BigDeal - The Laws of Investing to 10x Your Stocks | Mohnish Pabrai

Starting point is 00:00:00 The key to investing is that when you find yourself in the happy position, don't sell it when it's overpriced. Only possibly sell it when it's egregiously organized. My guest is Monish Pabri, the renowned investor who built his fortune by openly copy and Warren Buffett. You're going to get the best business models to start if you're brand new. If you want to build real wealth without betting the farm, this is the one to save and listen to twice. It's also very good for you to send your team. My biggest mistakes and greatest learnings have been to become more patient. The laws of investing are like the laws of physics.

Starting point is 00:00:37 And I think this Buffett guy wrote the laws of investing. Whether you believe in gravity or not, it's going to affect you. If someone followed Buffett's approach to investing, they would do better than the 98%. What is your mental model that you like the best for deciding the next bet you're going to take? Total lowly news. So what do you think most people get completely wrong about money? Well, I think the single most important thing is you spend less than you are. We may live for 80, 90, 100 years.

Starting point is 00:01:14 And so the important thing is that when you get started in your career in your early 20s, that right from the beginning, you're putting something. something away. And those early dollars being put away have a huge impact because of the non-linear aspect of compounding. Humans have difficulty getting their arms around the notion of compounding, you know, how money grows over time if you leave it and so on. And so being able to put something aside a little bit all the time is a very good habit. Yeah. So what would you say to somebody that was young, stuck in their job, doesn't think that they could make it. What would you tell that person?

Starting point is 00:02:02 One of the things to keep in mind is there are 168 hours in a week. Your employer wants 40 hours. There's still another 128 hours left. And so even when you take out time for eating and sleeping and showering and everything else, you have at least another 40, 50 hours that you could do something else. and so I think it's very important to live close to where you work so you don't spend a lot of time commuting and you effectively have enough time for a second venture or second job and because someone else is already paying your rent and groceries and everything you don't need the second venture to feed you

Starting point is 00:02:45 and we are now in a knowledge economy so a lot of things that people will want to do does not need capital. It just needs what's between your years. It just needs you to be creative, to think about what could be, should be, can be, etc. So you come up with an idea. You have the time, 40, 50 hours, you keep your job, do not get quick to do you.

Starting point is 00:03:12 You try your idea. Let's say it doesn't work. No problem. You go back to square one. Think of another idea. So do you think a lot of people give bad advice when they tell you to burn the bridges, quit your job, go all in today? Yeah, I don't think you should do that. I think that's a one-way ticket to hell.

Starting point is 00:03:34 Me too. No, I think we want, like I said, we want upside without downside. That's how I invest, right? So the way in people think entrepreneurs take risk. Entrepreneurs do not take risk. They do everything in their power to minimize risk. they look at this whole equation and say, how do I crack this without taking risk? Ventureback startups are less than one-tenth or one percent, maybe even one-hundredth of one percent

Starting point is 00:04:03 of the total number of startups in this country. 99.99% of the economy is non-venture-backed, the Chinese restaurant, the laundromat, the window-washing business, whatever, right? None of those companies are venture-backed. So that is where most of the American economy gets its growth from. And that goes unreported, right? I mean, some of the biggest businesses we have today in the U.S. and the world were not created with venture capital, Ford Motor Company, Walmart, Microsoft. You know, most of these companies, IKEA were created on a kitchen table with nothing.

Starting point is 00:04:48 And so if you keep your job and you try idea number one, and you go all in on that, you got the time, and it gets some traction, when it gets enough traction where you're making more money than your job, you just switch rolls. You quit and go to the other side. If it doesn't work, you go back to square one, idea number two. In my case, it was the third idea that I came up with that got traction.

Starting point is 00:05:24 The first two didn't work, but the third idea took off. And after nine months of doing both, the third idea, which was my IT services company, the first company I went and ran, basically had enough cash flow that was exceeding what I was getting paid. So I switched because I was desperate to work 100 hours a week, right? And I didn't want to be doing two things. I wanted to do one thing. And so as well...

Starting point is 00:05:55 But was that only after that replaced your salary? Yes. After nine months of banging at doors and doing things, I had three clients. And those three clients were giving me enough cash flow that it exceeded my salary. And that's when I quit. So effectively, it was risk-free because I never went to a situation where, I was without cash flow, without a paycheck or any of that. And then very quickly after that,

Starting point is 00:06:23 it doubled the salary. I was making two or three times what I was making. And it just kept going. And the business was growing so fast that I kept reinvesting and all of that. So that company, I emptied out my 401K. I was 25. I had about 30,000 my 401k. I took that to zero.

Starting point is 00:06:44 because I said if it fails, I can go back and start over, not a problem. And I took every credit card I could get. So I had 70,000 in unused credit card, credit limits available. And as the company started growing, I used every single one of those. In fact, they were all maxed because the company was growing so fast that by the time I got paid from clients, you know, I had to cover that. You need fun. And then about two years after I started, I met a banker who converted all of that into a line of credit, paid off all my credit cards. And I said, hallelujah.

