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Go From $10k to $1M in 3 Years With This Strategy | Mohnish Pabrai — Transcript

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0:00The key to investing is that when you
0:02find yourself in the happy position,
0:05don't sell it when it's overpriced. Only
0:08possibly sell it when it's [music]
0:09egregiously overpriced.
0:11>> My guest is Mohnish Pabrai, the renowned
0:13investor who built his fortune by openly
0:16copying Warren Buffett. You're going to
0:17get the best business models to start if
0:20you're brand new. If you want to build
0:21real wealth without [music] betting the
0:23farm, this is the one to save and listen
0:25to twice. It's also very good for you to
0:27send your team.
0:28>> My biggest mistakes and greatest
0:30learnings [music] have been to become
0:32more patient. The laws of investing are
0:35like the laws of physics, and I think
0:37this Buffett guy wrote the laws of
0:39investing. Whether you believe [music]
0:41in gravity or not, it's going to affect
0:43you. If someone followed Buffett's
0:45approach to investing, they would do
0:48better than the naive person.
0:49>> What is your mental model that you like
0:51the best for deciding the next that
0:53you're going to take?
0:54>> Total no-brainers. So,
0:58>> what do you think
1:01most people get completely wrong about
1:03money?
1:04>> Well, the I think the single most
1:07important thing is you spend less than
1:09you earn.
1:09>> Yeah.
1:10>> We may live for 80, 90, 100 years.
1:14And uh so, the important thing is that
1:16when you get started in your career,
1:19uh in your early 20s, that right from
1:23the beginning, your
1:25uh you're putting something away.
1:27And those early dollars being put away
1:31have a huge impact because of the non-
1:34non-linear aspect of compounding. Humans
1:36have difficulty
1:38getting their arms around
1:40the notion of compounding, you know, how
1:43money grows over time if you leave it
1:45and so on. And so,
1:47being able to put something aside a
1:49little bit all the time is a very good
1:52habit.
1:53>> Yeah.
1:54>> I started
1:55>> you say to somebody that was
1:57young, stuck in their job, doesn't think
1:59that they could make it. What would you
2:00tell that person?
2:02>> One of the things to
2:03keep in mind is there are
2:06168 hours in a week.
2:08Your employer wants 40 hours.
2:11There's still another 128 hours left.
2:13And so, even when you take out time for
2:16eating and sleeping and showering and
2:17everything else, you have at least
2:20another 40-50 hours that you could do
2:22something else.
2:24And so I think it's very important to
2:28live close to where you work, so you
2:30don't spend a lot of time commuting.
2:32And
2:33you effectively have enough time
2:36for a second venture, a second job. And
2:39because someone else is already paying
2:41your rent and groceries and everything,
2:43you don't need the second venture to
2:44feed you. And we are now in a knowledge
2:47economy.
2:48So,
2:50a lot of things that people will want to
2:52do does not need capital.
2:55It just needs what's between your ears.
2:57It just needs you to be creative, to
2:59think about what could be, should be,
3:02can be, etc.
3:04So, you come up with an idea.
3:07You have the time, 40-50 hours. You keep
3:09your job. You do not get quit quit your
3:11job. You try your idea. Let's say it
3:14doesn't work.
3:16No problem.
3:18You go back to square one.
3:20Think of another idea.
3:22>> So, do you think a lot of people give
3:23bad advice when they tell you to burn
3:25the bridges, quit your job, go all in
3:27today?
3:28>> Yeah, I don't think you should do that.
3:30I think that's a that's a one-way ticket
3:31to hell.
3:33>> [laughter]
3:34>> Me too.
3:36>> No, I think we we want, like I said, we
3:38want upside without downside. That's how
3:40I invest, right? So, the the way and
3:44people think entrepreneurs take risk.
3:46Entrepreneurs do not take risk. They do
3:49everything in their power to minimize
3:51risk. They look at this whole equation
3:54and say, "How do I crack this without
3:56taking risk?" Venture-backed startups
3:59are less than 1/10 of 1%, maybe even
4:021/100 of 1% of the total number of
4:05startups in this country.
4:0799.99%
4:09of of the economy
4:11is non-venture backed. The Chinese
4:13restaurant, the laundromat, the window
4:16washing business, whatever, right? None
4:19of those companies are venture-backed.
4:21So, that is where most of the American
4:23economy get its gets its growth from.
4:26And that goes unreported. Right? I mean,
4:30uh some of the biggest businesses we
4:32have
4:33today in the US and the world
4:36were not created uh with venture
4:39capital. Ford Motor Company, Walmart,
4:41Microsoft, you know, the most of these
4:44companies, IKEA, uh were created on a
4:47kitchen table with nothing. And uh
4:50so,
4:52if you keep your job
4:54and you try idea number one and you go
4:57all in on that, you got the time,
4:59and it gets some traction. When it gets
5:02enough traction where you're making more
5:04money than your job, you just switch
5:07switch roles. You quit and go to the
5:09other side. If it doesn't work,
5:12um
5:13you go back to square one, idea number
5:16two.
5:17In my case,
5:19it was the third idea that I came up
5:21with
5:22that got traction.
5:24The first two
5:26didn't work, but the third idea
5:29took off.
5:30And and after
5:34after 9 months of doing both, the third
5:36idea, which was my IT services company,
5:39the first company I
5:40went and ran, uh basically had enough
5:43cash flow that was exceeding what I was
5:46getting paid.
5:47So, I switched because I was desperate
5:49to work 100 hours a week, right? And I
5:52didn't want to be doing two things. I
5:53wanted to do one thing. And so, as
5:55>> But was that only after that replaced
5:56your salary?
5:57>> Yes. After 9 months of banging at doors
6:01and doing things, I had three clients.
6:04And those three clients were giving me
6:06enough cash flow that it exceeded my
6:08salary.
6:09And that's when I quit. So, effectively,
6:12it was risk-free because I never went to
6:14a situation where I was without
6:18cash flow, without a paycheck, or any of
6:20that. And then, very quickly after that,
6:23it doubled the salary I was making two
6:26or three times what I was making, and it
6:27just kept going. And I The business was
6:29growing so fast that I kept reinvesting
6:31and and all of that.
