We Study Billionaires - The Investor’s Podcast Network - TIP347: Value Investing in 2021 w/ Mohnish Pabrai

Starting point is 00:00:00 You're listening to TIP. It's Berksay weekend, so we decided to bring the big guns. With us today, ladies and gentlemen, like last year and the year before in this iconic weekend, I invited fan-favored Monez-pop-Rai on The Investor's podcast. I'll be talking to Munches about his new investing framework, and we'll touch upon a few of the investments he made since we last talked and much, much more. If you're a fellow value investor, you're going to love this conversation with Mr. Moneys Pupry. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most.

Starting point is 00:00:40 We keep you informed and prepared for the unexpected. Welcome to The Investors podcast. I'm your host Dick Broderson, and today's guest, Moni's Pop Ride, needs no further introduction. Monitz, let's jump right into it. I know that 2020 has been a year of learning for you. perhaps the biggest year of learning since 1994, which was the year where you picked up one up on Wall Street by Peter Lynch in Heathrow Airport and through that learned about Warren Buffett. Saying that 2020 was perhaps the biggest year learning since then seems like a toll order, what have you learned?

Starting point is 00:01:21 I used to have a license plate called COMLB 26, compound 26. And my daughter took that plate from me. So now that plate is on her car. And I used to have a license plate. I told her, you know, the plate comes with a lot of responsibility. You have to be compounding at high rates if you're going to keep that plate. So she's got some pressure on her. But the compound 26 really came from the fact that when I first started investing in 94, I first heard about Warren Buffett, I thought, okay, you know, if you buy a company at half off, 50% off, and it converges to fair value in two or three years. So 50 cents becomes a dollar.

Starting point is 00:02:05 If it takes three years, it would be just about exactly 26% a year, because 1.26 cube is two. And if it took two years, they'd be even better. It would be close to 35%. And so I said, well, you know, this compounding at 26% should be pretty easy because if you find a 50 cent dollar, three years is a long time to get to convergence.

Starting point is 00:02:29 And if it's a growth company and in the three years it grows, then you can get even more than that. And of course, what I've discovered in the last maybe 27, 28 years is it's not so simple because first of all, you have an error rate. So some things you buy, you actually make a mistake and they may flatline or you may even lose money. So that affects some other returns. In some cases, you may not be completely right.

Starting point is 00:02:57 So you may not get a double. You may get a 50% return in a few years or some may flatline. So there's a whole range of things that happen on that front. But it still works pretty well. But when I encountered Nick Sleep's framework, I thought that framework was extremely powerful. So Nick asked the question that if you were an institutional investor, And you owned Walmart. And let's say you bought it in 1980 or 1990, somewhere in that time frame.

Starting point is 00:03:31 What exactly was the data point or data points that made you sell the stock? If you look at the Walton family, you know, Sam Walton and his heirs, Walmart went public in 1970. From 1970 to 2021, 51 years, the Walton family hasn't sold. even though Sam Walton passed away, the Walton family kept the shares and they've done really well with it. So Nick asked the question, why is it that the Walton family kept the shares and did so well? And all these institutional investors who Walmart is not a difficult business to understand, it's a pretty straightforward business. And it's a pretty straightforward to understand the mode of the business.

Starting point is 00:04:16 So the question he asked was, why is it that no institution, institutional investors held the stock of Walmart for 30 years or 40 years or 50 years or 50 years, or even 20 years, right? They didn't hold it. And so he asked the question of both Walmart and Kmart. He says that if you were an institution investor and you held Walmart, what exactly went through your mind that caused you to sell it? And on the other hand, if in the 1990s or early 2000s, if you held Kmart, what exactly caused

Starting point is 00:04:50 you not to sell? In one of his last emails to me, he said to me that the best investors in the world are not investors at all. They are entrepreneurs who never sold. So the framework, the framework that Nick Sleep was using was a very different framework than what I was using, which is the compound 26, the $0.50. Nick's approach was that if you own a business like Walmart, don't fixate, on the multiple. Don't fixate that this is trading at 25 times earnings or 20 times earnings

Starting point is 00:05:28 or whatever else. Ask yourself a simple question. Is the business getting better? Is the moat getting deeper? Is the mode getting wider? Is the business intact? If the business is intact, unless the pricing is egregious, it's gone crazy. Like it becomes like game stop or something. Just keep the stock. So basically what he's saying is use the same framework that the founders and the entrepreneurs who started these businesses use. And so he used that framework with Amazon. So Nick Sleep shut down his fund in early 2014. And when he got cashed out, he put all his money in three stocks, Berkshire Hathaway, Costco and Amazon. And he told his investors when he returned their money in 2014, listen, just take the money

Starting point is 00:06:25 we had giving back to you, put it in these three stocks, and you don't have to pay us ridiculous fees, and you don't have to read our letters. Life is great. And if those institutional investors had taken his advice, at that time in 2014, Amazon was at $300 a share. So you would have a 10x on Amazon in the. last seven or eight years, which would pretty much blow out almost any institutional investor in terms of returns.

Starting point is 00:06:56 And Costco and Berkshire hasn't done as well. Berkshire has actually lagged the SNP, but it didn't matter. It wouldn't have mattered. If you had put one third of your portfolio on Amazon, the overall portfolio results would be exception. So I had been an entrepreneur for all these decades. And I recognize that, for example, if I'm a. I look at the GP interest of Pabri funds, which I own 100%.

