Turkish market? Why was it trading—when you say 3% of liquidation value, that means the price of the business... there's 30x that in just the assets it owns if it had to liquidate everything. So, you know, 30–33% or whatever.
53:25	Mohnish Pabrai	Turkey was, and even still is, in such a weird state that it's hard to believe. For example, at that time the company was trading at... What should have happened with a company like that was that the owners should have taken it private.
53:44	Shaan Puri	Right.
53:45	Mohnish Pabrai	And the owners of the business did not have a good understanding of buybacks and taking it private. They are very good operators, and they went to the public markets to raise capital so they could grow.
53:59	Shaan Puri	Right.
54:00	Mohnish Pabrai	They got the capital. They were growing. They never cared about the stock price. They've actually never — even now, even today — really calculated their wealth by the stock price. They calculate it based on what they think the business is worth. They don't really care about the stock price, which is actually a good way to...
54:16	Shaan Puri	In your scorecard.</FormattedResponse>
54:17	Mohnish Pabrai	Yeah — great, great way to run. But actually, you really want the business to trade near the stock price, near the value, so that anyone entering or exiting is getting a fair deal. That's what Buffett tries to do. He wants to make sure that Berkshire's value is always around what it's worth. But there were other businesses. I remember the first company I visited in Turkey was trading at a P of 0.1. </FormattedResponse>
54:42	Shaan Puri	"I've never heard of that."
54:42	Mohnish Pabrai	Not 10. One, which means that the market cap was equal to one month's earnings. I remember my friend had sent me a list of the businesses we were going to visit, and I did no work on these companies. I said, "I'm going to do work on them after I visit them because I don't want to waste time if I don't like them." As we were driving to the company, I started asking him questions so I could appear somewhat intelligent at the meeting. I said, "Okay, so what's going on here?" He said, "Well, Monish, it's a P/E of 0.1." I said, "0.1? And it's one of the largest banks in Turkey—what's going on?" He said they had violated some UN sanctions. They were doing wire transfers with Iran that they were not supposed to do. What happened with that company was that the CFO—who didn't have anything to do with this craziness—went to the U.S. to vacation with his family at Disney World. When he landed in New York, the Southern District of New York folks picked him up at the airport and put him in Rikers Island prison for violations of the sanctions. They told him the rest of the family could continue on to...
55:55	Shaan Puri	Enjoy Disneyland.
55:58	Mohnish Pabrai	So when that news hit the street — I mean, you won't be cut off from the SWIFT system, the U.S. can put sanctions on you. I mean, you could just kneecap the bank. Erdogan at that time was calling Trump in his first term saying, "Can you please release the guy?" and he didn't do anything. Trump said, "It's New York state." So all of this was playing out while I was going to see the company. Actually, the business was a well-run bank, and I told my friend, "It's too much hair [likely: 'heat'] even for me. I'm not okay going." Turkey then, and even now, has some crazily priced assets, which is why I decided to take a simple idea seriously. I said this is a situation where half the winners of the aksaban race track have thrown away [unclear phrase: "william winning"] tickets, right? Instead of one in a thousand or one in 500, it's 50 out of 100 who have thrown away winning tickets. So basically it's going back to the mental model: you take a simple idea, you take it seriously. I remember when this company was 15,000,000 [unspecified units]. Turkish stocks are allowed to go up 10% a day; they were limited in a day. I was concerned how much stock I could buy, so I told the broker, "Buy every share available. Don't worry about the volumes. Take out all the asks." You know, the stock's at 15; someone's willing to buy or sell at 16 or 17 or whatever. I said, "Take all the asks up to 10%. Just take them all out. If anything more shows up, take it out. Just take everything you can get." The broker calls me and says, "I have 5% of the company being offered by Templeton Fund — the U.S. fund in Turkey. Templeton Funds is offering 5% of the company for $1,000,000." Okay, so a $20,000,000 market cap basically. I said, "Why are you calling me? Take it." And so now... this is not a Turkish investor.
58:02	Shaan Puri	Right.
58:02	Mohnish Pabrai	These are not people who are day traders.
58:05	Shaan Puri	Right.</FormattedResponse>
58:05	Mohnish Pabrai	Somebody in New York made a decision: I'm out of Turkey. The reason they were leaving Turkey was the currency was very unstable and inflation was rampant. They were right about that. Two things that bother investors a lot — and can be very detrimental to making an investment — are an unstable currency and high inflation. Other mental models came in to help me. One of the things I discussed with Charlie was a hypothetical: let's say there's a global thermonuclear event. Ninety-nine percent of humans are dead. We've gone to 70 million humans left out of 7 or 8 billion, and everything's destroyed. The 70 million humans that are left — someone is going to start producing Coke concentrate and someone is going to resurrect a Coke bottling plant. There are 70 million humans and there are no currencies anymore, but humans will be willing to trade fifteen minutes' labor for a Coke. So a company like Coke is not dependent on inflation or exchange rates. It isn't dependent on anything. There is a benefit it gives, so it doesn't matter whether you're trading Coke cans in seashells, dollars, lira, or whatever — an exchange will take place. I said to myself, when I was looking at this warehouse company: what is a warehouse? It's land, paint, cement, and steel. All four are inflation-indexed. If the currency goes crazy, all of these prices are going to go up. So I don't care about the currency. The exchange rate also didn't matter because these are prime assets in a prime city — people need those assets just like they need to have a Coke. I only looked at investments in Turkey which were naturally immune to the inflation that was going on. What happened in Turkey: when we were buying this company it was 5₺ to the dollar. Seven years later it was 45₺ to the dollar. The lira collapsed by about 90% against the dollar. In dollars I'm up 90x. In lira I'm up infinity — who cares. I wasn't looking at the lira; I was looking in dollars. The reason we went up 90x in dollars is exactly that. There was another mental model: many businesses in Turkey would get hurt by inflation — we're not interested in those. There was another company there called Tab Airports; all their revenue is in euros. They're listed on the Istanbul Stock Exchange with all the gamblers. Airport operators are phenomenal businesses, and normally you look at an airport operator...
