Go from $10,000 to $1M in just 3 years

- May 9, 2025 (11 months ago) • 01:17:55

Transcript

Start Time	Speaker	Text
00:00	Shaan Puri	How would I take $10,000 and turn it into $1,000,000? </FormattedResponse>
00:02	Mohnish Pabrai	"What we're looking for is something that hits you in the head with a two-by-four. We don't need to know many things about many things; we need to know a lot about a little."
00:14	Shaan Puri	"Why do you think most people don't do that?"
00:15	Mohnish Pabrai	Buffett always says, "The most important question to ask is, 'And then what?'"
00:21	Shaan Puri	Does he use Excel? Warren wouldn't be.
00:23	Mohnish Pabrai	Caught dead using Excel. Okay. Usually, the best ideas—when you finally figure that out—are very simple. You should be able to explain your thesis of a stock in about four or five sentences to a 10-year-old.
00:35	Shaan Puri	Where do you even know where to look?
00:37	Mohnish Pabrai	I'm going to lay it out for you. It's going to be so easy. All someone has to do is...
00:50	Shaan Puri	Okay, here we go. Anish, welcome back. Round two. </FormattedResponse>
00:53	Mohnish Pabrai	"Sean, it's always a pleasure."
00:55	Shaan Puri	"So let's play a game. You're my coach — you're my investing coach, let's say. I have $10,000 and I want to turn it into a million. Right? Podcast called My First Million — I want to go from $10,000 to a million. So that's a 100x. How would I take $10,000 and turn it into a million?"
01:10	Mohnish Pabrai	The thing about investing is that opportunities are not going to show up just because you have the cash. So I would make some tweaks to your thinking. First, about the 10: I would say okay, $10k is a good starting point. But what I also want you to do separately from that is have a day job. I want you to spend less than you're earning, and I want you to take the $10k and also take your annual savings—maybe that's $5–10,000 a year [transcription unclear]—and normally I would say put it into an index. The index, like the S&P, is overheated. We can't go there right now—circa 2025 we cannot go into the S&P. Maybe 2035 we can, but not 2025. So what I would do is treat Berkshire Hathaway as the index. The default currently is you dollar-cost average into Berkshire Hathaway Class B shares and you keep doing that day in, day out. If we did that, the math is really simple. Even if we were doing 10% a year—which I think is pretty reasonable for Berkshire—by the Rule of 72 we would double every seven years. Life is all about doubles. Let's say we had a 20-year-old with $10,000 and you go for fifty years—or forty-nine years. It's seven doubles, right? Seven doubles is 128. It's 128 times your money. I gave you more than a 100x; I gave you 128x in forty-nine years.
02:54	Shaan Puri	Without having to be a genius.
02:56	Mohnish Pabrai	Without doing anything, right? So this is just Plan B.
02:59	Shaan Puri	Right.
02:59	Mohnish Pabrai	Where we put the 10,000 in, it becomes more than 1,000,000 — 1,300,000 — with no taxes paid. Right? There's no dividend, there's no taxes, there's nothing, and we haven't even gone to Plan A yet. This is just sitting there. The other thing is that every once in a while there'll be opportunities that show up. What we're looking for is something that hits you in the head with a two-by-four. So the best investments are ones that make no sense. You cannot make sense of the numbers — it's too good to be true; it's just weird. When these kinds of unusual things come together, where things don't make sense, that's when we want to dive in.
03:45	Shaan Puri	"Give me an example of a great investment." "A great investment is one that doesn't make any sense. The numbers just seem wrong to you in the moment."
03:52	Mohnish Pabrai	Well, I'll give you one example where it was a moneymaker for me, but I didn't make even 3% of the money I should have.
04:04	Shaan Puri	Okay.
04:04	Mohnish Pabrai	You know what I mean? It was given to me on a platter, and I blew it. I still made money.
04:09	Shaan Puri	Right.
04:10	Mohnish Pabrai	But you know, usually the best ideas—when you finally figure them out—they're very simple. The year, I think, was around 2001 or 2002. I had encountered a shipping company called Frontline. Frontline was a company that owned a fleet of about 75 VLCCs (Very Large Crude Carriers). These are giant ships that transport crude from Saudi Arabia to the U.S., and they're just huge. The entire global fleet at that time was about 300 VLCCs; 75 of them were owned by Frontline—25% of the market. The guy who ran it and was the founder of Frontline, John Fredriksen, had put the entire fleet on the spot market. There are two ways he could have dealt with his fleet. He could have done time charters—one-year or three-year deals—where he's guaranteed daily cash flows. Or he could be a gambler: put it on the spot market and play it.
05:19	Shaan Puri	Whatever the price is today.
05:21	Mohnish Pabrai	So I'll take—he had put the entire fleet on the spot market. Now, these VLCCs have a cost, with the crews and all of that, of around $15,000 per day to break even. At that time we had the Iraq War and different things going on, so oil demand fell a lot and there wasn't enough need for VLCCs. Shipping rates collapsed. They went to $7,000 per day. So now you have Frontline losing $8,000 per day times 75 ships, and they're levered. Basically the stock got "taken out back and shot" — it dropped about 90%. Most of that decline was valid because, when we make investments or when the equity markets look at a company, they want to see consistency of cash flows; they reward consistency. Here, what we were seeing was consistency of losses. No one could tell you when these losses would abate. The dynamics were such that the stock, I think, was down to about $3 per share. When I looked at it, I noticed two things. The first thing I noticed is that all their debt was non-recourse — that debt was tied to individual ships. There was no debt at the parent. So, basically, if they defaulted on the debt of a ship, the bank would just take the ship. They couldn't really take the company; they could just take that ship [similar to repossessing a car under a car loan].
07:07	Shaan Puri	Right.
07:07	Mohnish Pabrai	Right. The second thing I noticed was that there's a somewhat liquid market to buy and sell these ships. So even when the rates went to 7,000 per day, the ships had dropped in price by something like maybe a third—a 25–30% drop from where they used to be.
07:29	Shaan Puri	Right.
07:29	Mohnish Pabrai	So what I realized is that if Frontline got into a crunch where they were having cash problems, they could just sell three ships. If they sold three ships and paid off the debt, they'd have enough cash leftover to sustain operations for six to nine months. They could sell three more ships after that. So I felt like there was really no way the company was a candidate for bankruptcy. The other thing is I could look at the entire company and say, okay, what if they sold all the ships? If they sold all the ships and paid off all the debt, you would end up with like $9 or $10 a share. You're at $3 right now. So you'd make three times your money if they just liquidated the whole business. There was the arbitrage between the price of the stock and the net price of the assets in a distressed scenario. Right? I said, okay, we really can't lose money here. So I put 10% of my fund into Frontline because I just couldn't see a way that we could lose money. After a few months the rates started improving, oil demand started coming back up, the rates went to $15,000, then $20,000. The stock's at $10. Okay, I sell my shares. Well done, Monish.
08:51	Shaan Puri	"Tripled my money."
08:51	Mohnish Pabrai	Yeah, in like eight months or something. Okay, and I said, "Okay, this was exactly what I thought." Right? Rates then go to $300,000 a day. Okay — at $300,000 a day they're making something like $285,000 a day times 75 shifts. Okay, that number is like infinity.
09:16	Shaan Puri	"Yeah, I was trying to do the math."