Starting point is 00:07:24 It's a fantastic business. It's an unbelievably great business. And it's a business that has extreme volatility because I don't charge management fees. So I went 10 years from 2007 to 2017 with no fees. But even with that volatility, if you offered me $50 million or $100 million for that GP interest, it would not even take me a second to say I'm not interested. In fact, I'm almost not interested at any price because I enjoy it so much, but also recognize that it's a great business.

Starting point is 00:08:00 So I recognize it's a great business because I'm a founder and so on, but I can have that same framework on portfolio companies. So, for example, two years ago, I made an investment in a company in Turkey. And this Turkish company was, it was a ridiculous. undervalued company with a $19 billion market cap, $1.9. And liquidation value was somewhere between, let's say, $300 or $400 million to a billion. It was pretty widely mispriced. And it wasn't just a cigar butt, like something trading cheap, great capital allocators and great assets. And almost for sure, the intrinsic value was going to keep increasing. So if you bought it,

Starting point is 00:08:48 It wasn't that the 19 million would become 300 million at some point. It was possible that if you held it long enough, the 19 million might become several billion. So I was surprised because Turkey has such high trading volumes that we were able to get a 33% stake in the business for about $7 million. Well done, Molnish. Well done. Even if I pat myself on the back stake, it's okay. And now, when I bought this company in Turkey in 2019, I did not have the Nixleap framework. What I understood is I'm going to hold this company for a while and I'm going to wait for this convergence to happen.

Starting point is 00:09:34 And then when it converges, I look at selling it. If its intrinsic value is a billion and it gets to a billion market cap, that's a good time to sell it. That framework has been thrown out the window. There's a new framework. And the new framework is really simple. Is the business getting better? And if it's getting better, I now think of myself as a owner of the business. I'm not a founder, but I think of it like the founder thinks of it.

Starting point is 00:10:05 So the family that runs the business, they own 44%. I told them, I'm your junior partner. I own 33%. You'll never hear from me how you guys should run your show because you guys know how to do that really well. My job is just cheer you on from the sidelines. That's all. And so my framework with that company is as long as the business is getting better and as long as the moat is at least staying as good as it was, if not getting better, we have no plans to sell that business. We have no plans to sell a single share for five.

Starting point is 00:10:45 years, 10 years, 20 years, as long as it takes. Okay? And now my framework is that I want to find more of these. Now, I'm not going to get lucky to find $19 million market caps worth $500 million. The gods love me, but they don't love me so much. If they give me one of these every 10 years, that's very generous. So even if I don't get it at a discount. So, Nixley pointed out that you could have bought Walmart in the 1970s at a P.E. of a hundred

Starting point is 00:11:21 or a P of 150, and you would have still made like 13, 14 percent a year for the next 50 years. So you could have almost paid any price Walmart was trading at in the 70s or the 80s, and you would have still had a double-digit return over a very long period with no capital gains. tax and just pure compounding. So my framework now is to find long-term compounders, which even if we don't get them at big discounts to what they were. And in the end, the compounding engine will take care of that. So I used to think Nick Sleep was a rock star. You know, I just described a rock star Nick's sleep. But then I heard of Naspers in South Africa. Are you familiar with NASPERS? Yes. Okay. So NASPERS put 32 million into 10 cent in, I think 2001 is when they made the

Starting point is 00:12:25 10 cent investment, about 20 years ago. And until now, they have never sold. And basically, that 31 million, that's taken in 10 cents is over 250 billion now. And so NASPERS took the same point of view, which is that we are an owner of this business. And they don't run the business, but hats off to them. So they've had something like an 8,000% return on their investment just for sitting on their butt and doing nothing. And so what I've realized is that if I can eventually get a portfolio of eight or 10 of these, which have these types of characteristics, good business, good business,

Starting point is 00:13:13 good mode, long runways, you're done. And even if I can find one of those a year, that's great. Set it and forget it. So that's the new framework I'm excited about it. The new and improved manish. That's what we have witnessing now. I have to come up in new stuff for you, Stig. Otherwise, who's going to listen to you?

Starting point is 00:13:40 That's true. That's true. You said it well. But it's interesting that you would lead up by talking about it, knowing that 2020 has been such a year of learning for you. One thing I heard you said there back in the fall was that you talked about spawners and you talked about how you, at the time, just bought your fourth spawner as a Japanese company and you would like to build a portfolio of spawners if possible.

Starting point is 00:14:06 Could you please share your framework with the audience about spawners and perhaps also talk about a few characteristics of how to identify them? I mean, I think when I ran an IT services business, I was running this IT services in the 1990s. Basically, I had to reinvent the business about three or four times in about 10 years, because what would happen is we would identify a niche which was not very competitive. We would have supernormal profits. Then everyone would figure it out. And they would come into the business and those profits would go to.

Starting point is 00:14:43 down and then I'd have to come up with another one and so on. So what we were doing on a very small scale at that time is we were spawning these new micro businesses inside this small business and eventually these micro businesses would get healthy and grow and their cash flows would actually be better than the mothership. Companies that have the ability to create new businesses, from the mothership is a very rare and unusual type of DNA. Most companies have no ability to do that. Capitalism is very brutal.