6:34Uh so, that company
6:37I emptied out my 401k. I was 25. I had
6:41about 30,000 in my 401k. I took that to
6:44zero. Because I said, "If it If it
6:46fails,
6:47I can go back and start over. Not a
6:49problem." And I took every credit card I
6:52could get. So, I had 70,000
6:54in unused credit card credit limits
6:57available. And as the company started
7:00growing,
7:01I used every single one of those. In
7:03fact, they were all maxed because the
7:06company was growing so fast that by the
7:09time I got paid from clients, you know,
7:11I had to
7:12cover that.
7:13And then, about 2 years after I started,
7:16I met a banker who converted all of that
7:20into a line of credit, paid off all my
7:22credit cards, and I said, "Hallelujah."
7:24>> [laughter]
7:26>> So, if a young person is listening to
7:27this and they're like, "I don't have
7:28cash right now. I don't know how to
7:29start the business."
7:31What is the way that you pitch people to
7:33give you a credit card, to give you
7:34capital? Like, how do you talk people
7:38into giving you money?
7:38>> The founder of FedEx, Fred Smith,
7:41he had payroll coming on Monday in the
7:43early days of FedEx and he couldn't make
7:45me payroll. He knew he couldn't make it.
7:47He went to Vegas.
7:49Okay.
7:50Played blackjack. Won at blackjack. And
7:54made payroll on Monday. Okay? And if he
7:57had lost at blackjack, which could have
7:59happened, that probably should have
8:00happened.
8:01There's no FedEx. You know, so
8:04all these businesses go through these,
8:06you know, extreme situations. So, bottom
8:10line is the number one skill you have to
8:12have when you're
8:14starting any business is you have to
8:15have selling skills.
8:17You need selling skills to get clients.
8:20You need selling skills to get a banker
8:21to give you a loan. You need selling
8:22skills to get your friends to give you
8:24their credit card. But more important
8:27than, I think more important than
8:29selling skills,
8:31is unique value propositions. So,
8:37capitalism is brutal.
8:39Any time there's a company that makes a
8:41lot of money,
8:43there's 100 other people thinking about
8:45how can I
8:46take that business away from them,
8:48right? So, the nature of capitalism is
8:50creative destruction. Someone opens a
8:52sushi restaurant, they do really well,
8:55there'll be 10 other sushi restaurants
8:56opening, right?
8:58So,
9:00the important thing that we have to look
9:01at is before we embark on a business,
9:07we have to really pay attention to
9:11how is this unique?
9:13And how is this sustainable?
9:16So, we have to be
9:18kind of careful observers of the world
9:21around us.
9:22And we have to think about how
9:25could this world around us be different?
9:28And
9:30can I participate
9:33in making that difference? So, we can
9:34come up with something where
9:37uh there is some kind of a business idea
9:40or some kind of a business that you can
9:42come up with
9:43that
9:45doesn't exist today.
9:46>> Mhm.
9:47>> But there's a need for it. That's it.
9:49You know, anytime we try something and
9:51we fail,
9:53we learn.
9:54And so the second one's going to get
9:55better and the third one's going to get
9:56better. You just keep going from there.
9:58>> So good. Um I love this idea that you
10:01you have called cloning basically, where
10:04you just you know, you don't think that
10:05there has to be original ideas all the
10:07time. In fact, you copy some of the
10:08richest, most successful people in the
10:10world. Can you talk to me about what is
10:13cloning? Do we have to have original
10:15ideas to make money?
10:18>> We do not need any original ideas to
10:20make money. I know I'm contradicting
10:21myself. That's said, I remember that
10:25when Chipotle first came out here in
10:27Chicago in the early 2000s,
10:30I used to go to Chipotle.
10:32And I loved it. You know, every day
10:34lunch was Chipotle. It was great. And
10:37from the time I first went to Chipotle
10:39till today,
10:41it's been 25 years.
10:44Incredibly successful business.
10:47No one's cloned it.
10:50So, Chipotle's
10:52Chipotle's innovation
10:55was
10:57he let you he let you make the taco you
11:00wanted. Right? They got all the
11:03>> I'm burrito girl, but I'll allow it.
11:04Yeah.
11:05>> So, burrito. So, you say, "Okay, I want
11:07this. I don't want this. I want this."
11:08You know, it's extreme customization,
11:11right? That was one of the big reasons
11:13why they succeeded.
11:15Okay? And so, if you if you really look
11:18around carefully, what you're going to
11:19find is you're going to find many
11:21businesses like Chipotle
11:23where there should be three of them,
11:25but only one exists.
11:28And there's offering gap after offering
11:30gap available. Now, your job is easy.
11:35You clone Chipotle.
11:37>> Yeah.
11:37>> And you know what happens when you
11:39clone? Is there some things that you're
11:41going to figure out that you can do
11:43better than them or different than them.
11:45But the core piece, which is that, you
11:47know, the customization piece,
11:49make it the same.
11:51>> Yeah.
11:51>> Okay? And just go from there.
11:53>> It's fascinating because it's so true.
11:55You know, we have a saying here, I
11:57started getting annoyed that people
11:59always start at innovate. And I think
12:01you should go imitate, iterate,
12:04innovate. Like
12:05>> And you don't even need to do you don't
12:07even need to think about that. You What
12:08I would What I would do is make it even
12:09simpler. I would say
12:11just be a shameless cloner.
12:14Okay? So, don't even don't even say that
12:18when I take Chipotle, I'm going to
12:20change anything. It's working.
12:22>> Yeah.
12:22>> Okay, it's working great. Why change
12:25anything? The change is going to come
12:27automatically because you're different
12:29from the founder. Right?
12:31You know, the funny thing about Chipotle
12:33is the founder was a fine dining chef in
12:35Denver.
12:36>> Yeah.
12:36>> Right?
12:38He wanted to open a fine dining
12:40restaurant. And so he opened Chipotle as
12:43a stepping stone.
12:45Saying, I'll open this thing, I'll make
12:48some money here, and then I can open my
12:49fine dining restaurant. So, actually
12:51what he did was he brought in
12:53fine dining nuances into Chipotle. The
12:56food is very fresh and all of that,
12:59right? And the funny thing was that was
13:01the idea.