Starting point is 00:07:25 So if a young person is listening to this and they're like, I don't have cash right now. I don't know how to start the business. What is the way that you pitch people to give you a credit card, to give you capital? Like, how do you talk people into giving you money? The founder of FedEx, Fred Smith, he had payroll coming on. on Monday in the early day the FedEx and he couldn't make me poor payroll he knew he couldn't meet it he went to wager okay played blackjack won at blackjack and made payroll on Monday okay and if he had lost that blackjack which could have happened that probably should have happened there's no FedEx

Starting point is 00:08:03 you know so all these businesses go through these you know extreme situations so bottom line is the The number one skill you have to have when you're starting any businesses, you have to have selling skills. You need selling skills to get clients. You need selling skills to get a banker to give you a loan. You need selling skills to get your friends to give you their credit card. But more important than, I think more important than selling skills is unique value propositions.

Starting point is 00:08:35 So capitalism is brutal. anytime there's a company that makes a lot of money, there's 100 other people thinking about how can I take that business away from them, right? So the nature of capitalism is creative destruction. Someone opens a sushi restaurant, they do really well. There'll be 10 other sushi restaurants opening, right? So the important thing that we have to look at is before we embark on a business, we have to really pay attention to how is this unique and how is this sustainable.

Starting point is 00:09:16 So we have to be kind of careful observers of the world around us. And we have to think about how could this world around us be different? And can I participate in making that difference? So we can come up with something where there is some kind of a business idea or some kind of a business that you can come up with that doesn't exist today. But there's a need for it. That's it. Anytime we try something and we fail, we learn. And so the second one's going to get better and the third one's going to get better.

Starting point is 00:09:57 And you just keep going from there. So good. I love this idea that you have called cloning, basically, where you just. you don't think that there has to be original ideas all the time. In fact, you copy some of the richest, most successful people in the world. Can you talk to me about what is cloning? Do we have to have original ideas to make money? We do not need any original ideas to make money. I know I'm contradicting myself. It just said. I remember that when Chipotle first came out in Chicago, in the early 2000s, I used to go to Chipportle. And I loved it. You know, every day. lunch was Chipotle. It was great. And from the time I first went to Chipotle till today, it's been 25 years, incredibly successful business. No one's quote it. So Chipotle's innovation was he let you make the taco you wanted. Right? They got all the

Starting point is 00:11:03 I'll, Berto grill, but I'll allow it. Yeah. Burrito. So you say, okay, I want this,

Starting point is 00:11:07 I don't want this, I want this. No, it's extreme customization, right? That was one of the big reasons why they succeeded. Okay?

Starting point is 00:11:15 And so if you really look around carefully, what you're going to find is you're going to find many businesses like Chipotle where there should be three of them, but only one exists. And there's offering gap

Starting point is 00:11:29 after offering gap available. Now you're job is easy. You clone Chipotle. Yeah. And you know what happens when you clone is there's some things that you're going to figure out that you can do better than them or different than them. But the core piece, which is that, you know, the customization piece make it the same. Yeah. Okay. And just go from there. It's fascinating because it's so true. You know, we have a saying here, I started getting annoyed that people always start at innovate. And I think you should go imitate, iterate, innovate?

Starting point is 00:12:05 And you don't even need to do, you don't even think about that. What I would do is make it even simpler. I would say, just to be a shameless cloner. Okay? So, don't even, don't even say that when I take Chipotle,

Starting point is 00:12:20 I'm going to change anything. It's working. Yeah. Okay, it's working great. Why change anything? The change is going to come automatically. Because you're different from the founder, right? You know, the funny thing about Chippolde is the founder was a fine dining chef in Denver, right? He wanted to open a fine dining restaurant.

Starting point is 00:12:41 And so he opened Chippeaublee as a stepping store saying, I'll open this thing. I'll make some money here. And then I can open my fine dining restaurant. So actually what he did was he brought in fine dining nuances into Chipporte. The food is very fresh and all of that, right? And the funny thing was that was the idea. That was the idea. There was a scalable idea,

Starting point is 00:13:05 and not the fine dining restaurant, you know. Yeah. So what he actually wanted to do was very different. But what I'm trying to say is that I think that if you look at the world around you and you look at businesses that you admire and even simpler than businesses that admire, just make a list of all the products and services that you use. it is very difficult for any company to get even $1 from you. Very difficult.

Starting point is 00:13:38 So the products and services that you're already using means that those are incredible businesses. And then look at, can multiple versions of that exist? I'm actually going to send this to my team because it's funny. One of them the other day came to me in one of our businesses. And I said, well, what are our competitors doing? And what does their product stack look like? What does their sales stack look like?

Starting point is 00:14:04 If this isn't working for us, go look at the people who it's working for. And I remember one of the leads of the team said to me, oh, well, I don't know if I could secret shop that. Is that ethical? I was like, have you read Sam Walton's book? Like, he used to go and lay down on the ground with a tape measure between aisles of all of his competitors. He knew everything about their business.