Starting point is 00:15:24 And when you finally figure out and have a mousetrap that makes money and that people are willing to come to you and give you money and be customers and all of that, it's really difficult to come up with another mousetrap because it's just so comparative. And many kind of luck factors may have contributed to even the, the first mousetrap being successful. And so generally speaking, creating new businesses from an existing business is a very rare and unusual talent and unusual DNA. But there are some companies that are set up in such a way and have such DNA and origin

Starting point is 00:16:03 and founders that they are able to do this really well. So a good example of what I would call an apex spawner is as a big. Amazon, right? So, Amazon first started at the bookstore, then they went to many retail categories. And then after that, they just kept innovating and they would keep throwing things against the wall. So you remember the fire phone? So, you know, they came up with a fire phone. They offered it for 99 cents, okay, to try to disrupt the phone business. Even at 99 cents, they fail. But Jeff's perspective was, I'll throw a lot of stuff up against the wall. 90% of it will fail. But 90% of it will also not cost us much.

Starting point is 00:16:46 And a few things will stick and we'll scale that. So a lot of things Amazon did, did not work, but several things did work. Kindle worked, Prime worked. And then what he did is he started looking at his cost of goods sold. Like, for example, shipping was the cost of good sold. And he went into the shipping business. Or these aircraft that are flying around with Amazon packages. He bought the company that has those aircraft.

Starting point is 00:17:12 and so on. And he bought the robotics company that provides the robots for his warehouses. And then the biggest one for him was he was using cloud infrastructure, home built, for his retail business. And then he offered that as a service to others. And of course, now the cloud business is bigger in value than everything else at Amazon. So what was a cost center has become a tremendous revenue center. So similarly, Alphabet has.

Starting point is 00:17:42 either bought or innovated. They bought YouTube, one of the best acquisitions ever. They bought Android, which is another great acquisition. And they're working on things like self-driving and so on. Alibaba is another great spawner.

Starting point is 00:17:58 It has spawned in so many areas. The cloud, Alipay, and then so many other logistics businesses and other businesses they've set up. So if you can find a company that is good at spawning, the big advantage you get is a couple of things. One is, if I'm a business that's going to

Starting point is 00:18:17 report $100 million in net income, Uncle Sam will take $25 million of that. But if I can take the $100 million and use $50 million of it on these new innovative spawners, my tax bill is now $12.5 million. My tax bill got cut in half. So Uncle Sam becomes a very benevolent VC in this game where he says, yeah, it's okay, take my money, and I don't care if you take 20 years to bring it back, no problem. Or if it never comes back, it's okay, no problem. The best we see is Uncle Sam. So Amazon, through most of its history, hardly paid any taxes. Because what they did is whatever money the core business was producing, they dumped it into spawners, which pretty much wiped out net income. So this is much better than buying back stock. If you buy back stock,

Starting point is 00:19:11 You actually have to make net income, pay Uncle Sam, and then use what's left over to buyback stock. Spawning is kind of like on steroids compared to buying backstock. So spawning is very advantageous. Secondly, if you have digital spawners like Amazon or Alphabet or Alibaba, by definition, these are high ROE businesses. They just generate high returns because of their digital nature. You know, you don't have land and warehouses and facilities. So you just make a lot of money. So the return characteristics of these businesses is really good.

Starting point is 00:19:49 So, for example, going back to the business, I invested in Turkey. Their core business is warehouses. And the warehouses are leased to Alibaba, Amazon, Carfur, IKEA, etc. They have spawned many, many other businesses. And in their case, the spawning. is not digital. It's analog spawning. But the founders of the business really understand capital allocation well. If they don't generate a high return or they can't see a high return, they will not put their money out. So they need to see the money come back at the most in three or four years.

Starting point is 00:20:25 And so what I realized later, it took me a couple of years to realize that, that this company wasn't just undervalued. It actually had spawning DNA because they had already gone into a number businesses and their failure rate was really low. They were very careful in what businesses they went into. So spawning is awesome. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year

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Starting point is 00:25:02 getting shorter and shorter. BlackBerry would just be one example in 2009, almost 50% market year. Then the iPhone came 2014, 1%. That's how fast it can go. Was that sort of like what sparked you to look at spawning? Was it more sleep? I think spawning came about because of COVID, because I didn't spend my time on airplanes and hotel rooms. I had a lot of time to contemplate my navel and it is a very good idea to contemplate your navel from time to time. I think the spawning, actually the framework came up when I was drooling on my pillow. So I was kind of sleeping or half sleeping and I was thinking about different things and different companies and I realized, especially when I looked at, because I was looking at Nick Sleep's

Starting point is 00:25:50 Amazon pet and Nick had focused very heavily on Amazon's retail business. When he first invested in Amazon, he asked himself, what percentage of retail could be online in 10 or 20 years? And then what percentage of that online could be Amazon? These were the types of questions he was asking himself. But I realized that Amazon's real success did not come from retail. It came from spawning. And so I realized, no, it's not really retail, it's cloud, but then where is cloud coming from?

Starting point is 00:26:26 I realize it's coming from the innovative DNA embedded deep in Amazon. So even now, you know, Jeff Bezos has retired, quote unquote, retired. But he's not retired. All he's done is he's given away all the boring CEO responsibilities. And he's definitely going to be very engaged. And he's probably going to spend even more time on invention and innovation. That's where he wants to spend his time. And so the spawning DNA of Amazon, actually is getting a boost because Jeff has got less distractions. Because running a public company, you've got a lot and lots and lots of obligations and pressures to deal with. So I'm surprised he waited this long to do what he did.