01:01:27	Shaan Puri	"Like, you look..."
01:01:28	Mohnish Pabrai	At one in India, the trailing P you'll sell at is 70 times, 50 times.
01:01:33	Shaan Puri	"It's like a natural monopoly, right?"
01:01:35	Mohnish Pabrai	Natural monopoly — very desirable. Everyone wants in, and so that's just overinflated and all of that. In Turkey it's sitting at, like, four times, three times… you know, it's basically sitting at nothing. In this case — in the case of TAB Airport — the currency is not relevant. They're not even… in fact, what is happening is their revenue was in lira and in euros, and their costs are in lira. So, in fact, what's happening is the employees are getting poorer every year.
01:02:07	Shaan Puri	Right.
01:02:07	Mohnish Pabrai	And so, basically, it was just using a few models: take a simple idea and take it seriously; active versus passive; understanding that in a thermonuclear event, people want Coke; and let's look at assets where the currency is not relevant, right? When I was able to look at those four things, there was no one else on the planet applying those four models at that same time in that market. Right? That's it. How—how difficult was that?
01:02:39	Shaan Puri	So I want to ask you the hardest question, I think. Let me tell you how I arrived here. I love the idea of studying businesses because I love business, and I love studying. Put them together and I'm happy. I enjoy it. I think it's a great intellectual sport and I do it. I pick some stocks and I have some index exposure, and I combine the two at the same time. It seems like most people lose money doing this. Even smart people lose money doing this. For example, I had Cathie Wood on the podcast. I said, "Cathie, you're super popular. I think you're really smart. I even agree with you about many of your theories and theses about where the world is going." At the same time I told her, "If I look at the last one year, two years, five years, you haven't beaten the S&P, but you're taking huge fees on people's money." The way her model works is... I said, "Look, I think you're an honest person." I asked her the question: "Would you invest in someone with your track record?" She said "no." She had a great answer — actually, "I really appreciate you giving me the chance to answer that" — and she gave me a good answer. But I'm curious: how hard is it to beat the market, really? How do you feel about that? In some years you do, and in some years you don't. I don't know exactly because you have funds and you have the ETFs; it's hard to even piece it together fully. So give me two answers: 1. What is your track record? You manage something like a billion dollars — what is your track record compared to just blindly putting money in the index? 2. How do you feel about that, you know, as a sort of smart, honest person who's studying this game and trying their best to do the best they can?
01:04:10	Mohnish Pabrai	Yeah. So the track record depends on the fund because we've got different funds. If you look at our oldest fund, which is now more than 27 years old, every dollar has turned into about $30. By comparison, the S&P has grown every dollar to less than $7—approximately $6 to $7. That oldest fund has done well. If I take the newest one, which is our ETF [exchange-traded fund] that has about two and a half years of history, and I look at the entire two and a half years, we are behind the S&P. I think the S&P has returned about 19% on average per year over the last two and a half years, and we've done about 16%. However, this year we are ahead. If you look at three months, six months, one year, and even eighteen months, we are ahead. In the last one year, for example, we are beating the S&P by more than 20 percentage points—pretty significant. In the ETF case, it took us some time to get properly invested because I only could find a couple of things in a year. I would expect that, over the fullness of time—after five or ten years—we should be ahead of the S&P. Also, the S&P has a handicap situation because its valuations are sitting kind of elevated...
01:05:51	Mohnish Pabrai	The stock market becomes a "weighing machine." I think that, in general, the broad index, or the S&P, may not do that well for the next decade, just because there's been so much growth... into the future in the last decade. So I think we'll be fine.
01:06:10	Shaan Puri	Yeah, yeah. I guess. Do you—do you feel like the question I'm trying to ask is more like: How hard is it to beat the index?
01:06:18	Mohnish Pabrai	Well, so, if you look at the entire U.S. stock market over the last 90 years, 4% of companies have basically delivered the market return. The return we're getting in the market has come from 4% of businesses. The other 96% have simply treaded water. If you look at Warren Buffett, for example — and he said this himself — the 12 investments he made over 60 years are what created Berkshire Hathaway. He has made more than 300 or 400 investments, so again his success is 3–4%. This is the reason why indices do well: the index is too dumb to know that it owns Nvidia and it's too dumb to sell it. It's too dumb to know that it owns TSMC and it's too dumb to sell it. An individual investor or a portfolio manager will look at a position and say, "Oh, it's overvalued," or "this and that," and make that change. So this is the reason why index investing does well — because it includes that 4%. You don't need to think about it; you have captured the 4%.
01:07:32	Shaan Puri	Right.