Starting point is 00:14:28 And so I think there's some ego. And I see it a lot in our leadership teams where they want to figure out an innovative way to do it. And I'm like, why would you, you have no context. You haven't won at this before. You haven't done it before. So why would you, with no data, no context and no history of winning, just go find a new way to run and use your hands instead of your feet? That's ridiculous. One thing Monish and I keep coming back to in this conversation is that rich people do not usually get rich. by taking wild risks. They get rich by finding weird lopsided bet. And that is why I keep talking about buying boring businesses. This is why we built Main Street Millionaire Live. It's a virtual event where you can get with my team to do a live workshop and I will show you how to find the best businesses to buy, how to evaluate them, fund them and spot the things that make a deal either a really good risk or insane. If you have been listening to episodes like this thinking I get it and I'm interested in investing in businesses, but I don't know where to start. This is where you start. Grab your seat at this link at MSM.Live. This is the last event we are doing like this for all of

Starting point is 00:15:38 2026. So if you do not jump in now, you can wait another year to learn. Now, you took this even so far as to, for instance, I believe, you paid like $650,000 to have dinner with Warren Buffett back in the day. Lunch, yeah. Lunch. Dinner might be more expensive. God, what would that be? A lot. It was a lunch special. Well, here it's not a fancy guy. The reason it was a lunch special is a few years later, it went for $26 million.

Starting point is 00:16:09 You got a deal. You are a value investment. It might be your best investment yet. You should have traded that. So what do you learn? Like, when you're going into a meeting with Warren Buffett, with this mentality you have of, like, cloning the best ideas, learning from the best.

Starting point is 00:16:26 What did you learn? So the lunch was a lot of fun, and actually I had no, I didn't have many expectations for the lunch. So let me go back a few years before the lunch, because then you can understand kind of why the lunch happened. When I read about the way Buffett did investing, it made all the sense in the world. And he's an open book. He just said, this is how you should invest, right? Then I looked at the way the rest of the world did invest it, the mutual funds and fund managers. and they're not following what Buffett is saying.

Starting point is 00:17:01 So a mutual fund will have 100 or 150 stocks. And Buffett says six, 10 at the most, right? So I said, the laws of investing are like the laws of physics. And I think this Buffett guy wrote the laws of investing. And whether you believe in gravity or not, it's going to affect you. Okay? So I said we have this entire industry of investment management,

Starting point is 00:17:34 which is operating without the laws of physics. And then you have this guy who's doing it this way and nobody else is doing it this way. This is Chipotle with no competitors, right? I looked at all that. I said, you know, I think that if someone followed Buffett's approach to investing, they would do better than the 98%. And I also feel that an idea is like an asshole.

Starting point is 00:18:08 Everyone has one. So an idea without execution means nothing. It was 94. I had just sold a portion of my business. And after taxes, everything, I had a million dollars. I didn't need the money. The company was profitable and fine. And for the first time, I had cash in the back.

Starting point is 00:18:26 So I said, I'm going to take this million. I'm going to invest it using Buffett's approach. And so from 95 to 2000, the first five years I was doing this, part-time while I'm running my company, the million became 14 million. And I was just making investments in public equities. And, you know, doing what Buffett did, you know, basically 10% bets, 10-best. 10 bets. And it was like 60, 70% a year. It just blew the doors off. And I said, this worked way better than I thought. Well done, Modish. Well done. I knew you could do this. And I was losing interest in my IT business. And I was much more interested in investing business. And so I found a CEO

Starting point is 00:19:20 and I transitioned out. And then I had these friends where I used to give them stock tips because I'd already bought something. So they came to me in 99 and they said, we want you to manage money for us. Because this stock tip business is very random, right? And so basically I set up a fund really as a hobby, one million dollars from eight people just to manage that. By the time I got to 2007, I'm managing $600 million. We haven't had a single down year, and we've compounded at like 35% a year before fees. And I was extremely wealthy at that point because I'm getting one-fourth of the gains over 6%.

Starting point is 00:20:10 And Warren is running these annual charity lunch auctions once a year where you get to have lunch with him. and I said, I owe the man a tuition bill. I said, you know, I taken all his intellectual property. Everything is based on him. And he doesn't want anything. He's an open book, but I want to say thanking. So I said, the lunch would be a great way to say thank you. So I said, you know, I think at that time I had made 70 million of warrant.

Starting point is 00:20:43 So I said, what's a reasonable amount to pay if someone made you, 70 million. I said, 3%. Three percent's pretty good, right? I don't think it's too much. That's how I come on two million. And so at the lunch, I had no agenda. My only agenda was to look born in the eye and say, thank you so much, right? Warren, on the other hand, has a very different agenda at the lunch. He wants to make sure that whoever won that lunch feels they got a bargain. So he wants to deliver a lot of value. You know, it's just a great guy. He said, I'm free for the whole afternoon. So he says, whenever you guys are tired of me and you want me to go, let me know.

Starting point is 00:21:26 But I don't have any place to be. I can be as long as you want. After about five minutes, you think it was your grandfather. He put you at ease. You know, not the richest guy in the world, whatever. Anytime we would ask him a question, he would convert the question into a way to teach something. He's just such a great teacher. And I was really surprised when, in the middle of the conversation,

Starting point is 00:21:49 I told Warren that my wife, she's a fan of yours, but her real love in life is Charlie Munger. And Warren got comparative. He said, my partner Charlie Munger is a very boring guy. He says, I'm going to set you guys up to have lunch with him. And you can find that lunch with me is very more interesting than lunch with him. So I thought he's just joking, right? And two days after the lunch, I get a message from his assistant to Charlie's assistant. and then lunch got set up with Charlie.