13:03That was the idea. That was a scalable
13:05idea, not the fine dining restaurant,
13:07you know?
13:07>> Yeah.
13:07>> So, what he actually wanted to do was
13:11uh very different. But what I'm trying
13:12to say is that I think that
13:16if you look at the world around you,
13:18and you look at businesses that you
13:20admire,
13:21>> Mhm.
13:21>> and and even even simpler than
13:24businesses you admire, just make a list
13:26of
13:27all the products and services that you
13:30use.
13:31It is very difficult for any company to
13:35get even $1 from you.
13:37Very difficult. So, the products and
13:41services that you're already using
13:43means that those are incredible
13:45businesses.
13:46>> Yeah.
13:47>> And then look at
13:49can multiple versions of that exist.
13:51>> That's a great point. I actually want to
13:53send this to my team cuz it's funny. One
13:54of them the other day came to me in one
13:56of our businesses and I said, "Well,
13:57what are our competitors doing?" Um and
14:01what does their product stack look like?
14:02What does their sales stack look like?
14:04If this isn't working for us, go talk to
14:06go look at the people who it's working
14:07for.
14:07>> Mhm.
14:08>> And I remember one of the the leads uh
14:10of the team said to me,
14:12um
14:13"Oh, well, I don't know if I could
14:14secret shop. That is that ethical?" I
14:16was like, "Have you read Sam Walton's
14:19book? Like, he used to go and lay down
14:21on the ground with a tape measure
14:23between aisles
14:24>> Yeah.
14:24>> of all of his competitors. Yeah. He knew
14:27everything about their business.
14:28>> Yeah.
14:29>> And so I think there's some ego and I
14:31and I see it a lot in our in our
14:33leadership teams where they want to
14:35figure out an innovative way to do it.
14:37And I'm like, why would you you have no
14:40context? You haven't won it this before.
14:43You haven't done it before.
14:44>> Yeah.
14:44>> So, why would you with no data, no
14:47context, and no history of winning just
14:49go find a new way to run and use your
14:51hands instead of your feet?
14:52>> Yeah.
14:53>> That's ridiculous. One thing Monisha I
14:55keep coming back to in this conversation
14:56is that rich people do not usually get
14:58rich by taking wild risks. They get rich
15:00by finding weird lopsided bet. And that
15:03is why I keep talking about buying
15:05boring businesses. This is why we built
15:08Main Street Millionaire Life. It's a
15:09virtual event where you can get with my
15:11team to do a live workshop and I will
15:14show you how to find the best businesses
15:16to buy, how to evaluate them, fund them,
15:18and spot the things that make a deal
15:20either a really good risk or insane. If
15:24you've been listening to episodes like
15:25this thinking I get it and I'm
15:26interested in investing in businesses,
15:28but I don't know where to start, this is
15:30where you start. Grab your seat at this
15:32link at msm.live. This is the last event
15:36we are doing like this for all of 2026.
15:39So, if you do not jump in now, you can
15:42wait another year long. Now, you took
15:44this even so far as to for instance
15:47I believe you paid like $650,000 to have
15:51dinner with Warren Buffett back in the
15:52day.
15:52>> Lunch, yeah.
15:53>> Lunch.
15:54>> Dinner might be more expensive.
15:55>> [laughter]
15:56>> God, what would that be? A lot.
15:59Um
16:00>> It was a lunch special.
16:01>> [laughter]
16:03>> Well, here it's not a bad special.
16:04>> The funny thing with the lunch special
16:05is a few years later it went for 26
16:08million.
16:10>> You got a deal. You are a value
16:11investor.
16:12>> million.
16:14>> [laughter]
16:14>> That's an It could might be your best
16:15investment yet. You should have traded
16:17that. So, what did you learn? Like when
16:20you're going into a meeting with Warren
16:22Buffett with this mentality you have of
16:24like cloning the best ideas, learning
16:26from the best. What did you learn?
16:28>> So, the lunch was a lot of fun and
16:29actually I I had no I didn't have many
16:32expectations for the lunch. So,
16:34um
16:36let me go back a few years before the
16:38lunch because then you can understand
16:39kind of why why the lunch happened. When
16:41I read about the way Buffett did
16:43investing,
16:46it made all the sense in the world and
16:47he is an open book. He just said, "This
16:49is how you should invest, right?"
16:51Then I looked at the way the rest of the
16:53world did investing, the mutual funds
16:55and fund managers,
16:57and they're not following what Buffett
16:59is saying.
17:01So,
17:02a mutual fund will have
17:05100 or 150 stocks.
17:07And Buffett says
17:10six
17:1110 at the most, right? So, I said
17:15the laws of investing are like the laws
17:18of physics. And I think this Buffett guy
17:21wrote the laws of investing.
17:23And whether you believe in gravity or
17:26not, it's going to affect you. Okay? So,
17:28I said we have this
17:30entire industry of investment management
17:35which is operating without the laws of
17:37physics. And then you have this guy
17:40who's doing it this way, and nobody else
17:43is doing it this way.
17:45This is Chipotle with no competitors,
17:48right? I looked at all that and I said,
17:49"You know,
17:51I think
17:53that if someone
17:55followed Buffett's approach to
17:57investing,
17:59they would do better than the 98%.
18:02And
18:04I also feel that an idea is like an
18:07everyone has one. So, an idea
18:10without execution means nothing. In '94,
18:14I had just sold a portion of my
18:16business. Uh and after taxes,
18:19everything, I had a million dollars.
18:21I didn't need the money. The The company
18:22was profitable and fine. And for the
18:24first time I had cash in the bank.
18:27So, I said, "I'm going to take this
18:29million.
18:30I'm going to invest it using Buffett's
18:32approach. And so, from '95 to 2000, the
18:39first 5 years I was doing this
18:41part-time while I'm running my company,
18:43the million became 14 million.
18:46And I was just making investments in
18:49public equities. And you know, doing
18:52what Buffett did, you know, basically
18:5410% bets. 10 bets. And it was like 60,
18:5870% a year. It just blew the doors off.