01:07:33	Mohnish Pabrai	And you will get a market return, which is very good. When I look at what I'm doing, I don't think I would have the wealth I have had, and I don't think my investors would have had what they have done if we had indexed. We've done better than the index. The way I look at it is that every year that goes by I'm getting to be a better investor. If I were playing a game like basketball, I would start declining, right? By my thirties and forties I'm gone, basically. But investing is a game where you can keep getting better. You keep seeing more patterns, you expand your circle, and you get better at looking at different things. So experience is a huge plus, and all of this accumulates. Also, you get to ride the winners if you do. The important thing in investing is not the mistakes you make — it's not selling the winners. The 4% bets of Berkshire [Berkshire Hathaway] that worked — the other 96% — whatever Buffett did with them did not matter. It didn't matter whether he sold them, bought them, liquidated them, or whatever else. That didn't really move the needle. What mattered was not selling Coca‑Cola, not selling Apple, having Greg Abel run MidAmerican Energy, having Ajit Jain run the insurance operations, and not firing Ajit Jain or getting rid of him. Those were the important things.
01:09:01	Shaan Puri	This is your "circle the wagons" concept.
01:09:03	Mohnish Pabrai	Circle the wagon. So, the thing is that we have to understand that capitalism is brutal, and almost every business will eventually go to zero because of the forces of competitive destruction. But there's a sliver of businesses where a brand gets built or tastes happen. A business like McDonald's starts off with no moat, right? Now it has a brand — there'll be a sign on the highway saying, "McDonald's, 8 miles ahead." </FormattedResponse>
01:09:38	Shaan Puri	Right.
01:09:39	Mohnish Pabrai	You see that sign and say, "That's where I'm going."
01:09:42	Shaan Puri	Right, right. Even if Sean's Burger Shack is one mile away.
01:09:45	Mohnish Pabrai	Exactly. That's the most important point. It's actually accidental, for the most part, how and when moats get built. But once a moat is built, some of these moats become enduring for a very long time. For example, look at FICO — the FICO scores. That business just prints cash. It started off with no moat then, but as more and more people started using that score, it became entrenched. Now there's some movement where people are talking about other things, but people don't want to move away from FICO. It's too entrenched. As investors, we have the advantage of buying into existing moats. For example, the largest bet we have is a Turkish warehouse operator. They have prime warehouses, extremely well built, in prime parts of Istanbul. That's a very important city — it's big and it's fundamental. I don't think that's going away. In fact, demand for warehouses increases in an e-commerce world because you need space. What they were building as quarter‑million‑square‑foot warehouses are now becoming million‑square‑foot warehouses because of all the nuances happening with e-commerce. We want to look at businesses where the moats have staying power for a long time: an airport operator, a Coke bottler — you know, it's going to go on. We want to look at these enduring moats. Eventually, we want to own parts of those enduring moats.
01:11:25	Shaan Puri	I want to ask you about some new things. It's very interesting to look at the kinds of investments from maybe early-day Buffett—things that have been around for a hundred years. But then there are new things that might be around for a hundred years from now, or might not. I'm curious about your opinion on these. I'm going to throw four topics at you. You're in rapid fire—give me just where you are mentally on each. First is AI. I don't think you could be an investor in the world and not have AI thoughts—whether you think it's going to disrupt certain businesses, create new industries, or be a huge tailwind or headwind.
01:12:00	Mohnish Pabrai	Invest in the pickaxe makers. So, I think that Alphabet and Meta are playing a game they haven't played before, which is building businesses with very high capex. It may work. It may not. I don't know. But what I do know is they have to pass through some toll bridges: they all have to pass through TSMC, they have to pass through ASML, and they probably have to pass through Micron, right? So I have no bets in any of these areas because it either goes in the too-hard pile, it's outside my circle of competence, or it's too expensive. If I'm not making a bet, it doesn't matter whether I'm right or wrong. So what I'm saying is that there's no way I'm going to sell the Turkish warehouses.
01:12:50	Shaan Puri	Right.
01:12:51	Mohnish Pabrai	"To buy TSMC, because that trade makes no sense to me."
01:12:56	Shaan Puri	Right.
01:12:56	Mohnish Pabrai	"The mistress looks much uglier than the wife."
01:13:01	Shaan Puri	Yeah, and there's no bonus.
01:13:02	Mohnish Pabrai	Because points to valuation, yeah.
01:13:04	Shaan Puri	Yeah. When you came to your house once, you were telling me about your investments in coal, and you've talked about how you look for things that are hated and unloved. "It's a clue for you to go spend some time," because you think there might be opportunity there. I feel like right now in my world the hated-and-unloved bucket is SaaS companies — specifically vertical SaaS companies. I saw you invested in Constellation, so I'm curious. I've been thinking about this too: there's a lot of great businesses on sale right now.
01:13:33	Mohnish Pabrai	That was an area where things fell within the circle of competence.
01:13:38	Shaan Puri	Okay.
01:13:39	Mohnish Pabrai	And it made sense. So the idea that Betsy in HR is going to fire up some AI software, develop her own system, and get rid of Workday or whatever else they're using in HR is just a pipe dream. I think what is not understood well by the market is that software is not coding. Coding is being automated and will get even faster, but it may be at most one-fifth of the pie. Just because you can get something coded quickly doesn't mean that Adobe is going out of business, or that you don't need Photoshop and all the products they have. I actually feel the market has got it wrong. In my view, the advantage will go to the incumbents. Adobe will be able to reduce its costs. Microsoft is laying off people — they're all laying off people — because they don't need so many now that they can automate certain tasks. All of these incumbents are going to reduce their costs; they may also end up reducing price.
01:14:57	Shaan Puri	Right.
01:14:57	Mohnish Pabrai	But I don't really see it. They may not even need to reduce price—okay, depending on how much the moat is [competitive advantage], I don't see their cash flows going down. And so, if you drop the price in half and the cash flows are going down—where do I sign? I specifically only invested in the Mark Leonard universe of businesses because he has a unique moat. The reason why I invested in Mark Leonard is: no one else has ever cloned Constellation, and no one else ever will be able to clone Constellation.