09:19	Mohnish Pabrai	Assume it's infinite — the stock goes up in the next three years. ADX... oh wow. Okay, here's stupid Mohnish, patting himself on the back with the double. I didn't even get a double; I got like an 80% return on my money, and that was that. That was an example of where I did first‑order thinking but I did not do second‑order thinking. The second‑order thinking was: Buffett always says that the most important question to ask in investing is, "And then what?" If I had been so smart as to ask the question, "And then what?", you see that rates are terrible, you see the scrapping, you see that the fleet's going to shrink. So even if oil demand doesn't come back the way it was, it's going to come into balance eventually. Those losses are going to go away. And then you do the next thing — and what that is is: when oil demand comes back, it takes three to four years to build one of these things. So when the rates went to 30,000 or 50,000 and all these guys could see, "This is a great business now," well, when you go to the Korean shipyards, who are now inundated with orders, they're going to say, "Go to the back of the queue. I'll give you a ship in five years." By the way, the ship is no longer $70,000,000; the new price is $120,000,000 [approximately $120 million], right, because I got more orders than I can handle. So we had this dynamic. If I had thought about it — that once demand became tight, you really couldn't increase supply for at least three or four years — so what's 285,000 times 75 times one thousand days?
11:11	Shaan Puri	Right.
11:11	Mohnish Pabrai	That's the minimum number of time when that price is not gonna come down. It's only after three or four years, more ships start getting delivered and you start getting more balance and all of that. But that's an insane amount of cash flow, right? The thing is, as our friend Jim Cramer says, there's always a bull market somewhere. So basically, if we are Plan A: Berkshire Hathaway — Plan B: looking for anomalies. Every so often — not very often — you will find something weird. We've got all the time in the world; we can research something for three months. If it turns out it's not that great, let it go. Right? We've got Berkshire still cranking. If you look at Warren Buffett in his 2022 letter, he said that in 58 years of running Berkshire there have been 12 decisions that have moved the needle for Berkshire stock. Now, in 58 years he made more than three or four hundred purchase decisions for stocks and businesses. If I take a conservative number, it's actually more than that. Only 12 were exceptional, and he said there was one good idea on average every five years. This is Warren Buffett — a 4% hit rate. Great investment ideas are rare. We're not going to run into them every week, month, or even year. So: Plan A — stick it in the index. Plan B — keep running a Geiger counter over everything, looking at different things, and when something doesn't make sense, drill down. Every so often you're going to hit a mother lode. When you find something that's a mother lode, peel off 15% of what you have in Berkshire, put it into that, let it play out, then put it back into Berkshire.
13:18	Shaan Puri	Right.
13:19	Mohnish Pabrai	"Right. And just— you keep doing that, and now your 100x is going to show up in half the time or less."
13:26	Shaan Puri	Alright, let's take a quick break because we've 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 these principles he's discussing, because the dude is just a wealth of knowledge when it comes to investing. Well, the fine folks at HubSpot listened to this episode. They took the transcript, extracted the nine principles he talks about — along with the examples he gives — and put it all in a PDF for you. So you don't need to take notes; they did it all for you. You can read that and learn from it. That's a much better way to get more value out of these episodes. It's in the show notes below. Just go download that and enjoy. So, you tell me the story about these ships, and when you explain it I can see it just like you see it — "oh, that's the opportunity." But the thing I don't get is: why are you looking at crude oil ships? How do I get to... how do I even know where to look? What is that process for you? Do you pick one industry and look at 100 companies in it? Do you read books on 50 industries? Do you look at what other investors are doing and try to reverse-engineer it? Like, where do you even know where to look? </FormattedResponse>
14:24	Mohnish Pabrai	I'm going to lay it out for you. It's going to be so easy, but it takes a certain temperament. First, I want to talk about the temperament. If we go back to Warren Buffett when he was a teenager, he used to go to the racetrack in Omaha. One of the things he did — he was about 14 years old — was after all the races were done he'd pick up all the tickets that people had left, thrown on the ground. These were mostly losing tickets; people just kind of tossed them into garbage cans. He'd pull them all out, then go home and, one by one, look at every ticket he found. Sometimes a horse would come in second and the ticket was for "win" or "place." It was actually a winning ticket, but it had been discarded — they didn't understand, or they were drunk, or whatever. Because he was underage, he couldn't go to the counter to collect the money, so he gave it all to his Aunt Alice, his favorite aunt. She used to go to the counter, collect the money, and give it to him. When Warren became older — let's say 24 or 25 years old — he went through the Moody's Manual. That's what he was doing in the Moody's Manual. And, you know, for nostalgia I bought these on eBay and I want you to see the Moody's Manual.
15:49	Shaan Puri	So, this is terrible... was.
15:53	Mohnish Pabrai	23 years old.
15:55	Shaan Puri	This was his nighttime casual reading.
15:57	Mohnish Pabrai	This was his. So, what he did now with the Moody's Manual: there were a number of these that came out. So, like, in the year 1953, this is just railroad, airline, shipping, traction, brass, and truck.
16:09	Shaan Puri	I don't even know what this is. Is this the earnings reports?
16:12	Mohnish Pabrai	So, this is all the value line for that day.
16:14	Shaan Puri	Okay.
16:14	Mohnish Pabrai	Okay, so if I open the Moody's Manual to any random page... What it's doing is it's got two or three companies per page. You can see how fine the print is. Yeah, it's okay. All right... needs, like...
16:31	Shaan Puri	A magnifying glass.
16:32	Mohnish Pabrai	And it's basically giving you a summary of every company. Right now, Buffett went through—this is just one of them. In 1953 there were probably about seven or eight of these books that came out, with a similar number in '54, '55, and so on. So you're talking about a big stack of these. He went through these books two or three times. What he did was read each one page by page, and he was looking—what he was looking for were anomalies. He used to host MBA students and would bring them printouts from the Moody's Manual for the companies he invested in. For example, he would find something like Western Insurance where the stock price was $15 a share, earnings last year were $25 a share, and book value was $80 a share.
17:40	Shaan Puri	Right.
17:40	Mohnish Pabrai	Okay, that's what we call an anomaly, right? Hitting you in the head with a two-by-four makes no sense. He would make a list of all these companies that made no sense in the positive direction, and then he'd study them and make investments. Now, in order for Warren to find Western Insurance, he might have had to spend 14 hours a day nonstop reading these [sources] for three months before he found one or two of them. But he only needs very few of them. Warren — he's a prodigy. His mind was programmed for this intense work; the work never bothered him. He would go through all those tickets on the floor and then go through each one with the optimism of, "I am going to find something that is basically a 'free lunch'." And so he went through the Moody's Manual, started finding these anomalies, made investments in them, and did well. Now we have a shortcut, because I know your listeners are not going to do what Buffett did. I cannot do what Buffett did; I do not have the wherewithal and the ferocious intensity that Warren does. Almost no one does. I think he's just an extreme anomaly on that front. So, for example, there's a website called Value Investors Club. If you go to Value Investors Club, it's free—you don't have to pay anything. If you give them your email, you can see all ideas that are 60 days or older. It's very difficult to become a member of Value Investors Club and post ideas; it's a curated website. Members have to submit two ideas a year that get a decent rating in order to keep their membership. What I have found is that Value Investors Club has a lot of brainpower—brainpower coming out of their ears. It's all free, so all someone has to do is sit down and read the write-ups on Value Investors Club. There may be, I don't know, 500–800 write-ups in a year. Each write-up might be around 10–15 pages max, plus comments. What I'm saying is that it's much easier than the Moody's Manual because someone is actually digesting the information for you.
20:31	Shaan Puri	You could do one of those a day.
20:32	Mohnish Pabrai	You could easily do one of those a day. That's pathetic.
20:35	Shaan Puri	I'm saying—even you said, "If there's 300 total." Yeah. But I'm just saying less than a year.
20:40	Mohnish Pabrai	It would be easy for someone, without putting too much work into it, to read 4 or 5 ideas a day, right? I mean, you could have a full-time job and easily do that. That's a difficult thing to do. You don't need to read the whole idea. What I would say is, read the first few paragraphs and see if this is something that's interesting to you or not, or something that's grabbing you...
21:01	Shaan Puri	Not right.