19:01And I said,
19:02"This worked way better than I thought.
19:05Well done, Mohnish. Well done. I knew
19:08you could do this." And
19:11I was losing interest in my IT business.
19:14And I was much more interested in
19:16investing business.
19:18And so I found a CEO and I transitioned
19:22out. And um
19:24then I had these friends where I used to
19:28give them stock tips because I'd already
19:30bought something. So they came to me in
19:3399 and they said, "We want you to manage
19:36money for us." Because this stock tip
19:39business is way better, right? And so
19:41basically um
19:43I set up a fund really as a hobby.
19:47Uh $1 million from eight people just to
19:49manage that.
19:51By the time I got to 2007
19:53I'm managing 600 million. We haven't had
19:56a single down year.
19:58And we've compounded at like 35% a year
20:00before fees.
20:02And
20:03I was
20:05extremely wealthy at that point because
20:07I'm getting 1/4 of the gains over 6%.
20:11And
20:12Warren is running these annual charity
20:15lunch auctions once a year where you get
20:18to have lunch with him. And I said
20:21I owe the man a tuition bill.
20:23I said you know, I've
20:25taken all his intellectual property.
20:28Everything is based on him. And he
20:30doesn't want anything. He's an open
20:32book, but I want to say thank you. So I
20:35said, "The lunch would be a great way to
20:37say thank you." So I said um
20:39you know, I think at that time I'd made
20:4170 million off Warren. So I said "What's
20:45a reasonable amount to pay
20:48if someone made you 70 million?" I said,
20:50"3%?
20:533% is pretty good, right? I don't think
20:55it's too much." That's how I come up
20:56with 2 million. And so at the lunch I
20:59had no agenda.
21:01My only agenda was to look Warren in the
21:03eye and say, "Thank you so much." Right?
21:06Warren on the other hand had a very
21:08different agenda at the lunch. He wants
21:10to make sure
21:11that whoever won that lunch feels they
21:13got a bargain. So, he wants to deliver a
21:16lot of value. You know, this is a great
21:18guy.
21:19He said, "I'm free for the whole
21:20afternoon."
21:21So, he says, "Whenever you guys are
21:23tired of me and you want me to go, let
21:25me know. But, I don't have any place to
21:28be. I can be here as long as you want."
21:29After about 5 minutes, you think you're
21:31with your grandfather. He put you at
21:33ease. He forgot the richest guy in the
21:34world whatever.
21:35Anytime you would ask him a question, he
21:38would convert the question into a
21:41a way to teach something. He's a such a
21:43great teacher.
21:44And
21:46and I was really surprised when in the
21:48middle of the conversation I I told I
21:49told Warren that my wife
21:52she's a fan of yours, but her real love
21:54in life is Charlie Munger, Warren's
21:56partner.
21:57And Warren got competitive. He said, "My
21:59My partner, Charlie Munger, is a very
22:01boring guy."
22:02Says He says, "I'm going to set you guys
22:04up to have lunch with him.
22:06And you're going to find that lunch with
22:08me is way more interesting than lunch
22:10with him." So, I thought he was just
22:11joking, right? And 2 days after the
22:13lunch, I got a message from his
22:14assistant
22:16to Charlie's assistant, and then lunch
22:18got set up with Charlie.
22:20And I found lunch with Charlie way
22:23better than lunch with Warren.
22:25Because Charlie's just, you know, uh
22:28just so open. And um
22:31So,
22:33that lunch with Charlie led to a
22:35friendship with him, where basically I
22:37used to meet him
22:38to play bridge with him, meet him once a
22:40quarter approximately to have dinner
22:42with him at his place. And with Warren,
22:45also, uh we became friends, but not like
22:49Charlie. Yeah.
22:50Uh because Charlie was in LA, I was in
22:52California at the time, and so that was
22:53easy. So,
22:55it became buy one lunch, get infinite
22:57free.
22:58>> You know what's interesting? I've met a
22:59lot of investors by now, a lot of really
23:01successful ones. You seem really happy
23:04as an investor. And
23:07um to me, investing is very stressful.
23:09Like I know in 2008,
23:12you had a tough year like most
23:13investors. That was a brutal year where
23:15many people I was at Goldman at the
23:17time.
23:18Um no, that's wrong. I was at Goldman in
23:20like 2009, 2010.
23:22But those years were terrible, too.
23:23Everybody thinks that 2008 is one year,
23:26but that was like when Goldman was under
23:28um
23:29we were having the the trials um
23:31actually uh for whether we caused the
23:34crisis or not. And um and I remember
23:37knowing a few people who actually killed
23:39themselves during that period that
23:40managed money. I was in New York.
23:43And uh and yet you've gone through these
23:46huge losses and huge gains, but seem
23:49really happy and instead
23:50>> but something to keep in mind is
23:53if wealth is lost, nothing is lost.
23:56If health is lost, something is lost.
23:59And if character's lost, everything is
24:01lost.
24:02I didn't come up with that. Some guy
24:04much smarter than me a long time ago
24:06came up with that, okay?
24:08Life has a way of changing overnight.
24:13Both ways. It can go from
24:16very good to very bad.
24:18And it can go from very bad to very
24:19good. You can't resign yourself to the
24:21fact that that oh, I'm down and I'm
24:23going to be down forever. Well, if you
24:25think you're going to be down forever,
24:26you are going to be down forever. But if
24:28you just say I can pick myself again and
24:30keep going,
24:32that's fine.
24:34>> What do you think is the most amount of
24:36money you've ever made in investing and
24:39lost in investing in a year? Like for
24:42people to understand the full weight of
24:44this.
24:45Like what
24:46>> We've had We've had companies we've
24:48invested in
24:50we've gone bankrupt. So, we've had uh
24:53companies we've I've made investments
24:55which have gone to zero.
24:57Now, typically when we make an
24:58investment, we don't do it in more than
25:0110% of our assets. So, if I have, you
25:03know, 10 bets
25:05and two bets, for example, went to zero,
25:07which would be pretty extreme, it's not
25:09the end of the world. Now, because we've
25:10got the other eight that are So,
25:12>> But, it could be 50, 100 million.