Starting point is 00:22:20 And I found lunch with Charlie way better than lunch with Warren. Because Charlie is just, you know, just so open. And so that lunch with Charlie led to a friendship with him. Where basically I used to meet him to play a bridge with him, meet him once a quarter approximately to have dinner with him at his place. And with Warren also, we became friends, but not like Charlie. Because Charlie was in L.A. I was in California at the time. And so that was easy. So it became buy one lunch, get infinite free. You know what's interesting. I've met a lot of investors by now, a lot of really successful ones. You seem really happy as an investor. And to me, investing is very stressful. Like I know in 2008, you had a tough year.

Starting point is 00:23:13 most investors. That was a brutal year where many people, I was at Goldman at the time. No, that's wrong. I was at Goldman in like 2009, 2010. But those years were terrible, too. Everybody thinks that 2008 is one year. But that was like when Goldman was under, we were having the trials, actually, for whether we caused the crisis or not. And I remember knowing a few people who actually killed themselves during that period that meant Shmody. And I was in New York. And, and I was in New York. And yet you've gone through these huge losses and huge gains, but seem really happy and steady. Well, something to keep in mind is if wealth is lost, nothing is lost. If health is lost, something is lost.

Starting point is 00:23:59 And if character is lost, everything is lost. I didn't come up with that. Some guy much smarter than me a long time ago came up with that, okay? life has a way of changing overnight, both ways. It can go from very good to very bad, and it can go from very bad to very good. You can't resign yourself to the fact that, oh, I'm down and I'm going to be down forever. Well, if you think you're going to be down forever, you are going to be down forever. But if you just say, I can pick myself again, keep going, that's fine.

Starting point is 00:24:32 What do you think is the most amount of money you've ever made an investing and lost in investing in a year? Like for people to understand the full weight of this. Well, we've had companies we've invested in who have gone bankrupt. So we've had companies I've made investments which have gone to zero. Now, typically when we make an investment, we don't do it more than 10% of our assets. So if I have, you know, 10 bets and two bets, for example, went to zero, which would be pretty extreme. It's not the end of the world. No.

Starting point is 00:25:10 Because you've got the other eight that are. But it could be 50, 100 million. Oh, yeah. I mean, I manage $1.4 billion currently. So if I'm placing a bet today, it's a $140 million bet. Right. And the $140 million, there are, I hope it doesn't happen, but there are chances it can go to zero. and their chances can become billion.

Starting point is 00:25:34 You know, we look very carefully at downside protection, even before we look at the upside, look at the downside. So they're designed not to be high risk, high reward. They're designed to be low risk and hopefully moderate to high rewards. So what is that, like if you have to put dollar amounts on that, so let's say you have a $140 million investment.

Starting point is 00:25:55 Well, you've had some huge wins that at least I could find online historically. Like which companies have you put in, $10, $10, $20, $100 million, and what have they gotten out for you? Like, what's been the best investment you ever made? In my career, two companies that have become more than 100 baggers, right? So they went up more than 100 times. One happened right at the beginning when I started in 95, where I put 100,000 into a company

Starting point is 00:26:23 and it became $10 million. That was great. And another one, which also happened at that time, was I put just $10,000 into a company. and it became 1.4 million. That was 140. And then one that's happened more recently was a company in Turkey where that was just so mispriced

Starting point is 00:26:44 we couldn't, you know, shooting fish in a barrel. Where the market cap when we invested in 2019 was $15 million. And now it's a billion and a half. So it's gone up 100x. And that one, we own about 40% of that business.

Starting point is 00:27:04 How do you decide when to sell to take money off the table? Well, so when we make an investment, I always feel that you learn the business after you own it. You may think you know it before you invest, but you really get to know it as you live with it, right? And there is no such thing as a risk-free investment. The biggest mistake I have made in life is selling too early. Really? Yeah. So I used to, for example, I used to own, my funds used to own 1% of Ferrari at a cost base of the $10 million.

Starting point is 00:27:46 Okay. So in effect. What is it today about? It would be about 50 times that. Okay. So, and the thing is that when I look at a business like Ferrari, it should never be sold. In capitalism, there are very, very few businesses

Starting point is 00:28:04 that have long-term sustaining, enduring modes. And when you end up with a business that is exhibiting those characteristics, you don't want to touch them. My biggest mistakes and greatest learnings have been to become more patient. Like, for example, this company in Turkey, which has gone up 100,

Starting point is 00:28:27 it looks embryonic. It's still undervalued. It's still trading about half or what is worth. And they could compound for 20, 30 years, 40 years. So that's a business we will just hold as long as we can. As long as I don't see secular declines in the business. We understand the business well. We hold it.

Starting point is 00:28:51 And it's not our only holding. We have other holding. So the nature of the way capitalism works is, is that very few of your investments will end up with giving you most of your wealth. And this is the way the Walton family got wealthy. This is the way the Berkshire Hathaway people got wealthy. This is the way the co-founders got wealthy. It is by concentrated holdings in particular companies.

Starting point is 00:29:16 And so the key to investing is that when you find yourself in the happy position of partial ownership of a great business, don't sell it when it's fully priced, don't sell it when it's overpriced, only possibly sell it when it's egregiously overpriced. Like, you can't justify it in any possible way, then you can look at it. What is your mental model that you like the best

Starting point is 00:29:49 for deciding the next bet you're going to take? If you only get 10, you must have very clear models for determining when you want to add on a risk. Yeah. So what we are looking for is total no-brainers. So let's say I own a home in Austin. Okay. And let's say I bought the home for $2 million.