21:02	Mohnish Pabrai	And what I do is I look at every idea that's posted. I don't feel the need to look at them right when they're posted because those ideas can still work years later. For example, I recently started investing in a company whose original write-up was from 2021. It's now 2025, and it's still valid. That said, you should use these write-ups only as an input to your own ideas—just like Moody's Manual isn't telling you what to buy or sell. Once you see an idea, do all your own work: do your research, make sure it's something you understand well, and ensure it's within your circle of competence—whether you ultimately buy into the idea or not. Buffett is still doing this. Regarding his Japanese bets, there's another book called The Japan Company Handbook.
22:02	Shaan Puri	Okay.
22:02	Mohnish Pabrai	And I'm gonna bring the Japan company handbook, okay?
22:06	Shaan Puri	Alright, here we have it, and I'm excited about this because you hear a lot about Buffett's well-known bets—See's Candies, Coca-Cola, GEICO. Yeah, but as I understand it, Buffett made some incredible investments in Japan.
22:20	Mohnish Pabrai	So let me explain how no-brainer—the total no-brainer—nature of that bet was. These five Japanese trading companies had an 8% dividend yield. They were paying an 8% dividend; it was very cheap. Japan's index had not gone anywhere for like thirty years, and Warren actually got an insane return on these. What he did was borrow the entire amount in yen at 0.5% a year.
22:59	Shaan Puri	And it was not a small amount — it was like 5,000,000,000 (five billion).
23:01	Mohnish Pabrai	Yeah. He put ¥5,000,000,000, but he borrowed the ¥5,000,000,000 at half a percent (0.5%) — the whole thing in yen, in Japan. So now he's bought a Japanese company paying dividends in yen, which he bought in yen. The dividend coverage is 16 times his interest payment, so he put no equity, and he's instantly making 7.5% on ¥5,000,000,000, which is, like, about $35,400,000,000 out of nothing. It's just coming to him. What happens is, because these companies are so cheap, in about three or four years they all doubled in price. So now the ¥5,000,000,000 has become ¥10,000,000,000. The equity that went in is nothing, so it's an infinite return. They all raised the dividend — the dividend, based on the original purchase price, is about 15%. After that, he increased the bet. He was under 5% of all of them; he's now approaching 10% on all of them. Anyone could have looked at the [Japan Gumley handbook] — basically, think it's a matter of how hungry you are. It's the same as any entrepreneur: anyone who starts a business has to go all in, with intense passion, eighteen hours a day, all in, very strong belief. It's the same thing here. If you truly are focused on it, you can do very well. The universe is going to conspire to help you with whatever your passion is — it's just a matter of whether you want it.
24:42	Shaan Puri	By the way, does he use Excel?
24:44	Mohnish Pabrai	Well, no. He does not use Excel, for sure.
24:47	Shaan Puri	Okay. He uses his computer now. Now he uses Google and...
24:50	Mohnish Pabrai	All that, but he uses his computer mainly to play bridge. I mean, Warren wouldn't be caught dead using Excel. The thing is that he's looking for things that "hit you in the head with a two by four," right? So when he's going through a Japanese company handbook or the Moody's manual, there is no Excel needed. What will Excel help you with when the earnings are $25 a share and the stock is $15? You don't need Excel.
25:16	Shaan Puri	Right.
25:17	Mohnish Pabrai	Okay. When the dividend yield is 8% and you're borrowing at 0.5%, you don't need Excel.
25:22	Shaan Puri	Right.
25:22	Mohnish Pabrai	Okay. In fact, if you need Excel, it's an automatic fail, because it means there's something complicated there which is not fitting in. Did I need Excel for Frontline? No—I didn't need Excel for Frontline. I look up the liquidation price of those ships. I look up where the ships are. The thing is, all of these are very basic numbers; you don't need Excel for it.
25:48	Shaan Puri	Right.
25:49	Mohnish Pabrai	You know, recently I was talking to a friend of mine. He's looking at some international stock exchange. This international stock exchange is trading at a trailing P/E of about 30. It's growing at ~20% a year — very rapid growth. Sixty percent of revenue is profit, and as they grow that 60% might become 70% because they've got operating leverage. If you just project forward two or three years, the P/E becomes less than 10. There is no need for Excel; you can do it all in your head. It's got $10 of earnings today. It's going to have $12 a year from now, $14–$15 two years from now, maybe $17 or $18 three years from now. The stock is at $300 now. When you're at $18, you're already at a 15 multiple — you've already cut it in half. But it's growing; by that time it may be trading — it should be trading — at even more than 30 times earnings, so the stock may be at $600 or $700 by then. It's just the math of all of that. What I'm saying is: if you can't do the math in your head, it's an automatic pass, because that means there's something complicated. Another important thing: you should be able to explain your thesis of a stock in about four or five sentences to a 10‑year‑old. If you can't do that, it's a pass. You can't sit down with a 10‑year‑old with an Excel spreadsheet — they're not going to like you, and they're not going to be interested.
27:30	Shaan Puri	Right.
27:31	Mohnish Pabrai	> "Einstein used to say, 'There are four levels of intelligence: smart, intelligent, genius, and simple.'" Okay—the highest level of intellect is simplicity.
27:44	Shaan Puri	Right.
27:45	Mohnish Pabrai	And the other thing about investing is that you have to have conviction. It's very difficult to have conviction if you keep needing to go back and look at your Excel model. You need it in your head. So Buffett never needs to go anywhere — it's in his head. He knows what the dividend yield is, he knows what he paid, he knows what the yen is, he knows all of that. It's pre-programmed.
28:06	Shaan Puri	Right. So we have: "Don't use Excel" — don't overcomplicate it. That's really what that means. And the second is leverage: "Don't overleverage." I think the story here that I like is: there should be a third bust on this table next to us — somebody's missing who was an original partner with them.
28:26	Mohnish Pabrai	Yeah.
28:26	Shaan Puri	Can you tell that story? I think his name is Rick.
28:28	Mohnish Pabrai	So actually Warren, Charlie, and Rick Guerin used to do deals together. They were all independent, doing their own thing, but they used to share ideas and sometimes they'd go in together. Rick found Blue Chip Stamps for them, and I think he also might have been the guy See's Candy contacted and so on. After the early seventies we never heard about Rick—he kind of fell off the radar. When I met Warren for lunch, I asked him a very innocent question: "Warren, what happened to Rick? You were the three of you and then we never heard from him after that." Warren said: > "Charlie and I knew that we would get very rich and we were not in a hurry." He said, "Rick was in a hurry," and that Rick was always using some leverage. Then, when the 1973–1974 downturn came, that was very intense — it was a crash in slow motion, basically.
29:27	Shaan Puri	Okay.
29:28	Mohnish Pabrai	Over a two-year period, the stocks went down by more than 50%. It was a huge drawdown, and Rick got margin calls. Warren said that when Rick got the margin calls, he bought Rick's Berkshire Hathaway for $40 a share—the stock that's now $700,000 [per share]. Rick was forced to sell at probably the worst possible time. Warren then went one step further, because he's always trying to add value at these lunches. He said to me and Guy: > "If you're even a slightly above-average investor, and you spend less than you earn, and you use no leverage, you cannot help but get rich in a lifetime." </FormattedResponse>
30:16	Shaan Puri	Tell me about the difference between risk and uncertainty.
30:19	Mohnish Pabrai	Yeah, well, that's an important concept to understand because Wall Street gets confused between the two. In fact, when Wall Street gets confused between the two, that is where the greatest opportunities lie. So we talked about Frontline. Frontline was an example of a situation where uncertainty was extremely high and risk was very low. Right — what Wall Street is looking for is certainty. So if we look at a company like ADP — they process payroll — they've had something like 50 years of nonstop growth. Your running payroll is going to keep going up, your cash flow is going to go up; it's all in a straight line. That's beautiful, and Wall Street will reward you extremely well for that.