25:15>> Oh, yeah. I mean, I mean, I I manage 1.4
25:19billion currently. So, if I'm placing a
25:21bet current today, it's a $140 million
25:24bet. Right? And the 140 million uh there
25:29are I hope it doesn't happen, but there
25:31are chances it can go to zero.
25:32>> Mhm.
25:33>> And there are chances it can become a
25:34billion. You know, we look very
25:36carefully at downside protection. Even
25:38before we look at the upside, we look at
25:40the downside. So, they're designed not
25:42to be uh
25:44high risk, high reward. They're designed
25:46to be low risk and hopefully uh moderate
25:50to high rewards.
25:51>> So, what is that? Like, if you have to
25:52put dollar amounts on that? So, let's
25:53say you have a $140 million investment.
25:55Well, you've had some huge wins that at
25:57least I could find online historically.
26:00Like, which companies have you put in
26:0210, 20, 100 million dollars in and what
26:04have they gotten out for you? Like,
26:06what's been the best investment you've
26:07ever made?
26:08>> In my career,
26:10two companies that have become more than
26:12100 baggers, right? They They went up
26:14more than 100 times.
26:16Uh one happened right at the beginning
26:18when I started in '95 where I put a
26:21100,000 into a company and it became 10
26:24million. That was great. And another
26:27one, which also happened at that time,
26:29was I put just 10,000 into a company and
26:33it became 1.4 million. That was 140. Uh
26:36and then one that's happened
26:38more recently uh was a company in Turkey
26:41where um that was a so mispriced we
26:44couldn't shooting fish in a barrel. Um
26:47where
26:48the market cap when we invested in 2019
26:52was $15 million
26:55and now it's a billion and a half.
26:58So, it's gone up 100x and
27:01that one we own about 40% of that
27:04business.
27:04>> How do you decide when to sell to take
27:06money off the table?
27:07>> Well, so when when we make an
27:10investment, I always feel that you learn
27:12the business
27:14after you own it.
27:16Um you you may think you know it before
27:18you invest, but you really get to know
27:21it as you live with it, right? And
27:24there is there is no such thing as a
27:27risk-free investment. The biggest
27:30mistake I have made in life is selling
27:33too early.
27:34>> Really?
27:34>> Yeah, so I used to, for example, I used
27:38to own my funds used to own
27:401% of Ferrari
27:43uh at a cost basis of $10 million.
27:46Okay? So, in effect
27:48>> What is it today about?
27:50>> It'd be about 50 times that.
27:52Okay, so
27:53and and the thing is that when I look at
27:56a business like Ferrari,
27:58uh it should never be sold. In
28:00capitalism,
28:02there are very very few businesses that
28:04have long-term sustaining enduring
28:07moats. And when you end up with a
28:10business that is exhibiting those
28:12characteristics,
28:14you don't want to touch that. My
28:16uh biggest mistakes and greatest
28:18learnings have been
28:20to become more patient. Like, for
28:23example, this this company in Turkey
28:25which has gone up 100x,
28:28um
28:29it looks embryonic.
28:31It's still undervalued. It's still
28:34trading at about half of what it's
28:35worth. And
28:38they could compound for 20, 30 years, 40
28:41years. So, that's a business we will
28:43just hold as long as we can. As long as
28:45I don't see secular declines in the
28:48business, we understand the business
28:49well.
28:50We We hold and then it's not our only
28:52holding. We have other holdings. So, the
28:53nature of the way capitalism works is
28:58that very few of your investments uh
29:02will end up with giving you most of your
29:05wealth. And this is the way the Walton
29:07family got wealthy. This is the way the
29:09Berkshire Hathaway people got wealthy.
29:11This is the way the Coke founders got
29:12wealthy. It is by concentrated holdings
29:15in particular companies. And so,
29:18um
29:18the key The key to investing is that
29:22when you find yourself
29:24in the happy position of
29:27partial ownership of a great business,
29:30don't sell it when it's fully priced.
29:33Don't sell it when it's overpriced.
29:37Only possibly sell it when it's
29:39egregiously overpriced.
29:41Like you can't justify it in any
29:43possible way, then you can look at it.
29:47>> What is your mental model that you like
29:49the best for deciding the next bet
29:51you're going to take? If you only get
29:5310, you must have very clear models for
29:56determining when you want to add on a
29:58risk.
29:59>> Yeah, so what we are looking for is
30:02total no-brainers.
30:04>> Mhm.
30:04>> So, let's say I own a home in Austin.
30:09Okay? And let's say I bought the home
30:11for $2 million.
30:12Okay?
30:13And I go to my realtor after 1 month of
30:17buying the home and say, "Hey, what's my
30:19home worth?" They said, "Oh, Monish,
30:21it's still worth $2 million."
30:23Okay? And let's say I go back after
30:26another month. And the guy would say,
30:28"Yeah, still worth $2 million." And then
30:29maybe after a few months he'd say, "Oh,
30:30you know, it's $2 million and 50,000."
30:34Okay? So, if you just kept writing down
30:38what the house is worth and what
30:41a buyer would pay for it,
30:44you're going to see very little change
30:46over time.
30:47If I look at all the stocks in the New
30:49York Stock Exchange and I throw a dart
30:51at any one of them, let's say IBM
30:54or Amazon or whatever, and I just look
30:56at the 52-week range on their prices,
31:00it will be
31:02100 to 200 or 80 to 150. It's a wide
31:06range.
31:07Your house
31:09is not going to go from
31:111 and 1/2 million to 2 and 1/2 million
31:12or 1 to 2 million. It doesn't do that.
31:15So,
31:16auction-driven markets accentuate price
31:20movements
31:21much more than you would if you were not
31:23auction-driven. And because they
31:25accentuate price movements, sometimes
31:28you get extreme mispricing in both
31:30directions. You get extreme
31:33overvaluation and you get some extreme
31:35undervaluation. So,
31:36what I'm looking for is anomalies. I'm
31:40looking for weird things
31:42that make no sense.
31:44And because we have so many stocks and
31:47so many things going on,
31:49you will find weird things.
31:52And so, when the weird things
31:55I remember, like for example, there was
31:57a company
31:59uh called Level 3 Communications.