01:15:43	Shaan Puri	Explain who he is, because he's this mysterious guy. There are only two photos of him on the internet.
01:15:49	Mohnish Pabrai	Mark is a highly, highly unusual leader. Okay — there's no other person like Mark; let's put it that way. What he's built at Constellation is very unique. There are probably 70 to 100,000 vertical-model software companies (private companies) in the U.S. They have a biz-dev team that touches all these companies twice a year with a phone call and twice a year with an email. And in fact, the funny thing is: I was in Omaha at the Berkshire meeting, and a guy comes up to me and says, "Monish, I'm a huge fan of yours. I'm in the Constellation M&A team." I said, "Don't go anywhere — I need to talk to you," right? So tell me what's going on. You know, I tried to get a conversation going because, you know, Constellation is such a black box.
01:16:43	Shaan Puri	Right.
01:16:44	Mohnish Pabrai	But anyway, they have this large M&A team.
01:16:46	Shaan Puri	They buy a company, like, every three days or something.</FormattedResponse>
01:16:49	Mohnish Pabrai	Right. They bought like 200 companies last year, for example. They bought more than a thousand companies and they don't use bankers. So they've been doing direct deals. Now, I think they're paying maybe five times cash flow, or maybe six times cash flow. But almost immediately—within a year or two—the effective price becomes like three or four times cash flow because they bump up the revenue a little bit, bump up the license fees about 20%, and then they've got all these best practices they've built up. They don't tell the companies "do this and that," but they say, "Look, you're in this business. Here are, you know, 80 other companies we have like this, and this is what we've learned, so this is what we suggest."
01:17:31	Shaan Puri	Right.
01:17:31	Mohnish Pabrai	And you do your thing and whatever you want. So they actually extract more efficiency out of their engine. On an organic basis, if they were not buying anything, they'd be growing about 3% a year. So these companies they're buying are not dying; on average, they are still growing. If you think about buying a business that's growing 3% a year, and interest rates are where they are, you would be fine paying 15 times cash flow. That would probably be a broad way the deal should be done, somewhere.
01:18:00	Shaan Puri	"Between — what's the math there? I don't understand."
01:18:03	Mohnish Pabrai	The math is this: a business is doing $10,000,000 in sales, and let's say it's putting $1,000,000 to the bottom line. That $1,000,000 is growing at 3% a year. Now, let's say you were buying that company for $10,000,000. Your alternative is to put the money in treasuries. If you put it in treasuries, you're going to get $400,000 a [per year].
01:18:23	Shaan Puri	Year, right.
01:18:24	Mohnish Pabrai	Okay. You put it here — you're getting $1 million a year, right? And the million is growing, but it has more risk than a Treasury, so you won't pay exactly what a Treasury is paying. So that's the math: the risk-free rate effectively makes it so that if you knew the business was growing at 3% a year, you would be willing to pay, in a low interest-rate environment, ten to fifteen times cash flow. And so they're effectively buying it for three or four times because they get the [deficiency — likely meaning difference or discount]. So now you're taking the cash flow the business is generating and you're reinvesting it at a 25% rate, right? I mean, and then you're continuously doing that.
01:19:05	Shaan Puri	Right.
01:19:05	Mohnish Pabrai	So, nobody else has the patience to put in the engine to touch the $70,000 twice a year. Also, the more difficult part is integrating them, right? So the culture to say, "let's do this and that"—in many ways, Constellation is superior to Berkshire Hathaway. Berkshire Hathaway buys businesses of all kinds. These guys buy only one kind of business, right? And they're buying one kind of business in a delegated manner. Now, because the people doing the deals are not even at headquarters, they don't even need approval for it. They've been told, "Any business up to $20,000,000, you can just do your deal." As those teams keep doing that and build a track record, they bump up how much they will underwrite. So it's actually a delegated model now. From my point of view, you've basically got a mousetrap that's growing cash flows at 25% a year. What should you pay for a mousetrap that's growing cash flows 25% a year? You would be paying 40× if you knew that was going to continue forever. Right—you'd easily pay forty, fifty times. It went down to the teens multiple, right, and it came down to a...
01:20:18	Mohnish Pabrai	Where even someone like Monish—a cheapskate, like Monish—got interested. The thing is, I think the DNA he has is very, very special. This universe of companies he's going after is too small for private equity. Right? Private equity hates doing these itty-bitty deals. The second issue is they don't want to buy and hold them; private equity guys want to flip. So the frictional cost of buying a tiny company and then trying to find another buyer—all that—there's too much nonsense involved. So, quite frankly, the only competition they would have would be if someone decided, "I want to do everything exactly the same." The market could tolerate three constellations, right? It's large enough for three or four constellations.
01:21:04	Shaan Puri	I see.
01:21:05	Mohnish Pabrai	But there are none. There's only one.
01:21:07	Shaan Puri	Right.
01:21:07	Mohnish Pabrai	So that's why we are in. And now the thing is that we don't need— you have to understand the 4% rule of Buffett, right? Only 4% of his bets work. So if you look at my bets—like, you know: airports, coal, warehouses, Constellation—if all of them worked... Now, if you ask me about each one, I'll give you a case for why it works, right. But all of them are not going to work, because there's no way. Yeah, if all of them were working, we'd be doing 100%.
01:21:37	Shaan Puri	Year, right?
01:21:38	Mohnish Pabrai	Okay, that's not going to happen. But if half of them work, we have a home run.