Starting point is 00:27:13 So I think that this came about really from just trying to understand Amazon better and then trying to understand Nick Sleep's model. And I think Nick himself went through a journey where he realized that, it wasn't just the retail, that it was all these other things that Amazon was doing that were creating tremendous value. But I don't think he had figured out that it was a kind of spawning framework. So that came about probably just when I was ruling on my pillow. Manish, I'd like to talk a bit about several incompetence because it is time consuming. We don't always have a COVID to just sit down and learn. So let me ask you this hypothetical question, because there's always opportunity cost in you spending time on something else? If you could choose to expand your

Starting point is 00:28:01 server incompetence and be an expert in a split second into given sector, technology, country, whatever it might be, where would you add to your circular competence? It would come at no time cost. Well, if there was no time cost, I'd really like to get on top of AI and, you know, machine learning and that area. I think that we are in a very embryonic. phase there, but there's going to be a lot of growth and development there. So I'd like to get better at that area. The other thing I'd like to get better at if there was no time is I'd like to understand, I would love to spend a year or two at Anderson Horowitz, Sequoia Fund and so on. I'd really like to be a fly on the wall in those places because they've got such high hit rates.

Starting point is 00:28:52 So just what is the DNA that those places have and how can I get some of that lightning in a bottle? Just see what's going on with Sakoy, China right now and their hit rate. It's absolutely amazing. Monash, we previously talked about growing pies and discounted pies. That's how you refer to it. And of course, the students have Warren Buffett and Charlie Munger. That's something that we know of.

Starting point is 00:29:17 And typically, investors choose to take one or the other approach. One thing I heard your talk about is that we could also consider if we should include the quote unquote 17 year cycles into that. Even though the numbers are not exact 17 years necessarily, that's sort of like how they're typically referred to. Could you please explain to audience perhaps a bit more about what the 17 year cycles are? And if that still ties into your investing approach right now, giving the framework you talked about before.

Starting point is 00:29:46 Yeah. I mean, I think it helps you fish where the fish are. So, you know, if you go through the last 100 years, maybe 125 years of the S&P 500 or the Dow, it's done about 9% a year. But the 9% a year is really fiction because it didn't like go up 9% every year. They were long periods, sometimes periods as long as 25 years, 27 years when the returns were zero, just flat. It was the same as what it was 25 years ago. And there were periods when they are 15 or 17 year periods where it's advanced at. 17, 18% a year for the whole market. So we've had long periods of flatline or declining

Starting point is 00:30:29 markets, and we've also had equally long periods of very robust market. So basically what happens in stock markets, because they are auction driven, they overshoot and undershoot all the time. So, for example, in 1982, U.S. stocks were very undervalued. You could have picked up companies, like Coke or American Express at single digit multiples, seven, eight times earnings, six times earnings, that sort of thing. Disney was at a single digit multiple. And if you went back to 1965, for example, stocks are very overheated, very high multiples. And if you look at 1999, 17 years after 82, very high multiples. Coke was no longer at six times earning. It was more than 40 times earnings. American Express more than 40 times.

Starting point is 00:31:21 earnings. All these high flyers, GE, which we subsequently discovered was not such a great business, was at peak market valuation. I think 600 billion market cap never saw that market cap again. So businesses overshoot and undershoot quite frequently. And in the US, we've seen these 17-year cycles, 65, 82, 99, and now from 99 onwards till almost. 2013, 2014, it was again flat. We didn't go through 17 years, we went to at least 13, 14 years of flat markets. And the reason markets do this overshooting and undershooting is because humans get euphoric or pessimistic. So we know that in early 80s, Japan had the most mega bubble. The real estate went crazy. And then with that, the stock market went crazy. And everything got

Starting point is 00:32:19 ridiculously overpriced. The Niki after 40 years is still not back to where it was. So if you look at Japan today, it's very cheap. If you look at Korea, it's pretty cheap. If you look at Turkey, it's very cheap. So in terms of fishing where the fish are, there are parts of the U.S. market that I believe are clearly in bubble territory. It's not a very large number of stocks, So relatively small number of stocks, very overvalued. So it's like this vacuum cleaner, sucking up cash and putting it into a few names. Then we've got a little larger set of names, tech names, which either are fully priced or maybe overpriced, just depending on how their future business unfolds.

Starting point is 00:33:08 So we've got one end of the market, which is very overheated, kind of like the game stops and Teslas of the world. We've got another end of the market, which is either fully priced or overpriced, kind of like the sales forces and the sales forces and maybe the Microsofts and so on of the world. Great businesses are doing really well, but nowhere near value territory and could be overpriced. And then we have a bunch of non-sexy businesses which may be fairly priced or even underpriced. So that's kind of how I think about the U.S. market. but very few bargains. Even amongst the non-sexy businesses, very few bargains.

Starting point is 00:33:48 So there's a lot of money chasing very few names. If you look at other countries, the cycles there in different parts of the cycle. So I think Japan, Korea, Turkey, these are markets that are just deeply undervalued. So generally speaking, I think that if investors paid attention to these markets, And then within these markets, they look for great compounders. Don't look for cigar butts. Look for great compounders. Look for the spawningers.