31:13	Shaan Puri	Right, and it's priced accurately.
31:16	Mohnish Pabrai	It'll be priced for euphoria. It'll be overpriced, okay, because they love that — that's what they're looking for. On the other hand... that's... </FormattedResponse>
31:24	Shaan Puri	Their type.
31:24	Mohnish Pabrai	Yeah — that's music to the ears. On the other hand, if a company exhibits high uncertainty, it will be "taken out back and shot," right? Those are where the opportunity is. One of the cues to look for is: is this a business with low risk and high uncertainty? The combination of the two — low risk + high uncertainty = high rewards.
31:56	Shaan Puri	"I was looking at your portfolio, and you have this company invested in Turkey that's like a Coke bottling company. Would you say that's a good example of the kind of risk and uncertainty mismatch?" </FormattedResponse>
32:07	Mohnish Pabrai	Yeah, we actually made money on it, but we exited. The reason I exited is that the Coke bottler basically had a parent company, which was the dominant beer bottler in Turkey and several other countries. Their largest operations were in Russia, where they had number-one market share — a 50/50 joint venture with Aminbev. Russia has effectively nationalized that business.
32:37	Shaan Puri	I see.
32:38	Mohnish Pabrai	And I think they did it because they were somewhat upset with Erdogan about something, so they went and did that. Was it his support for Ukraine, or something? When that happened, it went into the "too hard" pile for us.
32:51	Shaan Puri	Explain the "too hard" pile. That's something I stole from you last time I was...
32:55	Mohnish Pabrai	Well, it's a warranting... We'll get to that in a second. But basically, it was something I couldn't handicap.
33:01	Shaan Puri	Sure.
33:01	Mohnish Pabrai	So we were sitting at a game, and we had this event take place. I got my bet back with some added return, and we closed it. I said, "Where do I sign?" Right? I can go find something else to play with. But the "Too Hard" pile is actually a physical box on Warren Buffett's desk. If you Google "Warren Buffett Too Hard," that image will probably pop up. He has a box on his desk which he calls the "Too Hard" pile, and he says that 99% or more of investment ideas you encounter should go into that box because we're not going to be able to figure them out. [a physical box labeled "Too Hard"] One thing to understand is that if there are 50,000 stocks in the world, we are not really going to understand more than a few hundred of them at most, even after quite a while of studying them. So most companies that we would encounter should go into that box. One of the important things in investing is humility — humility to understand. I mean, Warren has no issues admitting that he doesn't know most things, that most things are not going to be able to be figured out or handicapped. And we don't need to. If you can understand a very small sliver of businesses, and you know when those things get overpriced and underpriced, that's all you need.
34:33	Shaan Puri	Right.
34:34	Mohnish Pabrai	"You don't need anything else."
34:35	Shaan Puri	There's a guy who owns a bunch of real estate, but in a very small area—yeah.
34:40	Mohnish Pabrai	That's John Arriaga.
34:41	Shaan Puri	Yeah, what's his story? It sounds like it's a good example of this: a very thin circle of competence, but he knew the pricing and was able to...
34:49	Mohnish Pabrai	So, John Arrillaga was a billionaire. He passed away maybe two or three years ago — pretty recent. His daughter's married to Marc Andreessen.
34:57	Shaan Puri	"That's right, yeah."
34:58	Mohnish Pabrai	So it's "billionaire to the power of billionaire." Anyway, John Arriaga basically had a very narrow circle of competence. He didn't understand most things, but he only invested in real estate within two miles of the Stanford campus. That's all — usually just right around the campus. If you walked with him around the campus, every single building he could tell you the full history of: when it was built, what the current value was, what the rents were, who the owners were, and what the history was. He knew that about every building. He was "an inch wide and a mile deep," and that is a really good trait for an investor — to be very narrowly focused.
35:46	Shaan Puri	Right.</FormattedResponse>
35:46	Mohnish Pabrai	Right now, what John Arriaga did is he ran, generally speaking, a very under‑levered portfolio. His portfolio always had not much debt. When the downturns came, he aggressively bought, because all these distressed properties were around. I mean, it's the most prime real estate you can think of—yeah, other than Park Avenue or something. So he would just buy these things up. Everyone was getting foreclosed and bankrupt, going to the banks, and he'd buy it from them, get them all leased at fair value, and then take the leverage down. Again, next down cycle—same thing—and he stuck to that. The thing is, he didn't wander into, “Oh, let me go to Mountain View and do this,” or “Let me go to California and do it.” He didn't do all that. I mean, he's basically not like, “Oh, let me invest in tech or something.” He didn't do any of that. He stuck to real estate—that's all he did—and he did it extremely well, and he died a billionaire. "We don't need to know many things about many things; we need to know a lot about a little. That's the important thing."
36:58	Shaan Puri	Right.
36:59	Mohnish Pabrai	Know a lot about a little. Right? So, for example, if I'm looking at Frontline, I should learn everything I can about shipping. I should learn everything I can about oil shipping, about tankers, about the history, who makes them, and every nuance about it. The deeper I go, the better it's going to be for me. Right. Okay — I shouldn't be spending time next week on airplanes. Okay, just leave it alone… one by one by one.
37:26	Shaan Puri	Right. Why do you think most people don't do that? Because when I hear that I think... there's a "blueprint" to just say, "I'm going to go deep and, in this two-mile radius, I need to become super knowledgeable. I don't need to get distracted by everything else, and I'll hold forever," right? If that's a...
37:42	Mohnish Pabrai	You think about it. I think it was Nick Sleep who has this quote. He said, "The best investors are entrepreneurs who never sold." If you think about entrepreneurs, that's what they are — they are John Arriaga, right? So if I look at Sam Walton, Sam Walton is John Arriaga: all he did was retail. All he did was visit competitor stores; he never bothered with anything else.
38:08	Shaan Puri	"So, Sam Walton, founder of Walmart?" "Yeah. What do you mean? Tell me more about him."
38:12	Mohnish Pabrai	Well, so, Sam Walton — I mean, he said that: > "There is no human who has ever lived or ever will live who has spent more time in competitor stores than me." Whenever he'd go on vacation with his family and they were passing a retail [store], he said, "I'll be back in 20 minutes," and you go...
38:33	Shaan Puri	What is he doing in there? What did he do? </FormattedResponse>
38:35	Mohnish Pabrai	So, I'll give you an example. One time he went into the store and the manager said to him, "That was such a badly run operation." Sam said, "Yes, but did you see the candle display? Did you see how fantastic that candle display was?" His perspective was: "I can learn from losers. I want to learn that spark that's there in something that's a total loser." One time in Brazil, in a retail store, they found an older guy flat on the ground and called the paramedics. It turned out it was Sam Walton. What he was doing was measuring the space between the aisles and he didn't have a tape [measure].
39:24	Shaan Puri	"With his body."
39:25	Mohnish Pabrai	So he laid down, and the space between the aisles is a very important data point for a retailer. You're going to either miscalculate square footage or make the aisles too narrow, and people won't enjoy the experience. You have to get that right. He was in Brazil, asking, "How are they doing it? Am I three inches too wide in Walmart? Am I three inches too narrow? What's going on here?" This was a game of inches — that's who Sam Walton was. In fact, Walmart did not innovate much, at least for the first 20–25 years. Much of what Walmart used came from other competitors. They took a lot from Sears, a lot from Kmart, and then they killed them. They kept learning from one competitor after another. Sam Walton used to say: > "I'm not the smartest tool in the toolbox. I'm not a smart guy, but I'm a learning machine. I'm going to keep at this." It's very funny — he went and visited Sol Price, the founder of Price Club (which eventually led to Costco). He looked at Price Club and said, "This is fantastic," and he created Sam's Club. Costco was also taken from Price Club, so both Sam's Club and Costco — they would not have...
40:51	Shaan Puri	"How did you say Sam's Club is? Sam Walton didn't even..."