01:21:42	Shaan Puri	Right.
01:21:42	Mohnish Pabrai	Even if 40% work, we have a home run. So this is a very forgiving business.
01:21:47	Shaan Puri	Right.
01:21:47	Mohnish Pabrai	And so that's where this is, which is... I don't know which half works. I wish I knew.
01:21:53	Shaan Puri	"Yeah. If you knew... yeah, if only."
01:21:54	Mohnish Pabrai	But I don't know which half works. I know that our core bets, for example, have things that can cause them to fail. They are low probability, but they could happen.
01:22:04	Shaan Puri	Right.
01:22:05	Mohnish Pabrai	So, maybe those things happen. Maybe they don't. I don't know. Right — constellation? Maybe cloners arrive. Right, I don't know. Maybe the DNA of the company deteriorates after Mark is gone. I don't know, right? So, there are these unknowns, but it's a favorable bet. It's not a 100% bet — it's a favorable bet — and as long as we keep making these favorable bets, we're okay.
01:22:26	Shaan Puri	So, Howard Marks came on the podcast.
01:22:28	Mohnish Pabrai	Oh, wonderful.
01:22:28	Shaan Puri	He laid out why the S&P might be a bad bet for the next ten years. His take was basically: if you look at the current P/E ratio of the S&P — I think it was around 23 — the forward ten-year return had vacillated between negative 22%... anytime that had happened. So I'm just gonna give you kind of a quick reaction — bullish or bearish on the S&P index right now, if you want to be an investor.
01:22:55	Mohnish Pabrai	Bearish.
01:22:55	Shaan Puri	Bearish — same reason.
01:22:57	Mohnish Pabrai	Yeah. I... Howard is very, very smart. I don't disagree with that.
01:23:01	Shaan Puri	Yeah. GLP ones. So it's amazing — we have a... we have.
01:23:05	Mohnish Pabrai	The best thing since sliced bread.
01:23:07	Shaan Puri	Yeah, exactly. And it puts sliced bread out of business. I read a stat that the GLP-1 drugs — Ozempic and the others — are currently generating double the revenue of the AI companies, right? It's about $79 billion a year versus about $40 billion.
01:23:24	Mohnish Pabrai	We are embryonic right now.
01:23:26	Shaan Puri	And we're in the early stages.
01:23:27	Mohnish Pabrai	And also, I think the science is going to get a lot better.
01:23:30	Shaan Puri	Yeah, so—give me how you're thinking about that right now, whether from an investor's point of view or just... </FormattedResponse>
01:23:35	Mohnish Pabrai	Well, I think, from an investor point of view, for me it goes to the "hard pile." The reason it goes to the hard pile is that industries with rapid change are the enemy of the investor. Wegovy was king, then Mounjaro became king, and now they're talking about some of these tablets. The tablets are going to have a hard time because they have to go through the liver and all that. Basically, I think this trajectory is going to continue, but given the valuations and given where it's headed, there are too many.
01:24:07	Shaan Puri	Right.
01:24:07	Mohnish Pabrai	Coal is simpler.
01:24:09	Shaan Puri	A few years ago, when I was at your house, I asked you about Bitcoin. You were similarly somewhat bearish on it, but you said, "you know, ultimately 'too hard pile for'" [unclear]. </FormattedResponse>
01:24:17	Mohnish Pabrai	Me. Yeah—it's also too hard. "Pile out of outside confidence." [unclear phrase]
01:24:19	Shaan Puri	Has anything changed in your opinion? Because the more time goes by, in a way, all money is a confidence game. As you know, every currency—every gold bar—is a confidence that this will last. I was curious if anything had changed over time for you with Bitcoin.
01:24:34	Mohnish Pabrai	I prefer gold to Bitcoin. It's not used by a bunch of scammers, ransom seekers, and whatever else. To me, the whole thing is in the "too hard" pile. But I would just say that, given that we already have gold, why do we need Bitcoin?
01:24:54	Shaan Puri	Okay, I won't debate you on that — it'll be a four-hour podcast. Yeah, there's a couple of life models I wanted to ask you about, because I asked you many of the investing truths. But then some of yours I feel like may be related to investing, but probably not. One was: "Don't die at 25 and get buried at 75." "Yes — what do you mean?"
01:25:14	Mohnish Pabrai	So that's a quote by Ben Franklin. As you know, I have no original ideas. Ben Franklin said, "Many people die at 25 and are buried at 75." Basically, what that's saying is that you've stopped growing and stopped doing things—you are just coasting. I had discussed the stock with Charlie in my last meeting with him, and he was buying that stock six days before he died. He was 99.9 years old. He didn't know he was going to die in six days, but when you're 99.9 years old, your life expectancy is not 20 years or 10 years. I saw Charlie make investments, bets, and decisions ignoring his mortality—as if he were 25. He was making the bets as if he was 25. I think that living until the very end—truly living—is really important. We want to be pursuing our passions, getting our music out, and doing the things we want to do during this very finite time we have here.
01:26:31	Shaan Puri	What does that mean — "get your music out"? I saw that on your list, but I didn't know what it meant.
01:26:35	Mohnish Pabrai	Well, all of us have music in us, and it's different. The musicians' music is actual music that they... But the thing is, we have to understand who we are. Understanding who we are is not easy. We have to understand who we are, and we have to understand what it is we want to bring to this world—something that makes the world better and makes us feel a sense of accomplishment for doing that.
01:27:05	Shaan Puri	Right.