Starting point is 00:34:21 Look for the growing pies. One would do really well. So whenever you mentioned that, Manish, and you talked about finding these sparners, finding these stocks with long runways, and not too long ago, saw you take a position in search its properties. And I know we are specifically going to talk about that one, and there's confirmation bias and all that, but it's more to like to understand your mindset. Yes, and it was trading at ridiculous low prices. It's definitely not a spawner. That's not what it is. But how do you think

Starting point is 00:34:50 about like allocating a part of your portfolio in companies you really want? And then what do you do with the rest? I wouldn't call it a place hole for cash because that would probably be stretching it, but it seems like it's a bit of a discounted pie type of play. And you don't have to specifically talk about that stock, which is more how to think about those two different piles of money in your portfolio. Yeah, so Seritage actually may not have been a stock that if it showed up today on my radar, I might have been interested in. It's possible I still would be, but the Seritage came up on the radar in the pre-Nixleep era. It came up in the pre-spawner era, so these frameworks were not in place.

Starting point is 00:35:30 And it came up right when in March 2020, when the world was crashing and burning. That's when it came up. And at that time, I was looking at a lot of stocks were falling and I was trying to figure out what would be a great play and what might be a good way to play this. So I noticed that Seretage went from $35 to $40 the share that was trading to $6 to $9 a share. It went through a pretty dramatic and they actually were facing significant headwinds. They were in many ways, you can say, in the eye of the storm because retail was shut down. in the country. They were in this process of morphing the CEO stores into other things and increasing their rents and all of that. And all of that was basically going to be a difficult

Starting point is 00:36:21 business to be in. I think the way I looked at it then, and that's one, that's why I think even today I might have be interested in is that if you take a 10 or 20 year view of a company like Serratage, and if they can get past this hump, there are some challenges they have in this come. If I fast forward 10 or 20 years, I believe Seritage, which today has like 180 odd properties, may not have more than 30 or 40 properties. But those 30 or 40 properties would be ultra prime and they would have gone through some very significant densification. So for example, they have

Starting point is 00:36:58 one property in Dallas, which was the former Sears, which was like, you know, 2 or 300,000 square feet. Eventually that footprint is going to have 3 million or 4 million square feet. It's going to be more than 10x, maybe 15x, what the original footprint was. That's significant. And they have many properties which will do that eventually because they are sitting in such perfect prime locations. So I think if I fast forward 10 or 20 years and if sedentage is able to navigate the landscape and get to the point where they have these 30 or 40 ultra-prime properties, it becomes a tremendous asset.

Starting point is 00:37:40 It becomes a blue-chip asset. And so now that I have the framework of Sam Walton and an owner embedded, my approach to Seritage is very different than what I had taken when I made the investment. My approach right now is, let's watch this movie for 20 years, see what happens. And one of the things that's possible about Seritage, because they are building a competence in taking these beat up kind of dead businesses, the Sears, and transforming them. And that's a very different skill that a lot of reach don't have. So one can think that it's possible at some point that Seritage could do this for real

Starting point is 00:38:26 state that they don't own today. They could do this for old JC pennies and old Macy's. So they could be the engine that does the recycling. And if that becomes the eventual business they go into, I'm not saying that that's what I'm going to happen. It's low probability. It becomes an even better business. So my take on sedentage is there's kind of a range of outcomes.

Starting point is 00:38:51 There are at least some outcomes in that range that look exceptional. And of course, there are some outcomes that may not be so good because capitalism is so brutal. And my take is, let's watch this story. I just want to give a hand off to our listeners. Guy Speer, also a good friend of Monash. He's talking with John Mihailovic about Serat's growth properties. I would just make sure to link to that. And just like two short things here. I think the first one is that there's a lot of things I admire when it comes to Guy, but like he's very good at not selling. Like he's very good at just staying put, which is just amazing. And guys been only stuck with this for a long time since 15 or 16

Starting point is 00:39:27 and whatnot. It's really hard, at least for me, I don't have guys' patience. I don't think I have your patience. Money is to stick with your strategy whenever you see something like this. That might be a discounted pie. That's not what you want to do because you learn from chaliemonger and you want that growing pie. But then you see it and you're like, I can see the arguments why Sarat says would still be a growing pie. And you're like, shouldn't I just be doing that just because of the NAV? It's like super attractive already at that price point. It must be very challenging for you. So regardless if you have the spawned mindset or not. I think that's correct.

Starting point is 00:40:01 I think it's one of the attributes of guy that I did not appreciate as much as I should have. So he's been exceptional at buy and hold. It's his normal way of doing things. He's really happy to go through a year where he has no activity. That to him is a perfectly good year. This guy, Thomas Phelps, who wrote this book 100 to 1 in the stock market, He said that every sale is an admission of a mistake. If you really think about it, every stock sale that you make is an admission of a mistake.

Starting point is 00:40:35 Because if you bought correctly, according to Phelps, you would just buy and hold. And you bought a great business and it's increasing in value. There's no need to mess with it. And so I am trying to be more like guy. And the number one skill to be a great investor is extreme patience. Stig, if you can derive tremendous pleasure from watching paint dry, you will be a very well-inam. Just be in this meditative state watching that white wall.

Starting point is 00:41:09 And once you can do that, then you're ready to hold Saturdays for 20 years. I love that. It reminds me of whenever a guy said that one of the disciplines he's trained right now is not to look at the stock market. That's one of his big passions. remember the movie, the Karate Kid? Right. Yes. Well, you know how he tells him to like paint the wall or whatever, right?

Starting point is 00:41:31 And this guy's so pissed off. So I'm just thinking that if I'm going to train someone to be a great investor, first I'm going to take them someplace and say, paint this wall white. Now sit here in a chair and watch it for a week. Don't look at your phone and don't look at anything. Then they're going to come back at me and say, this has nothing to do with investor. And I'm going to be like the guy in the karate kid saying it has everything. to do with investing.