32:02Level 3 built this massive fiber optic
32:05network. You know, they were going to be
32:07transporting all the internet data
32:10everywhere.
32:11Massively overbuilt. Okay, the data
32:14never came.
32:15And the company's upside down. So, the
32:18stock has collapsed. It was a darling.
32:20It collapsed.
32:21And
32:23people are concerned they'll go
32:25bankrupt. So, they had a lot of debt,
32:27right? Now, they had they had these
32:30bonds that they had issued
32:33where the bonds were trading at 18 cents
32:36on the dollar.
32:37So,
32:38someone paid a dollar for the bond,
32:39they're now at 18 cents.
32:41The bonds had a coupon of 6%,
32:45which means if you bought it at 18
32:47cents, you were getting paid interest of
32:5033% a year, right?
32:53I looked at the Level 3 balance sheet,
32:56and I saw that they had enough cash to
33:00make the debt payments for at least 4 or
33:035 years.
33:04So, I said, "In 3 years, I get my money
33:07back,
33:08and I still have a claim of a dollar
33:10because the bond is not a stock.
33:13And they still have money after that,
33:15and I think that in 3 years the And it's
33:17a very high-quality business with the
33:18people running it.
33:20They may sell assets, they may do
33:22different things." I said,
33:24"I don't see how I can lose money there.
33:27I don't see if I buy Level 3 bonds." So,
33:29I put 10% of the fund in Level 3 bonds.
33:32I didn't know it at the time,
33:34Warren made the exact same bet
33:37at the exact same time
33:39for the exact same reasons. Okay, what
33:43happened is
33:45we went for 3 years,
33:47we clipped the coupons, and
33:51after 3 years, the bonds at 60 cents.
33:55I didn't even wait, I sold them.
33:58So, basically, we tripled our money
34:02on what we paid for the asset, and we
34:04also we got the interest in the
34:06meanwhile. And uh that wasn't even a
34:09stock investment, it was a fixed-income
34:11investment. So, basically,
34:14there's always weird things going on,
34:17and uh
34:19we just want to pay attention to them.
34:21>> Yeah.
34:21>> And the other thing is that uh this is
34:24not a business
34:25of a lot of activity.
34:27If I find
34:31something like Level 3 once a year. I
34:34might only have one or two ideas like
34:36that, but that's all I need. I need an
34:38idea like that once every two or three
34:40years. I don't even need it once a year.
34:42>> So, part of the game is you really have
34:44to just stop yourself from doing too
34:45much.
34:47>> My job is to just read
34:50and be with Cody on a podcast. That's my
34:52job.
34:53>> What's funny I remember when I was at
34:55Goldman
34:56Warren invested in them and everybody
34:59thought he was crazy, but obviously and
35:01I was a little peon tiny little you know
35:03nothing of that company, but um
35:06but I remember you know the senior
35:08people explaining how the deal got done
35:10and the price that he got it at and the
35:12terms and our balance sheet and just
35:14there was so much noise about how you
35:17know we were something like a
35:18countrywide that was doing all of the
35:20insurance you know of that the backing
35:22of the mortgages when in fact Goldman
35:23had none of that risk on its balance
35:25sheet. So, he made like one of the best
35:27bets ever.
35:28>> And and I want to tell you something
35:29about what happened then. Warren paid
35:32$130 a share at that time for Goldman
35:35Sachs
35:36during the financial crisis.
35:39The stock went down further.
35:41I bought it
35:43at $65 a share.
35:45Okay? Half of Warren's price. Now like
35:49Ferrari
35:50another stupid thing I did which is a
35:53company like Goldman Sachs
35:55should never be sold.
35:57So, I tripled my money
36:00with a bonus. I sold.
36:03I should never have sold it. It's like a
36:06Ferrari.
36:07It's like these
36:10durable moats and I made money on
36:14Goldman. I made money on Ferrari, but I
36:16should have never sold them.
36:18So, eventually
36:20I will learn
36:23from these mistakes not to do that.
36:25>> Well, I think you're doing pretty well
36:27to date.
36:28I am [laughter]
36:29I you know, um I kind of want to talk
36:31about some
36:33cultural things happening.
36:34>> Yeah.
36:34>> Like for instance, um
36:37kids buying Pokémon cards and trading
36:40them at crazy valuations today.
36:43Do you think that that's a good idea?
36:45Or not?
36:45>> No. Not a good idea.
36:47>> How do you explain to this younger
36:48generation why that's a bad idea? If
36:50they go, "No, no, but I bought it for 50
36:52bucks and today it's at 250. You don't
36:54understand. It's different today." What
36:56would you say to them?
36:58>> Well, let me distinguish let me let me
37:01look at two different uh examples of
37:04what you can invest in.
37:05So,
37:07you can buy a Rembrandt
37:09and it's a million dollars. Okay?
37:12Or you could buy
37:15uh
37:15three apartments
37:18which can be rented out, which are also
37:19a million dollars.
37:21And you make these two investments.
37:24The Rembrandt
37:27you say
37:29could be worth two million in the future
37:30or three million in the future.
37:32The future value of Rembrandt depends on
37:36the perceived value by other people in
37:39the future in a very subjective way.
37:43The future value of the apartment
37:45building that you bought
37:47will depend on the rents it's
37:48generating. So, if you bought it in a
37:51great place with a great demographic and
37:54the neighborhood becomes better,
37:57the rents could triple or double in some
38:00time and the apartment could be worth
38:02two or three million. So, if you
38:04understand Rembrandt so well
38:07that you have a very high probability of
38:09saying this is going to worth 10 million
38:11in 10 years,
38:12go buy the Rembrandt. That's like the
38:14Pokémon card. You should always be
38:16within your circle of competence. So, if
38:18you're buying Rembrandt or You're
38:20Pokémon cards or you're buying a
38:21apartment buildings.
38:23All of these you should be knowing them
38:26cold.
38:27And if you got the confidence that it's
38:29going to be worth more,
38:32that's fine.
38:33It just may be that you're correct about
38:35Pokémon cards because I don't understand
38:37them, and I'm correct about apartments
38:39because I do understand them.