40:54	Mohnish Pabrai	Know that it's part of Walmart.
40:55	Shaan Puri	Oh, I didn't even know that.
40:56	Mohnish Pabrai	Oh, it's part of Walmart, and it was completely cloned from Price Club, which was a predecessor to Costco, right? Sol Price was an incredible entrepreneur. Someone goes to him and says, "You know, no one has had more impact on retailing than Sol Price," because Sol Price influenced Sam Walton in a major way, and he influenced Jim Sinegal, the founder of Costco, in a major way. I mean, these are the pillars, and then these two companies influenced Amazon.
41:27	Shaan Puri	Right.
41:27	Mohnish Pabrai	Right, so it's all coming from Sol Price. Someone told Sol Price, "You are like the father of retailing in the U.S. and actually globally. What do you think of that?" He said, "I wish I'd worn a condom."
41:47	Shaan Puri	Too good — that's amazing. So, Sam Walton.
41:51	Mohnish Pabrai	Yeah, but I just want to say that this book...
41:55	Shaan Puri	Full price.
41:55	Mohnish Pabrai	"This is a very good book. It's out of print and hard to find, but I think it's one of the best books on retailing."
42:05	Shaan Puri	Right.</FormattedResponse>
42:06	Mohnish Pabrai	Costco pays 50% more than Walmart pays its employees, so the entry-level people are making 50% more. That hasn't hurt the profitability. In fact, Sol Price's view was similar to Henry Ford's view: "I want the people who work in my stores to be able to shop in my stores." Just like Henry Ford said, "I want my workers to be able to buy my cars." At that time, automobiles were for the rich.
42:37	Shaan Puri	Right.
42:38	Mohnish Pabrai	And Henry Ford said, "No — I want them for everyone," right? So he wanted to drop the price. I think at Costco the lowest wage is $20 an hour when you're starting out. They also have tuition reimbursement and all kinds of other benefits, and they get a lot of productivity out of their people.
42:58	Shaan Puri	Yeah.
42:58	Mohnish Pabrai	Because of that.
42:59	Shaan Puri	"You've got these books here, and we're sitting in your— we're at your house; we're in your library. How many books do you think you have in here?" "This is a thousand books."
43:08	Mohnish Pabrai	A few thousand.
43:09	Shaan Puri	A few thousand books. Yeah — I mean, just to set the scene: your office and your computer are over there, and we're surrounded by a cave of books on every topic. I see some business books over here, investing books, and you just brought a retail book about Sol Price, the founder of Price Club, from over there. There's science, I think, on that shelf. "What does this door go to? What is this?" — that's my bedroom. That's a bedroom. Okay, so you live in the library essentially. Yeah, and you nap every day, I think.
43:37	Mohnish Pabrai	Absolutely, yeah.
43:38	Shaan Puri	Yeah, so we're both nappers.
43:40	Mohnish Pabrai	I've been so used to napping that if I don't nap, my productivity goes down. I actually don't like to work if I'm not productive. What I find is that even if I lie down for half an hour to forty-five minutes, I'm re-energized. For the work I do, I need to be all in. I actually can't do this work if I'm tired, you know.
44:05	Shaan Puri	Yeah, there's this athlete, Conor McGregor, and they asked him about his training schedule. He said, "One of the big mistakes I made is that I was always trying to train all the time. I wanted to come to the gym three, four times a day. I thought that's how you win." His coach basically said, "You're like a light that's always just dimly flickering because you never turn off... and therefore you can never turn on and be as bright and as effective as you could be." And this flickering, dim light isn't doing you any justice. So I've used that in my own model: Where's my light right now? If I need to just shut it down briefly—thirty minutes, an hour, whatever it is—to come back at full brightness, that's the best.
44:41	Mohnish Pabrai	Well, Jeff Bezos said he makes all important decisions in the morning. He's very particular: he needs a solid eight hours of sleep at night and leaves work at a normal time. But he says they don't make those important decisions in the afternoon.
45:00	Shaan Puri	Right.
45:01	Mohnish Pabrai	It's the first thing in the morning because he wants the highest energy levels. In fact, what I also try: I find my best work is in the morning.
45:08	Shaan Puri	"I'm curious about your style, because I came over to your house once and you were very calm. It didn't seem like you were on the clock—you weren't moving from one meeting to the next. There wasn't a big, bustling team of analysts and junior people. You seem to keep a pretty clear calendar. Is that intentional? Do you think that's just what you like, or is that more effective?"
45:29	Mohnish Pabrai	Well, in the business I'm in, if I can find a couple of things to buy in a year — in the case of Buffett, "one thing to buy every five years" — I'm doing well. This is not a situation where having a packed schedule matters. I think the thing is, you're taking in a lot of information but there's not much action. You're basically trying to improve your mental models and understand more about the businesses that you already own. I'm going through places like Value Investors Club and SumZero, and that sort of thing, just looking at what else is there. Sometimes I find an amazing idea, and then there's a deep dive — and that might take a while.
46:18	Shaan Puri	I was reading something interesting. In our first episode we talked about how you got started: you were actually an entrepreneur first. You said this great thing — you realized that as an entrepreneur maybe 3–5% of your brain power was on strategic decisions and really clear thinking, coming up with the right answer. Then 95% of your time was blocking and tackling. You said that as an investor it's great because that 3% becomes 95% — you're just about clear thinking and making the right strategic move, and you don't have to busy yourself with everything else. One thing I thought was cool: I read that you took some personality test or got some analysis done that basically helped you. They told you your temperament is for "single-player games." What is that? I didn't understand what you did.
47:05	Mohnish Pabrai	Yeah, so this was kind of accidental — and I think it turned out to be one of those great things that happened in my life. In 1999, I was at a crossroads. It was very clear to me that the business I had built — my IT business — no longer interested me, and I had become a lot more interested in investing. It was a difficult time because I had about 170 people in the company who depended on me. They expected me to be motivated, and I couldn't fake it. Very accidentally, I was with two industrial psychologists and they basically did a 360-degree review on me. They had me take a bunch of tests, and they talked to my direct reports, my friends, my family, my spouse — and they built a kind of 360-degree view of who I was. Then they gave me what I call my "owner's manual," and I think everyone should have their owner's manual.
48:06	Shaan Puri	It comes with an appliance you bought.
48:08	Mohnish Pabrai	Yeah. I mean, we show up — we don't have an owner's manual — and each one of us is programmed differently. What they said is: "The way a human is — his traits, likes, dislikes, and passions — is hard-coded by the age of five, and that is not going to change from age five to age ninety-five." Okay, you might try to... so you cannot change traits. You can try to change behaviors, but you cannot change traits. Traits are determined by your genetics and the first five years of life; they are hard-coded. Now, the problem most humans have, which I had, is that we don't know what those traits are. What most of us try to do is what they call mirroring: we look at what the world considers acceptable and we adapt our behavior so that we can fit in. But that can be a big disservice. So basically what they were able to tell me is they said, "Look, you are a person." They said, "When we look at the company you're running and we look at who you are, we don't even know how you can go to work."
49:22	Shaan Puri	How are you functioning?
49:23	Mohnish Pabrai	Yeah, we don't know, actually. I was in pain. I was in a lot of pain. The thing was that I loved that business when it was just me. I loved the business as it was growing—until we got to the first ten, fifteen people. As it started growing beyond that, my life became, and my job description became, HR. I'm just herding cats. "I'm not a cat herder." That's not who I am. What they said was: the business that you have, you need to get rid of it in some way as soon as you can. I was just thinking at that time—this was in March or April 1999—I was thinking of starting for [Bryte Funds?]. They looked at it and they said, "This is perfect for you; this is going to work extremely well for you." In fact, one of them invested—he's one of the first investors who came in. </FormattedResponse>
50:17	Shaan Puri	He—so he put a skin in the game, was a...</FormattedResponse>
50:19	Mohnish Pabrai	[unclear phrase: "high believer"] I told him, "Listen, I'm paying you guys $2,000 to do this; you're giving me $100,000. I really don't want to lose your money." They said, "I don't have any doubt, Mohnish. You're going to do very well, so I don't see any risk here." He did extremely well, and they were actually right, because now it's been twenty-six years since I've been running it, and I haven't gotten bored.