Starting point is 00:41:55 Go back to watching the wall. Right. I love that. It's like the sushi restaurant where you have to spend five years learning how to cook rice. So the money's training program is like,

Starting point is 00:42:07 spend five years looking at the ball, and then you're ready to buy your first stock. Did you see that movie Giro Dreams of Sushi? No, I didn't. Okay, so this is a phenomenal movie. And so if you haven't seen it, I think it's on Netflix.

Starting point is 00:42:22 You can see it. Jero, Dream, but sushi has won a lot Awards. It's actually a documentary. It's a real sushi restaurant in Tokyo. I saw the movie. I loved it so much. I went to Tokyo for 11 hours just to eat there. And then I left. And it was awesome. I knocked one thing off the of my bucket list. If you didn't get anything else out of this podcast, it's zero dreams of sushi on Netflix. All right. That'll be the next episode. Moniz and I are going to talk about an hour just about that documentary.

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Starting point is 00:46:15 Funds Perspectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. So going back to Warren Buffett also because this is being featured here in the in the Berkship weekend. Whenever I heard you being asked about Warren Buffett, I often hear you talk about how you learned as much from Buffett whenever it comes to life as it comes to investing. And I kind of feel the same way about you in the sense that I came for the investing advice and the state for the life advice. And as much as I'm grateful, you're learning a lot from you, even cloned your investments, perhaps. Whenever I talk to my friends about you, I don't so much talk about the investments you make, but we talk about Daskanah. We talked about

Starting point is 00:46:58 being aligned on the inside and on the outside called the inner scorecard. I think that's how Buffett refers to it. And I kind of feel that you have, whenever I study you, you've sort of like taken it to another level. So if I can paint a bit of color around it. So in 1990, you found it TransTech, a tech consulting company. And TransTech become very successful, ultimately employing 160 employees. And so to some people, it might be a bit surprising that in 1990 you teamed up with two industrial psychologists and their company. And I love the name of the company is called Khan Quest. Not conquest, but Khan Quest like Jingez Khan. And so what they did was they did interviews with your family, employees, friends. And you received a 20-page document with the conclusion

Starting point is 00:47:44 at that document. What did the document say and which changes did you make in your life after you read it? That's a wonderful segue. Stake. So all of us, when we are born, God screwed up, because what should have happened is after we are born, we should also come with an owner's manual, attached to us to us to be our owner's manual, because each one of us is different. But we don't come with owner's manual. And so what happens is that we don't know who we are. And what we do is as we grow up in this world, we have a need to conform to fit into society. So we emulate what other people do to appear to be, you know, nice, productive members of society. But that may not be who we are.

Starting point is 00:48:32 And for example, when I was going to college, I had no clue what to study. Everyone said computers are hot. So I went into computer science and then I switched to computer engineering. that's not a great way to really kind of pick what you ought to be doing. The correct way to pick what you ought to be doing is you should know what you really enjoy and go after that. That never happened. So who we are as people is buried under so many layers of gunk that when we are adults,

Starting point is 00:49:04 we really don't know who we are. And so these two industrial psychologists, they gave me effectively what I would call my owner's manual. So they had me take a bunch of tests. They talked to my employees. They talked to my friends. They talked to my family. My kids were too small. They couldn't talk to my kids. Through all of that, they built a map of who I was. And they said, basically, look, you are a certain way on the inside. This is who you are on the inside. And then, you know, kind of an incongruence is how you act on the outside. So if the inside you and the outside you are not perfectly aligned, you will not go very far in life. If you can get very close to perfect alignment, that's when you get to

Starting point is 00:49:50 people like Nelson Mandela and Martin Luther King and Gandhi and our great leaders and so on. The problem is we don't know who we are on the inside because nobody gave us an owner's manual. Well, I got my owner's manual when I was 35 years old and it was a fascinating read and I tried to read every year. So they pointed out that this business I was running with the 160 people, I actually at that time when I did this testing with them, I hated the company. Company I had founded that I was the CEO of. I hated that company. And I didn't feel like going to work. Because what had happened is it was all politics, a bunch of VPs, positioning, and all this stuff. And I really enjoyed the very early days of the business when it was embryonic and we

Starting point is 00:50:37 were trying to figure different things out and scale it and grow it. It was a game. I really enjoyed that game. When it actually became a large business, what happened is my job changed to human resources, me just herding a bunch of cats. That's what my job description was. I am not a cat herder. I can tell you that for sure.

Starting point is 00:50:57 But every day I'd go in and I'd have to herd a bunch of cats. So they said to me, Monash, we don't even know how you go through the day with the place you're at. They said, you have to get out of that business as soon as possible. That's not you. And then I asked these people, this was about three months before I started for bribe funds. I was saying, look, I'm thinking of starting this fund. And they asked me a bunch of questions about the fund.

Starting point is 00:51:20 And they said, the fund is perfect. The fund is what you should do. And the fund will do extremely well. And one of them became one of the original investors in the fund. So I gave him $2,000 for my testing. he gave me $100,000 to invest in the fund. I like the 50 to one ratio. And I told him, listen, Jim, I don't want to lose your money and I don't want to lose your

Starting point is 00:51:45 friendship. Are you sure you want to do this, et cetera? He said, no, no, I'm, I cracked your head open. I know exactly what's in your head. My money is going to do great. And he did. I mean, you know, so far it's like 15, 16 times what he put in. So he's doing fine.