38:41>> Why do so many people get caught up in
38:43these bubbles? Like maybe you could say
38:46we might be in an AI bubble today. You
38:48might be able to say we're in a
38:49collectible nostalgia bubble today. Like
38:52what is it about human nature that makes
38:55you a bad investor emotionally
38:57sometimes?
38:58>> Humans want to
39:00invest in things that have recently done
39:03well.
39:04>> We just have giant recency bias
39:06basically.
39:07>> It's just the nature of people wanting
39:09to go to flavor of the day. And and
39:12actually that going to the flavor of the
39:14day
39:15actually makes it possible for me to do
39:18what I'm doing.
39:19There is the lemming aspect to the human
39:21behavior. Uh there is a herd mentality.
39:24There is
39:26want to buy flavor of the day, want to
39:28buy what's popular. All of that is
39:31there. And it is those characteristics
39:35that allow someone like me to do what I
39:38do.
39:39>> How do you go against the crowd to
39:42invest when everybody else might think
39:44you're crazy?
39:45Like have you ever had somebody say
39:46like, "This is crazy. Don't do this. Why
39:49are you investing in it?" And you did it
39:50anyway?
39:52>> Yeah, I mean I think you've got to have
39:53conviction on your ideas. I mean the
39:55thing is that it's the same thing as
39:57starting a business. You you want to
39:59start some business, everyone's going to
40:00tell you it's not going to work.
40:02Right? And they may or may not be right,
40:05but
40:06you feel passionate about it and you go
40:07for it. If I've done the work and I
40:10understand things and I've got
40:12conviction,
40:13then I'm going to act
40:16based on that. Yeah, absolutely.
40:18>> Take it from me, Anish and I, the most
40:19expensive mistakes don't happen because
40:21you're dumb or I'm dumb. They happen
40:23because we're alone, moving fast, and
40:25taking guesses. Business owners do this
40:27constantly. Boardroom is for business
40:29owners doing seven figures at least in
40:31revenue, and who do not want to make the
40:34wrong decisions in isolation. Just like
40:36he is going to pay $650,000 to sit down
40:40with Warren Buffett to learn from him,
40:42I've realized that when I have a third
40:44party who gives me advice and I get to
40:45steal all their homework, I make way
40:46more money. How does it work? In
40:49Boardroom, you actually get to sit down
40:51with my operating team and partners. You
40:54bring the bottlenecks, the issues in
40:55your business like cash flow, hiring,
40:57and sales marketing, and we help you
40:59find the next lever to fix with our
41:02operating tools, advisors, weekly
41:04coaching, quarterly planning, and owners
41:06who follow our exact private equity
41:08playbook to scale revenue and profits.
41:10This is not for people who do not have a
41:12business. This is only for people who
41:14are already building their business. But
41:16if you are that, then you should apply
41:19to join Growth Boardroom here. You can
41:21go to
41:21contrarianthinking.co/growth-boardroom.
41:25>> You also uh kind of a famously said you
41:27don't lie.
41:28Is that true?
41:30>> Well, we try not to lie.
41:32But if if I did not lie at all, um I
41:36would be at a Jesus level. Okay, I'm not
41:39at the Jesus level yet, okay, or Buddha
41:41level or Gandhi level. Uh so,
41:45uh the whole lies versus truth is a very
41:48powerful mental model. There's a book I
41:51read a long time back called Power
41:52versus Force,
41:54uh written by a kind of new age guy in
41:56Arizona, Dr. David Hawkins. But he had a
41:59theory that he said that if I lie to
42:02you,
42:03and in your conscious state you don't
42:05know I'm lying to you,
42:07in your subconscious state you do.
42:09And he said that there's a
42:12pipe
42:13that goes between the subconscious and
42:15the conscious, but for most humans, that
42:18pipe is mostly clogged.
42:21Okay? So, the signal cannot get through.
42:24But, he says the pipe is not fully
42:26clogged. So, what happens is that
42:30you
42:31uh in his terms, he said you either go
42:33weak or strong in the presence of a
42:37person telling the truth versus telling
42:39lies. So, if someone lying to you, you
42:42may not know directly that they're lying
42:44to you, but you will feel
42:46I don't know if I want to spend time
42:47with this person. You're
42:49like the used car salesman.
42:51You don't know what part of what he's
42:53telling you is a lie, but you know
42:55there's a lot of lies in there. Right?
42:57So, you don't want to be there. Like
43:00that's why people want to shop at home.
43:02They don't want to go to the car
43:03dealership because it's not a pleasant
43:06experience.
43:08Uh they'd rather just go online and buy
43:10the car and have it delivered and
43:11they'll be done with it, right? And so
43:14So, basically, we know we know at least
43:18subconsciously
43:20when people are not being truthful with
43:22us. And we see that play out. Humans get
43:25strong and love being around the truth.
43:30And so, we crave that. And so,
43:33uh in leadership and in entrepreneurship
43:37or in a selling situation,
43:41the more truthful you can be,
43:44the better off you are long-term.
43:46>> You know, it's interesting. We had a
43:47leadership meeting yesterday.
43:49And um
43:52And the meeting was sort of last minute.
43:53The reason that I held it, candidly, was
43:55because I heard little little
43:57bickerings, you know, little oh, this
43:59person did this and this person did
44:00this, but they weren't going to each
44:02other and having a conversation.
44:04And so, So, heard it enough times that I
44:06just thought, well, we don't have time
44:07for this. So, I pulled everybody into
44:08actually this room where we're sitting
44:10and I said, all right, this is your
44:12shot.
44:13It's free.
44:14But, like, if you don't bring it up
44:16here,
44:17>> Mhm.
44:17>> that means it's not a real issue.
44:19>> Yeah.
44:19>> So, you have to look the person in the
44:21face and don't don't say generally
44:22generalities. You have to say, Cody, you
44:24did this. Blah, you know, so-and-so, you
44:26did this. It was fascinating to watch is
44:28how many people will not tell the truth
44:32because they'd rather be diplomatic.
44:33>> Yeah.
44:34>> And I'm wondering, have you found ways
44:38to indoctrinate that culture, to get
44:39more people
44:41to have difficult conversations?