Starting point is 00:30:12 Okay. And I go to my realtor after one month of buying the home and say, hey, what's my home worth? They said, oh, Warnish, it's still worth $2 million. Okay. and let's say I go back after another month and the guy and say, yeah, still worth $2 million. And then maybe after a few months you say,

Starting point is 00:30:30 oh, you know, it's $2 million and $50,000. Okay. So if you just kept writing down what that house is worth and what a buyer would pay for it, you're going to see very little change over time. If I look at all the stocks in the New York Stock Exchange and I throw a dart at any one of them,

Starting point is 00:30:52 let's say IBM, or Amazon or whatever. And I just look at the 52-week range on their prices, it will be 100 to 200 or 80 to 150. It's a wide ring. Your house is not going to go from 1.5 million to 2.5 million or 1 to 2 million, or 1 to 2 million, it doesn't do that. So auction-driven markets accentuate price movements,

Starting point is 00:31:21 much more than you would if you were not auction. driven. And because the accentuate price movements, sometimes you get extreme mispricing in both directions. You get extreme overvaluation and you get extreme undervaluation. So what I'm looking for is anomalies. I'm looking for weird things that make no sense. And because we have so many stocks and so many things going on, you will find weird things. And so when the weird things, I remember, like, for example, there was a company called Level 3 communications. Level 3 built this massive fiber optic network. You know, they were going to be transporting all the internet data everywhere, massively overbuilt, okay, the data never came, and the company is upside down. So,

Starting point is 00:32:17 the stock has collapsed, it was a darling, it collapsed, and people are concerned they'll go bankrupt. So they had a lot of debt, right? Now, they had these bonds that they had issued where the bonds were trading at 18 cents on the dollar. So someone paid a dollar for the bond, they're now at 18 cents. The bonds had a coupon of 6%, which means if you borrowed at 18 cents, you were getting paid interest of 33% a year, right? I looked at the Level 3 balance sheet, and I saw that they had enough cash to make the debt payments for at least four or five years. So I said, in three years, I get my money back. And I still have a claim of a dollar because it's a bond. It's not a stock. And they still have money after that. And I think that in three years, it's a very high quality

Starting point is 00:33:18 business with the people running it, they may sell assets. They may do different things. I said, I don't see how I can lose money there. I don't see if I buy level three bond. So I put 10% of the fund in level three bonds. I didn't know it at the time. Warren made the exact same bet. at the exact same time for the exact same reasons okay what happened is we went for three years we clipped the coupons and after three years the bonds at 60 cents I didn't even wait I sold so basically we tripled our money on what we paid for the asset plus we got the interest in the meanwhile. And that wasn't even a stock investment, it was a fixed income investment. So basically, there's always weird things going on. And we just want to pay attention to them.

Starting point is 00:34:20 And the other thing is that this is not a business of a lot of activity. If I find something like level three once a year, I might only have one or two ideas like that. But that's all I need. I need an idea like that once every two or three years. I don't even need it once a year. So part of the game is you really have to just stop yourself from doing too much. My job is to just read and be with Cody at a podcast. That's my job. Well, it's funny.

Starting point is 00:34:54 I remember when I was at Goldman Warren invested in Glenn, and everybody thought he was crazy. But obviously, and I was a little peon, tiny little, you know, nothing at that company. But I remember, you know, the senior people explaining how the deal got done. Yeah. And the price that he got it at and the terms and our balance sheet. And just there was so much noise about how, you know, we were something like a countrywide that was doing all of the insurance, you know, the back end of the mortgages. But in fact, Goldman had none of that risk on its balance sheet.

Starting point is 00:35:25 So he made like one of the best bets ever. And I want to tell you something about what happened then. Warren paid $130 a share at that time for Goldman Sachs during the financial crisis. The stock went down further. I bought it at $65 a share. Half of Warren's price. Now, like Ferrari, another stupid thing I did, which is a company like Goldman Sachs should never be sold. So I tripled my money.

Starting point is 00:35:59 were then mowlish I soaked I should never have sold it it's like a Ferrari it's like these durable modes and I made money on Goldman I made money on Ferrari

Starting point is 00:36:16 but I should never sold them so eventually I will learn from these mistakes not to do that I think you're doing pretty well to date I, you know, I kind of want to talk about some cultural things happening. Yeah.

Starting point is 00:36:34 Like, for instance, kids buying Pokemon cards and trading them at crazy valuations today. Do you think that that's a good idea or no? No, not a good idea. How do you explain to this younger generation why that's a bad idea? If they go, no, no, but I bought it for 50 bucks and today it's at 250, you don't understand it's different today. What would you say to them? Well, let me distinguish. Let me look at two different examples of what you can invest in. So you can buy a Rembrandt and it's a million dollars. Okay. Or you could buy three apartments

Starting point is 00:37:16 which can be rented out, which are also a million dollars. And you make these two investments. the Rembrandt you say could be worth $2 million in the future or $3 million in the future. The future value of Rembrandt depends on the perceived value by other people in the future in a very subjective way. The future value of the apartment building that you bought will depend on the rents it's generating. So if you bought it in a great place with a great place, with a great place. demographic and the neighborhood becomes better, the rents could triple or double in some time, and the apartment could be worth $2 or $3 million. So if you understand Rembrandt so well that you have a very high probability of saying

Starting point is 00:38:09 this is going to be worth $10 million in 10 years, go buy the Rembrandt. That's like the Pokemon card. You should always be within your circular competence. So if you're buying Rembrandt, you're buying Pokemon cards, or you're buying apartment buildings, all of these you should be knowing them cold. And if you got the confidence that it's going to be worth more, that's fine. It just may be that you're correct about Pokemon cards because I don't understand them. And I'm correct about apartments because I do understand them.