Starting point is 00:52:00 So I think that that was a tremendous gift to me, the best $2,000 I spent. I think in my life it was great. And I think everyone should do this. I think everyone, even before they go to college, because your map doesn't change throughout your life. Who you are is not going to change. That is hard-coded. It's hard-coded at the age of six.

Starting point is 00:52:22 From the age of six to the age of 96, it is not going to change. Between your genetics and what happens in the first six years of life, it's hard-coded. So basically you are who you are. your traits are hard-coded. Now, if you don't act in a way that is congruent with those traits, in the end, you will not be so happy and you'll be frustrated. And you won't be able to go very far.

Starting point is 00:52:47 It's very important to be in alignment and do what you were designed to do. Thank you for sharing that personal story, Manish. Another thing that I would like to talk about now that we have the opportunity to speak with you here today, to learn how you structure your learning. We all only have 24 hours a day. We want to learn about new companies, take out on our current portfolio, but we also want to learn things about just life in general. How do you prioritize what to spend time on whenever it comes to learning? Like, if you could put hours, I don't know if that's too specific.

Starting point is 00:53:18 How do you ensure that you are aligned on the inside and on the outside like we talked about before and continue to learn? What is the process you have during the day and how to prioritize? Well, I think it's pretty simple. You know, I read three newspapers a day. So if I'm not traveling, et cetera, and I get these newspapers, I read the physical papers. So I haven't moved those to Kindle or whatever. So that is kind of happening every day.

Starting point is 00:53:45 Then beyond that, the reading depends on what's going on. If I am active in drilling down on some business, then there'll be a lot of reading related to that company, 10Ks and transcripts and quarterlys and, you know, whatever. is just trying to understand the business. And beyond that, then, you know, I love to read different books. I really love to read business biographies and business autobiographies. There will always be some of that. So, for example, recently, I ran into a book called the Caesar's Palace coup.

Starting point is 00:54:19 Caesar's Palace went bankrupt a few years back. A casino is a tremendous business. And a casino like Caesar's is beyond a tremendous business. That type of business should never go bankrupt. So somehow the Wall Street yo-yo's succeeded in bankrupting an unbelievable business with the unbelievable moat. So I just wanted to get behind it to understand what happened, right? And it's a thriller.

Starting point is 00:54:47 This book is like Barbarians at the gate. Now, I am never going to invest in a gambling stock or Caesar's Palace or any of that. That's not of interest. but I'm just enjoying the book, so that's fine, you know. Then I recently read another book called Backable. This is written by Sunil Gupta. And you know this CNN, Dr. Anchor, Sanjay Gupta. So this is a brother.

Starting point is 00:55:11 And this is a great book on how to get people to back you, whether you're raising a fund or trying to get VCs to back you or just in different areas of your life. how to get people to get behind you. And he did a tremendous job. He's got a great framework. I always have so many books I buy that I have not read yet. So my library is kind of out of control right now.

Starting point is 00:55:38 But what I do is I just go through the large number of books I have sitting around which I haven't read yet. And then I just pick one that looks interesting and then go from there. If it doesn't grab me or whatever, then, you know, which happens to a lot of books, I just, I don't need to complete it. I go to the next book. One of the reasons why I asked that question, mine, is that, first of all, I'd like to clone you if I can, you know, this poetic thing about cloning a cloner, I sort of like that thought. So I learned that you spent six weeks figuring out why Ted Wessler and David Eichhorn bought GM, which was later turned into like, you're buying GM, but specifically if you're at Chrysler.

Starting point is 00:56:17 We sort of like a story for another day, but I heard you talk about how you also want to throw away ideas in like less than a second or less than a minute at least. So I'm sort of like curious in terms of how you carve out time whenever you see something like this and you're like, wow, that makes no sense and you still find time to spend, I don't know, six weeks into it. And then there are other things you don't. It seems like you have extremely flexible schedule since you can do that. And how do you, I guess, I don't know if this sounds the wrong way, so please don't take it as such, but how do you call out six weeks into perhaps something else you should be doing and then prioritize and say, I don't understand that.

Starting point is 00:56:52 this, but I still want to get to the bottom of why David and Ted are doing this. I think one of the first things is I learned from Buffett, two things I learned from Buffett, which are very important. One is run an empty calendar. Other than putting Sting on my calendar, I don't put anything else on my calendar. So typically, in a typical week, I have like one or two kind of some set calls or meetings or something, but for the most part, the calendar is So I don't have to be a certain place at a certain time. I don't have to call someone or whatever. So that's very important.

Starting point is 00:57:29 Protect your calendar. Keep it completely flexible. And the second is be really good at saying no. So Buffett gets a lot of requests. Senators will call him and congressman will call him and big company CEOs will call him, asking all kinds of things. He's really good at saying no. So that frees up a lot of time when you don't just.

Starting point is 00:57:52 say yes to everything. And so those are important. The other thing is that we are in a business, which is an extremely forgiving business, or like what Buffett says, there are no call strikes. So if I spend 10 seconds on a business and I say, I'm not interested, and it goes up 1000x, well, that's happened many times. We don't really care about that. So mistakes of omission are extremely common in our business. The good news is there's enough of opportunity that even if you miss hundreds and thousands of great businesses, you can still do fine. And so I think curiosity is an important trait. So like when I studied GM, I was just puzzled. I hated the auto business. I hated General Motors, all these capics and garbage products

Starting point is 00:58:41 and everything else. And I said, why would these two smart guys own this company? And I just wanted to answer that question. So I said, I want to dig it. So, you know, Darbyx. Marvin said that when you see disconfirming evidence, write it down because the brain is really good at forgetting those things. So this was disconforming evidence. This made no sense. So sometimes if you see things that don't make any sense, that's a really good reason to drill down.