01:27:05	Mohnish Pabrai	So, we all have special talents, and there's no person who has nothing, if you will. Everyone has something special. We have to get that out because that's going to be a fulfilled life. [Date: September 28, 2075]
01:27:24	Shaan Puri	Apparently that's the date I'm going to die. One of your pieces of advice is — and I quote — "Ask God Google when you are going to die and act accordingly." Last night I Googled when I would die. I gave it all my info. I told it I'm a nonsmoker, this is years old, I've done this, etc., etc., and it gave me a "hey prop — here's a range."
01:27:46	Mohnish Pabrai	Yeah.
01:27:47	Shaan Puri	"And here's the most likely date: September 28, 2075."
01:27:50	Mohnish Pabrai	Awesome.
01:27:51	Shaan Puri	"Alright. Now what do I do? You freaked me out. Now what do I do?"
01:27:54	Mohnish Pabrai	So, contrary to Seneca—"life is short"—Gandhi has a quote: "Live as if you were to die tomorrow; learn as if you were to live forever." And even Steve Jobs said that if he spent two, three, four days doing not what he really wanted to do or loved doing, he would make a change.
01:28:16	Shaan Puri	Right.
01:28:16	Mohnish Pabrai	So I think that 2075 seems a really, really long way away — like 49 years or whatever — but it's not that far away. I think there's a Buddhist saying about living in the moment, and living in the moment is fantastic. Treating every day as if it's your last and living it to the fullest for the full 49 years — that's what you want to be doing. I think, you know, people say, "Oh, I'm gonna graduate and I'm gonna work three years at McKinsey, then I'm gonna get some experience, then I'm gonna start my business." Buffett would say to that, "That's like saving sex for old age — not a good idea." So don't make a lot of long-term plans. We have to enjoy today.
01:29:03	Shaan Puri	"Yeah — don't wait to live."
01:29:04	Mohnish Pabrai	We have to enjoy every day. I think getting the music out, doing what we love to do, working with people we like, admire, and trust, and pursuing our passions — we have to do that all the time.
01:29:17	Shaan Puri	Right — those are sort of like "eat clean, exercise, get good sleep." Those are about health. I feel like what you're describing is more like living life well.
01:29:25	Mohnish Pabrai	Absolutely.
01:29:26	Shaan Puri	Yeah, you know, one of the things that I think is part of your music [message] you get out is that not only do you study investing and study companies to invest in, but you study the investors... My favorite learnings from you have actually been the stories and the insights you have from having studied all the great investors. I want to ask you about a couple of names I didn't ask you about in previous ones. The first is Ed Thorp, right? Tell me about Ed Thorp. What do we learn from Ed Thorp?
01:29:54	Mohnish Pabrai	"The first time I met Ed Thorp, I was naked."
01:30:01	Shaan Puri	Go on.
01:30:01	Mohnish Pabrai	So just to give you the long-form answer: Ed Thorp, an MIT-trained PhD mathematician, was very smart. He actually worked with Claude Shannon. If you study Shannon there’s a podcast on him and all that, but Shannon is probably one of the smartest humans who ever lived. Ed Thorp basically used MIT’s mainframe computer to figure out how to optimally play blackjack. He came up with what we now call basic strategy. At that time, in the early sixties when he did this, casinos in Vegas and Reno, etc., played single-deck blackjack to the end of the deck. Blackjack is a game where every time a card is played the odds change. So if a deck gets filled with more aces and tens, it’s in the player’s favor; more small cards and it’s against you. He was counting cards — it’s easy to do. When the deck got loaded [with high cards], he increased his bet; when it wasn’t loaded he’d reduce his bet. He cleaned the casinos out. At that time the casinos were mob-run, and they basically showed him a baseball bat and said, “Don’t ever come back.”
01:31:13	Shaan Puri	And so, did they even know what he was doing, or did they just say, "We don't need to know"?
01:31:17	Mohnish Pabrai	They knew they were losing money, right? They didn't know why they were losing money, and that's all they cared about— that they were losing money.
01:31:24	Shaan Puri	Right.
01:31:25	Mohnish Pabrai	And so he went back. He's a very meek, timid guy and said, "Wow — they might actually, like, kill me or something." So he said, "I'm not going back." But to get back at them he wrote a book called "Beat the Dealer," which sold millions of copies. It basically says, "Here's how we beat the casinos." The casinos freaked out because they said, "Now we've got, like, 10,000 heads, tops, coming at us." So blackjack became a game from then till now where the rules have continuously changed. They started not playing to the end of the shoe; they introduced multiple decks, different shufflers, and a bunch of rule changes to keep up with all of that. You know the movie 21, where the MIT kids went in with all of that. Anyway, he did well — he wrote Beat the Dealer — and then he realized that there was a better casino than Vegas: the New York Stock Exchange. There's something known as the Black–Scholes formula, which is the way options are priced. The guys who came up with Black–Scholes and another guy — they got the Nobel Prize for that. Basically, it tells you: if you've got a stock with a certain volatility, how to price the options, the call options, whatever else. Ed Thorp cracked how options were priced before Black–Scholes, but decided instead of getting a Nobel Prize he was going to make money off it.
01:32:58	Shaan Puri	He set.
01:33:00	Mohnish Pabrai	An entity called Princeton Newport Partners did extremely well — like 25–30% a year, with no down years. He did that for a while and became very wealthy. He moved to Newport Beach and became a professor at UCI. Then someone introduced him — this is like a kind of Forrest Gump story — to Ken Griffin, the founder of Citadel, while Ken was at Harvard running things out of his dorm room. Ken asked because Ed was not using all his algorithms and everything else — he had retired. Ken asked if Ed would give it to him. Ed talked to Ken, realized he was very unusual, and said, "You can have it all, and I want to invest with you." So he became one of the early investors in Citadel. That engine just keeps going.