50:43	Shaan Puri	So, what did your owner's manual say? I said, "Don't like that."
50:47	Mohnish Pabrai	My owner's manual basically said that—well, first of all, they said that I had very high horsepower, and they said that I was one of the smartest guys they had come across, etc., which was great. But they also said, "You are a guy who likes to play single-player games. You are not the kind of guy who would be happy being in a soccer team, for example, where you're one of the forwards or whatever and your performance depends on the team."
51:14	Shaan Puri	Right.
51:15	Mohnish Pabrai	They say you seek out games that are single-player games where you think you have some edge. When you think you have some edge in that sort of game, you will "kill it." Actually, what I've noticed is… for example, I got banned in Vegas playing blackjack, right?
51:34	Shaan Puri	Okay, I got to know this story.
51:36	Mohnish Pabrai	I figured out a system that basically beat them. </FormattedResponse>
51:41	Shaan Puri	Okay — counting cards. What were you doing?
51:44	Mohnish Pabrai	And actually, I did it without counting cards. In fact, it took the casino almost a year of watching me. I used to go every, like, six weeks or so, and they played those tapes over and over because the markers that they look for were not there. We'll talk about that in a second. So what I'm saying is: what are the games I like? I like blackjack, I like bridge, I like investing, and even Dakshina—for example, the Dakshina Foundation—that's also a game, right? These are...
52:19	Shaan Puri	"That's your philanthropy."
52:20	Mohnish Pabrai	Yeah, but they're all mathematical games. Even Dakshina is a mathematical game, because what I'm looking at is input–output ratios. People think I'm doing all this good in the world and all that. What they don't understand is I'm a game player. What I'm trying to do with Dakshina is: how much money is going in and what's coming out? That's the only thing I'm focused on — what's going on and what ended up happening with the entity. Like, Dakshina is — Warren Buffett wrote me a letter saying that "this is the best." I mean, he took the time to write the letter. He's never done that for any philanthropy that he's looked at. The reason is because there's a game player who's not focused on, you know, name and lights or a bunch of fancy pictures in the annual report. We have no pictures in the annual report, and that's just like the Berkshire report — it's about an honest input-through-output singular. So what I did is, every year that we ran Dakshina...
53:17	Shaan Puri	"Well, explain what it is. I don't even know."
53:18	Mohnish Pabrai	If you take a step back and say, "I want to give money away to make the world a better place," the natural next step is: "I want very high returns on the money I'm putting out." So social return on invested capital should be extremely high. Now, most nonprofits don't even think this way. They're all heart: "There's a homeless guy—let me help the guy." They don't really do an analysis of what's going in and what's coming out. I ran into this model a guy was running—I think in 2006—where he was taking 30 kids who were very, very poor in Bihar, India. Most of these kids were coming from illiterate parents, etc., but they had very high IQs. He prepped them for about ten months and had them take the IIT entrance exam. The IITs are the best technical institutes in the world.
54:20	Shaan Puri	And now, the thing about...
54:22	Mohnish Pabrai	The IITs [Indian Institutes of Technology] — about 1,300,000 kids apply for 16,000 seats. That's about a 1.3% admit rate. By comparison, Princeton is about a 5% admit rate and Harvard is about 5–6%. This is 1.3%. If you get into the IITs, it's basically free to attend; the government subsidizes it. So if you're a very poor person and you get into the IITs, now Microsoft will hire you, Google will hire you — anyone will hire you. But getting in is expensive because the coaching is expensive. What this guy had done was make the coaching free for these very poor kids. What was happening then: you had a family making $60 a month, let's say, and the kid graduates and Google hires them for $120,000 a year. I mean, the transformation — in five years the guy is making $300,000 a year. And he was spending $800 per kid.
55:34	Shaan Puri	On the training.
55:35	Mohnish Pabrai	So, test: you spend $800 and you take a family from $60 a month to $10,000 a month.
55:43	Shaan Puri	Right.
55:44	Mohnish Pabrai	Okay. I mean, what's the ROI on that? And you're going to do that for this whole lifetime and you're going to reset the extended family and all of that. The ROI is off the charts, right? Right. So when I saw that, I said, "Wow—this is the holy grail." I went to the guy and I said, "I'd like to fund you." He said, "I don't want to scale. I do 30 kids—don't want even 31 kids. I don't want to take outside money." So none of—I'm the shameless cloner. I told him, "Do you mind if I clone your model?" He said, "No. This is a very good thing. I think you should clone it. It'd be great. I'll help you in any way."
56:16	Shaan Puri	I can.
56:17	Mohnish Pabrai	So I took his model, and that's what Dakshina is. We are spending—Dakshina spends about $3–$4 million a year. Just imagine what the output of that is.
56:30	Shaan Puri	Right.
56:30	Mohnish Pabrai	When you look at it from each family, and then at you, we're doing $34 million. We've been doing it for seventeen years. So basically, what we get out of $3 million a year — a lot of other nonprofits would not get out of even $100 million a year. Right? So we actually have a footprint that is much larger than what it should be in terms of impact. </FormattedResponse>
56:57	Shaan Puri	Right.
56:57	Mohnish Pabrai	And to take it back, it's a math game.
57:01	Shaan Puri	Right.
57:01	Mohnish Pabrai	So basically, we had two or three things that were important, and that's how I looked at this. The first was the yield. So the IITs accept 1.3% of the kids who apply; they accept 70% of our kids.
57:19	Shaan Puri	That's amazing.</FormattedResponse>
57:20	Mohnish Pabrai	So now what I'm doing is I have a game which puts two models together. "One day before I die, I want to have $10,000 left." Okay. So basically inheritances just don't do much, right? I mean, my kids already have — they're doing well.
57:39	Shaan Puri	Yeah, what is your philosophy on that?
57:40	Mohnish Pabrai	In general, large inheritances are going to do more harm than good, and basically you don't want a person to be on an IV drip for their whole life. I mean, that's the worst thing you can do, somewhere, right? Buffett has a great quote: "I want to give my kids enough money for them to do anything they want, but not enough to do nothing." Because I am investing for a living and we have this kind of compounding going, I'm going to end up with more than I need. Basically, I don't need to spend any more than I'm spending; I could not increase happiness by spending more. So there's no point to spending more. I mean, I'm very happy with the lifestyle and everything else, right? So everything else basically needs to get recycled, but it needs to get recycled at high returns. So on one hand I have a compounding engine and a network that's growing; on the other hand I have to give it away. So, God—Google told me that on June 11, 2054, I'll be leaving planet Earth. [joking]
58:49	Shaan Puri	Okay. So you asked AI, "What did you do?"
58:53	Mohnish Pabrai	You go to Google and just say, "Hey, I'm 52 years old; tell me when I'm going to die." He will tell you. Okay. Now that we have the date—my birthday is June 12; just to make it poetic, I made it June 11—we have an exact number. So basically, 2054 means I've got about 29 years and change left. At any kind of compounding rate, it's a ridiculous amount of assets that get built over time. But I want to end on June 10 with $10,000. So there's one game which is to give it away, and the other game is to make it. We need the two curves to be such that giving it away becomes, probably in the next few years, much more dominant. Like the $3,000,000 a year needs to go to $5, $10, $15 [million] eventually. For me, it's the same as playing blackjack—it's just a math game. These are both math games. There are a lot of families getting helped, and my investors are happy. So then that's fine.