Starting point is 00:38:41 Why do so many people get caught up in these bubbles? Like maybe you could say we might be in the AI bubble today. You might be able to say we're in a collectible nostalgia bubble today. Like, what is it about human nature that makes you a bad investor emotionally sometimes? Humans want to invest in things that have recently done well. We just have giant recency bias, basically. It's just the nature of people wanting to go to flavor of the day. And actually, that going to the flavor of the day actually makes it possible for me to do what I'm doing.

Starting point is 00:39:19 There is a lemming aspect to human behavior. There is a herd mentality. There is want to buy flavor of the day, want to buy what's popular. All of that is there. And it is those characteristics that allows someone like me to do what I do. How do you go against the crowd to invest when everybody else might think you're crazy? Like, have you ever had somebody say, like, this is crazy? Don't do this.

Starting point is 00:39:49 why are you investing it? And you did it anyway? Yeah, I mean, I think you're going to have conviction on your ideas. I mean, the thing is that it's the same thing as starting a business. You want to start some business. Everyone's going to tell you it's not all the work, right? And they may or may not be right, but you feel passionate about it and you go for it. If I've done the work and I understand things and I've got conviction, then I'm going to act based on that. Yeah, absolutely. Take it from Anish and I, the most expensive mistakes don't happen because you're dumb or I'm dumb. They happen because we're alone moving fast and taking guesses.

Starting point is 00:40:27 Business owners do this constantly. Bordham is for business owners doing seven figures, at least in revenue, and who do not want to make the wrong decisions in isolation. Just like he is going to pay $650,000 to sit down with Warren Buffett to learn from him, I've realized that when I have a third party who gives me advice and I get to steal all their homework, I make way more money. How does it work? In boardroom, you actually get to sit down with my operating team and partners. You bring the bottlenecks, the issues in your business like cash flow hiring and sales marketing. And we help you find the next lever to fix with our operating tools, advisors, weekly coaching, quarterly planning, and owners who follow our exact private equity playbook to scale revenue and profits. This is not for people who do not have a business. This is only for people who are already building their business.

Starting point is 00:41:16 But if you are that, then you should apply to join Growth Boardroom here. You can go to contrarientthinking.co slash growth-dash-bordroom. You also kind of have famously said you don't lie. Is that true? Well, we try not to lie. If I did not lie at all, I would be at a Jesus level. Okay, I'm not at a Jesus level yet, okay, or a Buddha level, or Gandhi level. So the whole lies versus truth is a very powerful mental model.

Starting point is 00:41:50 There's a book I read a long time back called Power v. Force, written by a kind of new age guy in Arizona, Dr. David Hawkins. But he had a theory that he said that if I lie to you and in your conscious state you don't know I'm lying to you, in your subconscious state you do. And he said that there's a pike. that goes between the subconscious and the conscious, but for most humans, that pipe is mostly clogged. Okay?

Starting point is 00:42:21 So the signal cannot get through. But he says the pipe is not fully clogged. So what happens is that you, in his terms, he said you either go weak or strong in the presence of a person telling the truth versus telling lies. So if someone are lying to you, you may not know directly that they're lying to you, but you will feel,

Starting point is 00:42:46 I don't know if they want to spend time with this person. You know, like the use car salesman. You don't know what part of what he's telling you is a lie, but you know there's a lot of lies in there. Right? So you don't want to be there. Like, that's why people want to shop at home. They don't want to go to the car dealership

Starting point is 00:43:04 because it's not a pleasant experience. They'd rather just go online, buy the car, and have it delivered and they'll be done with it, right? And so basically we know, we know at least subconsciously when people are not being truthful with us. And we see that play out. Humans get strong and love being around the truth. And so we crave that.

Starting point is 00:43:31 And so in leadership and in entrepreneurship or in a selling situation, the more truthful you can be, the better off you are longer. You know, it's interesting. We had a leadership meeting yesterday, and the meeting was sort of last minute. And the reason that I held it candidly was because I heard little bickering, you know, little, oh, this person did this and this person did this, but they weren't going to each other to having a conversation.

Starting point is 00:44:04 And so I heard it enough times that I just thought, well, we don't have time for this. So I pulled everybody into actually this room where we're sitting. and I said, all right, this is your shot. It's free. But like, if you don't bring it up here, that means it's not a real issue. Yeah. So you have to look the person in the face. And so don't say generalities.

Starting point is 00:44:23 You have to say, Cody, you did this. Blah, you know, so and so, you did this. And it was fascinating to watch us how many people will not tell the truth because they'd rather be diplomatic. Yeah. And I'm wondering, have you found ways to indoctrinate that culture, to get more. more people to have difficult conversations. Yeah.