Starting point is 00:59:14 So if people have flexible in the calendar, one thing I would encourage everyone to do is I'm holding a book up here to the camera, which makes it. no sense since this is a podcast, but Moniz can see this. It's the book Ritz-A-Wiser happier. We had William Green on two weeks ago, and as some of you might remember, the first chapter of that book that was with Moniz's Pop-Roy, which is absolutely wonderful chapter. Whenever I said that to Monashir before we started recording, he said, no, no, no, no, don't read chapter one. It's with some yo-yo. You should go to chapter six and read about Nick's sleep. That's where the nugget is. But I just wanted to mention that if people out there, they're sitting here,

Starting point is 00:59:52 workshop weekend, and now we're sitting here with Monish, they can win William's book. We made a raffle with William. It's absolutely brilliant book. And I know this is just a bit of the cough here, Monish, but is there something specifically you want to highlight from William's book? Let's just do a huge plucks so people can go out and buy this wonderful book. Well, I think, first of all, William is a very gifted writer. And sometimes I felt like I talked to William for two hours, and it's three sentences that come out of the two hours that actually make it into the book. So he has had a lot of experience when he was a reporter for Time and Bloomberg. He interviewed all these heads of state, et cetera. So William is a great

Starting point is 01:00:35 journalist, and he has this gift of extracting the essence of a person. And I think that when I read what William wrote about me, I felt like he completely got me. And so if you actually read what he wrote about how I think about things, that is never going to change. So like, for example, he actually got the fact that one of the things which was in my owner's manual was that they told me, I love to play games. They said, you're programming, but they said it is very specific kind of games. So they said, first of all, the outcome of the game has to depend on you. It cannot depend on a team. So, for example, I would not enjoy very much being on a soccer team, okay, because that's

Starting point is 01:01:25 like a team sport. That's not who I am. I would probably enjoy a game like chess or bridge or blackjack a lot more than soccer, because those are individual pursuit games. The second is that I like to play games where I think I can win those games. So I like to play games where the outcome depends on me and when I think I can win those games. And then what William actually nailed down correctly is the reason I enjoyed my first company, TransTech, so much in the early days, because in the early days it was a game.

Starting point is 01:02:04 So what I used to do was I used to send 200 letters a week to CIOs because there was an IT company because 200 was a minimum amount you could send as letters to get discounted postage rate from the post of it for, you know, if you sorted by zip code and you ordered the letters, they gave you a lower rate, right? And that was important because I had no money. So every week I'd send 200 letters. And then every week I'd make 200 calls plus the calls from the earlier week. So it was this engine where 200 letters were going out every week, maybe three or 400 calls were happening every week, and then all of that would result in two or three meetings every week. And then after a few weeks, there'd be a close. The person becomes a client, right? So the sales funnel, suspect, prospect, qualified lead close. It was a game for me. I enjoyed that so much because I was interested in the statistics and winning that game, right? So for me, the deal was, can I, how many can I close? And how does that work? So William nailed down. He said, Daxana is a game and he's absolutely right. I view Daxana as a game, just like I view

Starting point is 01:03:23 TransTech as a game. Herbri Funds is a game because it's all mathematical. It's the returns and assets and all of that. It's a game. And it's a single player game. And so Paraphrai funds is a game, Daksana is a game, Transtech was a game, bridge is a game, Blackjack is a game. I'm a game player. You know, I was so excited when I got banned in Vegas by a casino because I have a blackjack system that beat them. I only put $3,000 at risk and I took $150,000 and they told me never come back again. You have a lifetime ban. That was great because it proved the system works.

Starting point is 01:04:02 they were scared. You won the game. It was similar as that. Yeah, so it's great. And the thing is the good news is, I'm not banned from Vegas. So I'm still working on that game to get more bands. So I'll be working in the next few months and few years to increase those bands. Wonderful.

Starting point is 01:04:24 Manish, before we let you go, we always want to give you an opportunity to give a handoff, to where people can learn about more you, provide funds. Dashkanah, whatever you want to give a hand off too? Well, I would say Williams' book, Richard Weiser, Happier. I think he did a great job. Forget the chapter one on some yo-yog. You might also enjoy my blog, Chai with Pabri or my YouTube channel, and I think those are good places to go.

Starting point is 01:04:52 Fantastic, Manist. Thank you so much for being so generous with your time and make time yet again here during the Berkshay weekend to speak with us. That's absolutely amazing. Thank you. Stake, always a pleasure. All right, fellow value investors, if you're listening to this episode as soon as it goes out, I hope you enjoy the rest of the Berkshire weekend.

Starting point is 01:05:10 Trey and I will be back 22nd of May for the annual episode where we'll unpack the Q&A session with Warren Buffett and Charliemonger. If you want to ensure that you don't miss out on that one, remember to subscribe to a free podcast on Apple Podcast, Spotify or whatever app you're using. Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by the Eustra. investors podcast network and learn how to achieve financial independence to access our show notes transcripts or courses go to the investors podcast.com this show is for entertainment purposes only

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We Study Billionaires - The Investor’s Podcast Network - TIP347: Value Investing in 2021 w/ Mohnish Pabrai

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