01:00:05	Shaan Puri	Okay, so what was your blackjack system? I'm skeptical.
01:00:08	Mohnish Pabrai	So the blackjack system — it would destroy the casino. They would have to either change the game or something. Basically, I'll give some pointers about what's going on here. There's a publication called BJ21 (bj21.com). You go to bj21.com and you give them $100; they'll give you a PDF that gives you the odds of every blackjack table in North America. For example, if I go to the Wynn Las Vegas, they have a bunch of different blackjack games — single-deck, double-deck, six-deck, etc. For every single one of those, BJ21 gives you the odds if you play perfect blackjack. These odds vary depending on how competitive the game is. If I'm going to some riverboat in Indiana, I'm not going to get the same odds as Vegas. The Vegas Strip is going to be more efficient because it's more competitive. Usually the house will end up with something like a 0.3–0.4% edge, all the way up to around a 2% edge over the bettor. That means on every $100 bet you're making, you're losing about 50¢ or so. There's a casino in Vegas called El Cortez. El Cortez is a small casino, so to induce people to come they improve the odds — still in their favor, but better for the player. The single-deck game at El Cortez has the thinnest house edge of any blackjack table on the planet: the house edge is 0.18%. If you look at BJ21, they have the edges of every table; this one is the lowest. This is a very thin edge, and I have a system — which took them a long time to figure out — where they play single-deck blackjack but they only deal half the deck.
01:02:17	Shaan Puri	Rectum. They shuffle.
01:02:18	Mohnish Pabrai	So, the reason they deal half the deck is that they can make it difficult for the counters. If you are counting cards, the deck may become very favorable — but then they shuffle.
01:02:30	Shaan Puri	Right.
01:02:30	Mohnish Pabrai	"Right. So the high cards are at the back, but they never get dealt."
01:02:34	Shaan Puri	Right.
01:02:34	Mohnish Pabrai	So the counters get screwed, right? I had a system that basically relied on the fact that blackjack occasionally has streaks. It has streaks where you may win 6, 7, or 8 hands in a row, or you may lose 6, 7, or 8 hands in a row. What I did in the betting was: usually, when I was losing it was always a minimum bet, and when I was winning the bets were increasing. So, with the variance of that, what happened is I was able to overcome.
01:03:10	Shaan Puri	The 0.18.
01:03:11	Mohnish Pabrai	0.18 — Right, right. So I don't want to give more than that. Sure, sure. That gives you... and...
01:03:15	Shaan Puri	"What I want to..."
01:03:16	Mohnish Pabrai	"Do is: when the cameras turn, I'll explain it to you."
01:03:18	Shaan Puri	Okay, great.
01:03:19	Mohnish Pabrai	So, when you go to the next time—when you go to all cartels—what happened is... what happened with them, what really confused them, which they had never dealt with before, is: normally what the counters do is, on a brand-new shoe, it's a low bet.
01:03:34	Shaan Puri	Minimum bet, yeah.
01:03:36	Mohnish Pabrai	In my case, there was a brand-new shoe. There was a high bet, so they said, "We just shuffled, right? The whole deck is there. There's no odds edge he has on that deck because the entire deck is there." </FormattedResponse>
01:03:48	Shaan Puri	Right.
01:03:48	Mohnish Pabrai	He has a high bet.
01:03:51	Shaan Puri	"Did they ever figure it out, or did they?"
01:03:52	Mohnish Pabrai	[Unclear phrase at start: "they they just them"] So, what happened is: I'm playing blackjack. The general manager was very friendly to me, came and sat down next to me, and told the dealer, "Stop dealing." She was in the middle of her hand and just continued dealing. He screamed at her, "Stop dealing." Now, she had never heard that before. Okay — like, literally in the middle of the day, she said, "Shuffle." [Unclear who said "shuffle".]
01:04:13	Shaan Puri	Right.
01:04:14	Mohnish Pabrai	We're done. We're not dealing anymore. Then he tells me, "Mr. Pabri, I like you. Okay, I read your book. I watched your videos, and you have a system that we cannot beat."
01:04:29	Shaan Puri	Right.
01:04:30	Mohnish Pabrai	So I said, "I told him, you know, I'm not counting cards." He said, "That's what threw us off. We know you're not counting cards and we know you'll beat us. So you can come to this casino anytime you want, but you cannot sit down at a blackjack table." Then I'm thinking, "Why would I come here? Okay — why would..."
01:04:52	Shaan Puri	I go to hell for this. I could not go to a Blackjack.
01:04:56	Mohnish Pabrai	And so that was... But, you know, whenever I go someplace to talk or they're introducing me, I always tell them, "Listen—just say that I have a lifetime ban in Vegas." Yeah, I mean, street cred's through the—. I really don't care about everything else on my CV; that's really irrelevant.
01:05:14	Shaan Puri	Yeah.
01:05:15	Mohnish Pabrai	And that's what's relevant.
01:05:16	Shaan Puri	It's just like, if you get into Harvard, that's impressive.
01:05:21	Mohnish Pabrai	Yeah.
01:05:21	Shaan Puri	You're a Harvard dropout—that's the higher-status signal. So you're good at blackjack; you made money playing blackjack. I was banned from a casino. That is the highest status.</FormattedResponse>
01:05:30	Mohnish Pabrai	Yeah, so, I mean, I took them for about $150,000 or something. This was a very low table limit, right? The table limit was only $2,000, but at $2,000 I took them. So they said, "Okay, we're done." You know, I love it.
01:05:44	Shaan Puri	You've run into all these characters. We've talked about Warren, we've talked about Charlie, but I want to know about some of the other characters. Your stories are amazing — I could listen to them all day. So, Michael Burry. One of my favorite movies is The Big Short, and Michael Burry is this kind of mysterious character. Did you ever... well, meet Michael?
01:06:03	Mohnish Pabrai	What you're going to end up with when we finish this conversation is: you're going to know that my middle name is Forrest Gump. Okay? That's really where we're going to end up. I always tell people that God loves me—he loves me more than other people—and I'll explain why. Right: in 2008. The financial crisis hadn't yet happened; it was like March or April 2008, and things were getting topsy-turvy. I was visiting San Jose for something else. I knew Michael Burry had an office in San Jose. I didn't know him, but I sent him an email saying, "Mr. Burry, I like you, admire you, etc., and would love to visit you."
01:06:49	Shaan Puri	So, he was kind of well-known.
01:06:51	Mohnish Pabrai	He was not very well known, but he was posting on Value Investors Club and things like that. He was there a little bit, and I liked the way he thought. He said, "Oh yeah, stop by." So I went to his office in San Jose. There were a few analysts sitting outside. It seemed like a very depressing place — a little dark. I went into the office and there were huge piles of paper everywhere. He immediately launched into CDSs. He said, "Look, Monish, I want to tell you something about something that's going to make you extremely wealthy." He then downloaded to me at a million miles an hour. I had never heard of CDSs, and he was talking about a housing crash and the coming implosion and all this stuff. Housing had never crashed in the U.S., and 80%–90% of what he said went straight over my head. He gave me a full core dump in half an hour — my subhuman intelligence couldn't handle it. I couldn't. I came out of the meeting with my head spinning and thought, "Okay, well, that was interesting." Then, of course, he rode off into the sunset, and then the movie came out. He's exactly like they show in the movie — that's how he is. So I felt like, okay, God who loves me so much takes me to the epicenter of the epicenter of what would have been the best place to be, the best teacher to have — and the idiot Monish blew it.
01:08:45	Shaan Puri	Okay, but...</FormattedResponse>
01:08:48	Mohnish Pabrai	That's the way it is, you know.
01:08:51	Shaan Puri	That's... I mean, where does that rank in terms of, like, you know, sort of the best calls? Or, you know, the foresight in terms of that you've seen in your career?