Starting point is 00:44:44 When you have conflict or when a team members are not being candid, I think that having them speak in a kind of moderated way where one person speaks without interruption, what their perspectives and feelings are and everything. Then the other person speaks. And again, shares eventually can lead to a better outcome. It may not,

Starting point is 00:45:12 may or may not solve the problem. But I would just say this, that I don't want to be part of a team which has dysfunction like that. So if you have things going on where the people are talking to be in the back and all these things going on, you have to fix it.

Starting point is 00:45:26 Yeah, it's interesting. I've learned, like, Yon has this line that I love where he says, running a company is just finding the series of compounding lies inside of your company. And I related to that

Starting point is 00:45:37 because I think it's, it's truthful and sort of non-egoic to say that. And to say, hey, I'm one of the best entrepreneurs in the world. And I still know that whether it's, to your point, not complete deceit, but just sort of hiding the truth or not even realizing it or whatever, you know, your job as an investor is sort of define the truth in a company or not. Yeah. And then when you're running a company, it's probably to find the truth even inside of your own company. Yeah. Which was a crazy realization for me to realize the first time I ran the company.

Starting point is 00:46:05 Yeah. also like when Elon interviews people and interviews a lot of people I think he interviewed the first 3,000 hires at SpaceX himself he asked them one of the questions he asked the engineers is what's the most difficult problem you solved right and he says that when they start answering the question if they really didn't solve that problem it's going to become obvious because he's smart enough as a as a problem solver to figure So he just goes deeper and deeper into that area with the person, and he says eventually just reveals itself, whether they actually solve that difficult problem or whether they heard about it and they think they can, you know, fudge their way through it. Now, you only have 10 investments.

Starting point is 00:46:54 That's, and you hold them for a long time. That is like having a relationship, I would imagine, with a lot of that senior executive team or the CEO team in some way. You know, you can compare it to marriage, you could compare it to dating, you could say that they become partners of yours in some way. How important is it screening the CEO and the founders and the key team, not just the underlying assets and the balance sheet? And if it is important, and how do you determine whether you want to bet on a person or not? Yeah, so the culture and the nature of the people is very fundamental. And that takes time. Some of it we can get by looking at long histories of the business.

Starting point is 00:47:39 This has been around for a while. You could say, one did they say 10 years ago and then what happened. And so definitely we have to have a good understanding of the people. And we have to be comfortable and confident that we can be long-term partners. And the other thing about investing is that it tolerates a high error rate, right? The moats of the companies, the competitive advantage of the company, the nature of the CEO, the nature of esteem. Many of these things we may or may not have gotten it exactly right. And sometimes they are much better than where you think they are.

Starting point is 00:48:22 It's sometimes they're much worse. But we definitely try. Is there a question that you ask or that you, I know you can't if they're public seats? you can't always, you know, go direct to them to ask questions in the same way. But is there a question that you ask to screen an individual that you find really helpful? Well, one of the things that which I got from Warren is he says that when you go meet a company, you ask the company leadership that if I were not investing in your business, which of your competitors would you suggest I should invest it?

Starting point is 00:49:03 And which of your competitors do you think I should short or I should never invest it? It's a great question even to ask if you run a company. Like I'm thinking about what would my answer to that question be. And that also tells me who do I want to go higher from those competitors? Like, you know, which products do we want to launch? Which would kill? What have they already done that we're trying right now that may or may not work? Yeah.

Starting point is 00:49:24 That's a very good. mental model. Yeah. What does a day in the life of a billion dollar investor look like? You up at 6 a.m. You have 16 minutes. Coffee breaks. No.

Starting point is 00:49:35 I work from home, even though my office is a half a mile away. Maybe two or three times a week I speak to some of my team on Zoom. I go to the office maybe once a year or something, very rare. And but I just decide on a, I don't. I don't have a lot of preconceived, I want to do this and that for the next three months. I leave it very free to have the flexibility to go into any area I want to go into. So I'm just, it's very, very much seat on the pants based on what is going on. Yeah.

Starting point is 00:50:20 You know, it's so interesting. I've, you know, I ran our biggest asset management company we've had. we've had, we only manage, you know, just a little bit over nine figures. But we, it's interesting, my husband is the one who runs is our investment portfolio now. And I always joke, I want to come back in my next life as that instead of operating companies. We still are not good enough. You know, I think we're good operators of company. We've grown a lot every year, you know, sort of tripled or a little bit more each year. But it's, the leverage there is so different than investing. And so, um,

Starting point is 00:50:55 I think a lot of times the cool part of you sharing stuff like this is most people don't realize, like you said, the power of compounding. They don't realize the power of like not taking an action every decision, which you've talked about. They don't realize the power of being patient. And when you have capital, allowing that capital to do the work for you, as opposed to you having to do all of it. And so I think it's really, it's a give to share that with people because most people, I mean, how many employees do you have to manage your fund group, roughly? They're just two people full-time. Yeah. And they're two part-time.

Starting point is 00:51:27 I mean, it's wild. And then you imagine, you know, if our company does, let's say, you know, shy of nine figures a year here, we'll have $130, you know? Yeah. And so the leverage is so different. And also the other thing is that if I went from $1.4 billion to $14 billion, it might be a couple more people. That's wild. You know. It's not going to be.

Starting point is 00:51:52 10 times a number of people we have, you know, it's just going to, because that's the beauty of the business. It's a, the reason I went into this business is because I could just see that the economics are great. It just works great. I'm a single player, single game player guy. So I'm not the kind of person who's happy being on a soccer team. I'm probably going to be happy of playing tennis.