01:33:53	Shaan Puri	Oh my God.
01:33:54	Mohnish Pabrai	And then also meets Buffett for bridge, I think in the seventies, and realized, "this is the guy," and he puts a bunch of money with him. So, you know, he's invested: Ken Griffin, Warren Buffett, himself, Princeton Newport Partners, and the casino — all of the above, right?
01:34:11	Shaan Puri	Legend.
01:34:11	Mohnish Pabrai	Now I'm in Irvine, California. I'm at this club where I go to play racquetball, and I'm getting ready for my racquetball game. As I'm getting ready I'm naked, and this older guy is looking at me. There's the Wall Street Journal next to me. He says, "What do you do?" I say, "Oh, I run a hedge fund." He starts talking to me and I forget that I'm naked. Then he says, "I'm Ed Thorp." I get so excited and say, "My God—Ed Thorp!" I go up to him and start talking, and then I realize, "Monash, you're naked. This is not appropriate." So I say, "Ed, can we just meet for lunch? I promise I won't show up this way." He says, "Absolutely." We met for lunch and I got to know him. In fact, I just got a Christmas card from him and he wrote me a nice note. Ed is fantastic—I think he's a great guy, and he's, I think, 90 and in great health. You should get him on the podcast.
01:35:06	Shaan Puri	> "He also beat roulette too, did he not?"
01:35:08	Mohnish Pabrai	Oh yeah — he had a device by which they could... I forget that. It was something where they wore, like, a...
01:35:15	Shaan Puri	"Shoe or something." </FormattedResponse>
01:35:16	Mohnish Pabrai	Yeah. They had something they wore which would kind of tell them what is going on with roulette.
01:35:20	Shaan Puri	Yeah, that is an unbelievable story. You mentioned Ken Griffin. I've heard some of the Ken Griffin lore. What do you know about him, and what made him special? Why did Ed initially spot that this guy might be a little bit different?
01:35:32	Mohnish Pabrai	So I met Ken around 2000 or so. I was running an IT company and someone I knew said that they were looking for consultants, and my wife went in as a consultant to Citadel. She was actually at Citadel when it was very small — there might have been only ten people there at the time. She'd come home every evening with a whole bunch of Ken stories. She told me, "This guy is very unusual and the place is very unusual. Everything is very unusual." He had hired some whiz-bang Russian mathematician — PhD/postdoc, whatever — who was working with the algorithms. Everyone at Citadel would come to this Russian guy with their problems. Ken didn't want anyone coming to him; he wanted the mathematician to just crank without anyone bothering her. My wife told me that a temp was hired, and Ken told the temp: > "Here's your desk. Here's you. Here's the mathematician. No one crosses." The temp said, "Oh, what do I do?" Ken replied, "Nothing. Your whole job is to make sure no one crosses, no one talks to her." The temp was in shock — "Someone's paying me to file my nails," she thought. So yeah, Ken is a very intense guy, but I think he's very smart. I think he found all the different nooks and crannies, built a tremendous business, and I have a lot of respect for him. He did a great job.
01:37:06	Shaan Puri	Yeah, I feel like Ken Griffin's intensity stories are something I can binge on. I've heard—when Enron was going out of business—did you hear that story?
01:37:15	Mohnish Pabrai	Yeah, they all went in, and then he bought all the trades.
01:37:17	Shaan Puri	Got all the smart guys out. Yeah, it's like a rescue mission.
01:37:20	Mohnish Pabrai	I just read the other day that they had made an offer to some guy at Harvard — a new grad. Ken asked him, "So let's say you made $10,000,000 a year. What would you do?" He said, "Oh, I'd quit. I'd climb the tallest peaks, this and that, whatever." So Ken says to him, "Please reject our job offer. We've already made the job for you; we can't rescind it, but please don't accept it, because we really don't want someone like you."
01:37:43	Shaan Puri	Right.
01:37:43	Mohnish Pabrai	We don't want someone at 10 million who dies at 25.
01:37:50	Shaan Puri	Right. You know you've done podcasts like these before — with me and with others. I think our podcast together has been listened to by more than 5 million people. However, the sad part is: I bet if I talked to those 5 million and asked, "What did you really take away? What do you remember? What was the thing that you took?" I'm not sure how many would have something that actually clicks. So I want to make it easy for them this time. What's the thing they can't miss from this one? I don't want people to just listen, be entertained, and then go back to doing things exactly the way they were. </FormattedResponse>
01:38:17	Mohnish Pabrai	Lead an aligned life. So, who we are is hard-coded at the age of five — between our genetics and what happens in the first five years. How old are your kids?
01:38:29	Shaan Puri	I have a six-year-old, a five-year-old, and a two-year-old.