01:09:03	Mohnish Pabrai	As well, let's see... I think this has happened to me a lot. I mean, in the sense that, like I said, we put 98–99% in the "too-hard" pile, right. Even now, I think it was right of me to not do anything with it because I couldn't understand it. Right. Even after the financial crisis, it took me a while to understand the CDSs [credit default swaps].
01:09:21	Shaan Puri	Right.
01:09:22	Mohnish Pabrai	And all these tranches and how they were doing all this stuff and all that. I mean, that took me a while to really get my arms around it. Even after knowing all that, I would have been skeptical about making that bet. So, hats off to him.
01:09:33	Shaan Puri	Right.
01:09:33	Mohnish Pabrai	"I mean, he figured it out. A few people figured it out, but it was a very small number of people who figured it out."
01:09:38	Shaan Puri	Right.
01:09:38	Mohnish Pabrai	You know.
01:09:39	Shaan Puri	Tell me about the greatest investor from India. Who is the greatest investor from India?
01:09:45	Mohnish Pabrai	Well, the greatest investor from India would be Rakesh Jhunjhunwala. I know—I never met Rakesh. I mean, I know his friends quite well. A guy actually met him; he went to his office and met him. Wonderful guy. He died relatively young a few years back. Rakesh was a very interesting, kind of split-brain investor. He'd have three or four Bloomberg screens in front of him with all these charts and everything—rapid-fire trading going on. But on the other hand, he had two or three stocks that he never touched. I don't know anyone like that. He was great at both. The stocks he never touched just went through the roof. For example, there's a company in India called Titan Industries. Titan Industries does branded jewelry. Branded jewelry basically didn't exist in India before—now it does, but previously it was all mom-and-pop shops. There was a trust deficit. If you go to a jeweler in India, they have 22-carat gold, and when you're buying the gold you don't know whether it's half gold, 80% gold—what the hell is...
01:10:54	Shaan Puri	Going on, right? The jeweler knows what you...
01:10:56	Mohnish Pabrai	Don't, right? The Titan brand is owned by the Tatas, who have very high integrity. So, basically, they were able to take a sector which had a huge trust deficiency. I mean, I think Titan is still in its infancy.
01:11:14	Shaan Puri	Right.
01:11:14	Mohnish Pabrai	And I think Rakesh made a huge, huge— I mean, Rakesh, I think he compounded at north of 40% a year for several decades. It's unbelievable. He started with about $10,000 borrowed; he didn't even have that on his own—someone lent him the money.
01:11:31	Shaan Puri	"What made him great? Was he a brilliant mathematical mind? Or was it the trait that really helped him?"
01:11:36	Mohnish Pabrai	He was a trained CPA — India's equivalent of a CPA, a chartered accountant — so he obviously understood numbers well. Just before he died, he had figured out that IndiGo, a low-cost carrier in India, had something like a 70% market share and was growing very rapidly. It might become the largest airline in the world; they've got, like, a thousand planes on order or something. He had done well as an investor in IndiGo, but then he took the next step and set up a clone of IndiGo. I mean, think about the guts you need to set up a bloody airline — coming from being a passive investor. And while he was dying... he was in bad shape in hospital and all of that.
01:12:24	Shaan Puri	And that airline's up and running, cranking, and all of...
01:12:28	Mohnish Pabrai	That, and doing great. So, if he had lived longer, I think he would have gone not just as an investor but also shown that he could be an operator.
01:12:41	Shaan Puri	You said something like, "If he had lived longer..." The idea of runway—how early you start—matters a ton. Yes. Even Buffett. I think you said that if he had not been giving away so much money along... [sentence trails off]
01:12:55	Mohnish Pabrai	"They'll be the wealthiest, yeah."
01:12:57	Shaan Puri	He'd be the wealthiest guy in the world right now. Yeah. And, I guess when you go talk to people, are you just sort of like, "You should have started 30 years ago"? Is that the number one method? What? </FormattedResponse>
01:13:10	Mohnish Pabrai	We started our conversation with "right." I think the important thing is that if there's a young person listening, it's really important that they start. You know, the funny thing is that if you look at the rules for an IRA or a Roth IRA, there's no minimum age — you could be six months old and have an IRA.
01:13:37	Shaan Puri	Right.
01:13:37	Mohnish Pabrai	The only rule is that you can only put in wages that you earn. I was just reading in the Wall Street Journal about an entrepreneur who hired his kids — who are like four years old and six years old — to do different things in the business because he's putting like $6,000–$7,000 into their Roth IRAs. That is equal to their W-2 earnings and is probably stretching the limits of what he can get away with with the IRS. That's beautiful. But even if you're not doing that, if you start at 22 — that's the important thing. A small amount saved at 22 is more important than a larger amount saved at 32 because you get started earlier. So it's really important to spend less than you earn and put it into Berkshire. Set it and forget it. If you start at 22 and you're 22 today, you're likely to live past 100 — maybe to 100 or 110 once you factor in all the advances taking place. That's a 90-year runway. Even at a 10% return, we're only going to look at doubles. Every seven years you double, so over that period you're looking at two to the power of 13 (2^13). Two to the power of 10 is about a thousand; overall that's roughly an 8,000x multiplier. Okay — the first $10,000 you invested would be about $8,000,000. </FormattedResponse>
01:15:16	Shaan Puri	Right.
01:15:16	Mohnish Pabrai	The second 10,000 is another 8,000,000. So, the thing is—it's a mind-blowing amount of money if you start early. The length of the runway is really important.
01:15:28	Shaan Puri	Do you pay attention to the macro? Because... my head starts to spin—interest rates, wars, and all these different factors you could pay attention to. There are some people who really pay attention to that. Do you pay attention to the macro?
01:15:41	Mohnish Pabrai	"No, because I can't handicap and I wouldn't know what to do with the information. So I always try to keep the bet simple. I need to be able to explain it to a 10-year-old in 5 sentences."
01:15:51	Shaan Puri	Right.
01:15:51	Mohnish Pabrai	"I'm not going to be able to figure out the macro; that's why I couldn't make that CDS bet."
01:15:55	Shaan Puri	Right.
01:15:55	Mohnish Pabrai	You know, it was like... so much stuff going on about housing's going to crash—this is going to happen, that's going to happen.
01:16:00	Shaan Puri	I mean, I just couldn't get my arms around.
01:16:02	Mohnish Pabrai	It, you know.
01:16:03	Shaan Puri	In my world, everybody's talking about AI. Do you think about AI at all?
01:16:06	Mohnish Pabrai	The problem is I bring nothing to that party, and I'm probably going to get my head handed to me if I try to participate. It's not in the no-brainer category; it's not something where I have an edge. Of course I do believe that it's transformational. I knew the internet was transformational. We knew electricity was transformational. We knew the App Store was transformational. But in investing you can do extremely well without understanding all these things. You go back to John Arriaga — you know, don't understand any of these things — or even Warren Buffett. Apple is in the rearview mirror: they sold most of it, and they might have sold all of it by now. Basically, that was a "one-and-done." So yeah, I think that we don't need to understand the flavor of the day. We don't need to understand Nvidia. We don't need to understand AI. If you understand it, more power to you — that's awesome. And if you know how to leverage that understanding into dollars you can make, that's even better. But that's not me. So we all have to play to our strengths.
01:17:15	Shaan Puri	Yeah. Okay, well, Manish, this has been incredible. Part two — I'm happy with it. At the beginning I asked you, "Is this like one of those Hollywood sequels where the first one was incredible and the second one they just... they just did it?" But no. I think we did a good job. I think the sequel was, if not better, at least as good.
01:17:33	Mohnish Pabrai	No, it was fun. I enjoyed it; it was awesome.
01:17:35	Shaan Puri	Awesome. Thanks for doing it.
01:17:36	Mohnish Pabrai	Okay, thank you.

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