Starting point is 00:52:18 Yeah. That makes sense. Yeah. So maybe for somebody listening, explain. like sort of wrap it up. If you are looking at business models and deciding, I think a lot of what matters is the game you choose to play, not just because of who you are, but also whether that is a good game or not. Like, you know, we talk about a silly thing, like vending machines. I like vending machines to learn how to do business. It's cheap. There's not a lot of risk. If you have an entire business and company with very little CAPEX, it's sort of a great, but it's a terrible business at scale, actually, really tough business. How do you think about business models? in general. Do you have a mental model to determine if one business model is better than another? Yeah, I mean, I think that a lot of that comes naturally. I'll give you an example that I think you might find interesting is in, when Buffett was a teenager, he was in Washington, D.C. His father was a

Starting point is 00:53:15 congressman. And he hated being in D.C. He were already back in Omaha, but he was in D.C. and there was a guy in his high school, Don Danley. And one day Warren went to Dawn's house, and he saw Don quinkering with a pinball machine, okay? And he said, what are you doing? He said, oh, you know, I got this pinball machine that doesn't work for like five bucks because people just giving it away. And I think for another $5 or $7 in parts, I can get it working, okay?

Starting point is 00:53:49 and so Warren says to him, are there a lot of pinball machines that you can get that are not working? He says, oh, there's people just have them sitting all over. So what Warren did was he's like 16 or something, 15. He tells Dan Lee to fix pinball machines nonstop, like they get 20, 30 of them, right? And puts him to work fixing those. and then he and Danley go to the barber shops in D.C.

Starting point is 00:54:23 And they tell the barber that we work for Mr. Wilson because they're two kids, right? There's no Mr. Wilson. Mr. Wilson is a fictitious character. They say we work for Mr. Wilson and Mr. Wilson has authorized us to make you an offer, which is we'll put the pinball machine in your barbershop for free. And every week will come and pull out where coins are there.

Starting point is 00:54:47 And half come to you and half we take for Mr. Wilson. So the barber said, put the machine in the car. Like, I mean, there's no downside, right? So those pinball machines, when Warren was leaving D.C. after high school, he had 45 barbershops with the pinball machines. And he said the first week, he went into the first barbershop, there was $5 in there. And he gave two and a half to the barber.

Starting point is 00:55:15 he thought he died and went to heaven because on a $10 investment, in four weeks, they were going to clear the money. And then, you know, the return capital is infinite. So what I'm trying to say is that you talked about the vending machines, right? The vending machine, the entrepreneur is not doing anything unusual. If Warren bought pinball machines at market price and put them in the barter shops, it would be in terrible business, right? it became a great business because they flipped it a little bit. So understanding the economics of a great business is not difficult. In fact, what I would just say, I would say the following.

Starting point is 00:56:01 My filter for understanding where a business is great or not is, does it blow me away? Okay. Does it hit me in my head with a two by four? like when I see Buffett's pinball machine business, you instantly know that's a great business, right? You know they're not spending anything on the pinball machine. It's fantastic, right? And the same business, when you buy it at list price and you put it there,

Starting point is 00:56:30 you lose your shirt. You're going to be a terrible business. So what we want to do is we want to find the anomalies, right? And so that's exactly how I look at business is that is it a pinball business? Is it Buffett's pinball business? And if it is, like, level three was like Buffett's pinball business, right? So we look for these weird things, and we're looking for weird things that make no sense.

Starting point is 00:56:56 And then we find them, and we go back to doing what we're doing and look for the next weird thing. So good. Not enough people try to take the complex, simplify it. Yeah. And just do it a few times. Yeah. So we can make the Wendig business really good. We just have to get the machines for free.

Starting point is 00:57:16 That's true. It be the one that can fix them. Because you're right. That's where the best businesses in vending when we had a bunch of them. Because we had a bunch of laundromats. So you put vending machines in the laundromat. It's not just similar to Warren. But the best part of that business ended up being the people who fix the vending machines because they break all the time.

Starting point is 00:57:35 Absolutely. Yeah. And so and they do the same thing. They then take the vending machines, fix them up. sell them. So I think that's the thing is, is the business opportunity all over. These were, these were kids coming up with this who didn't even have any experience. Yeah. And, you know, and, you know, Warren had so many, you know, he had, he had this other kid where he used to sell golf balls on the street corner in Omaha. But he had a, he had a couple of friends

Starting point is 00:58:05 who would go dive in the water to get the golf balls out. And Warren never ordered to do it. He said, I never ordered to do any hard work. So he paid those kids to dive and then he sold the golf balls. But again, the golf ball is free. You know, it's free. And so you're going to make a lot of money when you do that. So basically we want to look for these businesses where some part of the equation is different than the mainstream. And that just changes it completely.

Starting point is 00:58:32 Ambitious but lazy. I love it. This was such a useful conversation. Thank you so much for being here. Where do you like people to follow along? Well, you know, I'm on X. and LinkedIn, Monish Pribay. Okay.

Starting point is 00:58:45 So let's start there. Okay. Follow along for the ride. But thank you so much for being here. Always a pleasure, Coley. Thank you so much.

BigDeal - The Laws of Investing to 10x Your Stocks | Mohnish Pabrai

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