01:38:31	Mohnish Pabrai	Okay, so you've got some work you can do for the two‑year‑old, but the six and five‑year‑old—the cake is already baked. Especially after they're about 12, the only thing you can do for them is control who their peers are. What happens with us humans is we show up in this world without an owner's value [likely meaning "owner's manual" or innate roadmap]. We don't know what our calling is. The calling is predetermined at the age of five. If we don't follow that calling, our inner map and our external life are misaligned. To have a great life, they need to be aligned. Now, to get from here to here means you have to understand who you are, and there are clues to understanding who you are. So whenever you do any activity, you have to ask yourself, How much do I like that? When you meet someone, ask yourself, How much do I like meeting that person? You have to try to get to where the glove fits. You may be a lawyer but you are meant to be an artist, or you may be a musician but you're meant to be a running back. I found out by going through industrial psychologists. We did all this work, and I was able to get to what my calling is when I was 34 or 35 years old. Till then I was wandering the wilderness—completely lost, right—and then life became a lot better. Getting to an aligned life is the most important thing. It's not being a great investor or finding great investments or any of that. The thing is, you have to get your music out, understand what that music is, and live an aligned life. It's worth the pursuit, however painful it may be, to understand that as early as you can in life. The shortcut is you could go through psychological tests with a psychiatrist.
01:40:29	Shaan Puri	"What do you ask them for? What do you ask them to do? Is there a name for this? It's just..."
01:40:33	Mohnish Pabrai	"You're going to tell them that I want to understand who I am and what my calling in life is. What am I supposed to be doing now? You can go to my guy. You can go to him."
01:40:42	Shaan Puri	Yeah, who's your guy?
01:40:43	Mohnish Pabrai	His name is Jack Skeen.
01:40:45	Shaan Puri	I've met... I've met Jack.
01:40:46	Mohnish Pabrai	Okay.
01:40:46	Shaan Puri	Yay!
01:40:47	Mohnish Pabrai	Alright.
01:40:47	Shaan Puri	Yeah, he does the kind of full-life, 360-degree sort of analysis.</FormattedResponse>
01:40:50	Mohnish Pabrai	Yeah. So you can go to Jack, and Jack can only do about 20 a year. He can't do it at scale, but he may know others.
01:40:59	Shaan Puri	Right.
01:41:00	Mohnish Pabrai	And so, that's a pretty foolproof way to get there. Other than that, I think you have to feel your way. If you're not willing to do that, then you have to look at what you like and what you don't like. You have to look at whether doing something energizes you or doesn't energize you — that sort of thing, right? So you have to find what you love doing. If you only do what you love doing, you'll do it very well.
01:41:22	Shaan Puri	And why do you think most people don't do that?
01:41:24	Mohnish Pabrai	It's because the world tells us what we are supposed to do, and we think that what the world tells us we're supposed to do is what we're actually supposed to do. For example, the human brain is set up optimally to start specializing after the age of 11. From the age of 11 to 20 is a window to specialize. That is exactly the window, but the education system makes you a "jack of all trades." So, like Michelangelo — he was doing his sculptures and paintings. At 10 or 11, Buffett was picking stocks; Gates was coding at 11 or 12. You have to try, within the context of a world that pushes you to be a jack of all trades, to start getting to what your calling is — like Buffett and Gates did. They were in a world of "jack of all trades," but within that world Gates spent an inordinate amount of time coding. He would slip out of his parents' home at night, code all night, and then come back and sleep. So he got ten or twenty thousand hours of coding experience by the time he was in his early twenties.
01:42:29	Shaan Puri	Right.
01:42:29	Mohnish Pabrai	And nobody could touch him after that. So yes — that's your job as a parent. At that age, when kids are 11 or 12, you're trying to figure out what they're good at and increase the time they have for that.
01:42:42	Shaan Puri	Well, I don't know what my calling is just yet. Actually, if I look back at that age, I was doing something very similar to this. The two things I really loved to do back then were: I loved to play any kind of game where there was a score. I was playing online poker at a very young age — things that related to business and money. The other was improv. I was doing improv all the time; I loved it. It was like a podcast but an improv session. I could just do this for three hours and it was no problem. I could've known that signal at a younger age.
01:43:12	Mohnish Pabrai	I think if you're not there, you're damn close.
01:43:15	Shaan Puri	Yeah, I want to leave you with one thing. I have a gift for you in this envelope—I want you to take a look. We asked somebody who knows you well to write a letter, and it's your friend Guy Spear. "Oh, wow." And Guy wrote this letter for you; he knew you were here today.
01:43:30	Mohnish Pabrai	What I Did Not Learn at HBS: Mohnish Pabrai Taught Me Everything I Needed to Succeed in Business Dear Mohnish — this is fun. I met you some years after my MBA, but the truth was, despite the degree, I knew next to nothing about business. My real education didn't begin until we met for dinner at the restaurant at the Delamar Hotel in Greenwich, Connecticut. I remember that evening vividly. I came away from that one dinner with more ideas than I had in two years at Harvard: books I'd never heard of and ideas I'd never thought of. You introduced me to Power vs. Force by David Hawkins and to Gandhi's autobiography, The Story of My Experiments with Truth. We discussed Robert Cialdini's Influence: The Psychology of Persuasion. What struck me was that you had not merely read about these ideas—you had put them into practice in your own life in a way that I did not even know was possible. Sitting opposite you, I realized that I was a conventional thinker; you, on the other hand, had a very unusual mind—someone who knew how to get things done in the real world and translate ideas into action. I myself was very misaligned at the time. I'm deeply grateful that you were willing to become my friend. That allowed me, over time, to untangle some of the misaligned elements in my personality.
01:45:01	Shaan Puri	Alignment
01:45:02	Mohnish Pabrai	"You couldn't give me a better gift. This is very special. Yeah — thank you so much."
01:45:07	Shaan Puri	I want to thank Guy for doing it. We—we called him last minute and said, "You know who knows him better?" Excellent. Monish, thanks for doing this.
01:45:12	Mohnish Pabrai	Okay, awesome.

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Mohnish Pabrai: How to be a top 1% investor

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