44:43>> Yeah.
44:44>> When you have conflict or
44:46whenever
44:47team members are not being candid,
44:50I think that
44:53having them speak in a kind of moderated
44:57way where one person speaks without
44:59interruption,
45:00>> Mhm.
45:01>> what their perspective and feelings are
45:03and everything,
45:04then the other person speaks and again
45:06shares, eventually can lead to
45:09uh a better outcome. It may not may or
45:12may not solve the problem, but but I
45:14would just say this that I don't want to
45:16be part of a team
45:18which has dysfunction like that. So, if
45:20you have things going on where there
45:22people talking behind the back and all
45:23these things going on, you have to fix
45:25it.
45:26>> Yeah. It's interesting. I've heard that
45:27like Elon has this uh line that I love
45:29where he says, running a company is just
45:32finding the series of compounding lies
45:33inside of your company.
45:35And I related to that because I think
45:37it's um
45:39it's truthful and sort of non-egoic to
45:41say that. And to say, hey, I'm one of
45:43the best entrepreneurs in the world and
45:44I still know that whether it's to your
45:47point not complete deceit, but just sort
45:50of hiding the truth or not even
45:51realizing it or whatever,
45:53you know, your job as an investor is
45:54sort of to find the truth in a company
45:56or not.
45:57>> Yeah.
45:57>> And then in when you're running a
45:58company, it's probably to find the truth
46:00even inside of your own company.
46:01>> Yeah.
46:02>> Which was a crazy realization for me to
46:03realize the first time I ran a company.
46:05>> Yeah, also like you when when Elon
46:06interviews people, he interviewed a lot
46:08of people. I think he interviewed the
46:10first 3,000 hires at SpaceX himself.
46:13Uh he asked them, one of the questions
46:15he asked the engineers is
46:17"What's the most difficult problem you
46:19solved?" Right? And he says that
46:22uh when they start answering the
46:24question,
46:25if they really didn't solve that
46:27problem,
46:29it's going to become obvious.
46:31Because he's smart enough as a as a
46:34problem solver to figure it out. So, he
46:35just goes deeper and deeper
46:37into that area with the person. And he
46:39says eventually it just reveals itself.
46:42Whether they actually solved that
46:44difficult problem or whether they heard
46:46about it and they think they can, you
46:49know, fudge their way through it.
46:51>> Now, you only have 10 investments.
46:54That's and you hold them for a long
46:55time.
46:56That is like having a relationship, I
46:58would imagine, with a lot of this senior
47:00executive team or the CEO team in some
47:03way.
47:04Um you know, you could compare it to
47:05marriage, you could compare it to
47:06dating, you could say that they become
47:08partners of yours in some way. How
47:10important is it
47:11screening the
47:13CEO and the founders and the key team,
47:16not just the underlying assets in the
47:18balance sheet? And if it is important,
47:21then
47:22how do you determine whether you want to
47:24bet on a person or not?
47:27>> Yeah, so the culture and the nature of
47:30the people
47:32is very fundamental. And that takes
47:34time.
47:36Uh some of it we can get by looking at
47:38long histories of the business. Business
47:39been around for a while, you could say
47:41what did they say 10 years ago and then
47:43what happened? And so definitely we have
47:47to uh
47:49have a good understanding of the people
47:52and we have to
47:54be uh
47:56uh uh, comfortable and confident that we
47:59can be long-term partners.
48:01And
48:02the the other thing we're investing is
48:04that it tolerates a higher rate, right?
48:06The moats of the company, the
48:07competitive advantage of the company,
48:09the nature of the CEO, the nature of his
48:11team, many of these things we may or may
48:13not have gotten it exactly right. And
48:18sometimes they are much better than
48:21where you think they are and sometimes
48:22they're much worse. Uh, but we
48:25definitely try.
48:26>> Is there a question that you ask or that
48:28you I know you can't if they're public
48:30CEOs, you can't always
48:31um, you know, go direct to them to ask
48:34questions in the same way, but
48:36is there a question that you ask to
48:38screen an individual that you find
48:41really helpful?
48:42>> Well, one of the one of the things that
48:44which I got from Warren is he says that
48:47when you go meet a company, you ask the
48:49company's leadership
48:51that
48:53if I were not investing in your
48:55business,
48:57which of your competitors would you
49:00suggest I should invest in?
49:02And which of your competitors do you
49:04think
49:06I should short or I should never invest
49:08in?
49:09>> It's a great question even ask if you
49:10run a a company. Like I'm thinking about
49:13what would my answer to that question
49:14be. And that also tells me who do I want
49:16to go hire from competitors. Like, you
49:19know, which products do we want to
49:20launch, which we kill, what if they've
49:21already done that we're trying right now
49:23that may or may not work.
49:24>> Yeah.
49:24>> It's a very that's a good mental model.
49:27>> Yeah.
49:27>> What does a day in the life of of
49:29billion-dollar investor look like? Are
49:32you up at 6:00 a.m.? You have 16
49:33meetings, coffee breaks? No.
49:35>> I work from home, even though my office
49:37is half a mile away.
49:39Um, maybe two or three times a week I
49:41speak to uh, some of my team on Zoom.
49:44Uh, I go to the office maybe once a year
49:47or something. Uh,
49:49very rare. And uh, but I I just decide
49:54on a
49:55I don't I don't
49:57have a lot of preconceived
50:00I want to do this and that for the next
50:013 months. I'm
50:04I leave it very free
50:06to have the
50:09flexibility to go into any area I want
50:12to go into. So I'm just
50:15it's it's very very much seat of the
50:18pants based on what is going on.
50:19>> Yeah. You know, it's so interesting I've
50:22you know, I ran our biggest asset
50:24management company we've had. We only
50:26managed you know, just a little bit over
50:29nine figures, but um
50:31we
50:32it's interesting my husband is the one
50:34who runs our investment portfolio now.
50:36And I always joke I want to come back in
50:37my next life as that instead of
50:39operating companies. We still aren't not
50:42good enough, you know, I think we're
50:43good operators of company. We've grown a
50:44lot every year, you know, sort of
50:46tripled or
50:47or
50:48a little bit more each year, but it's
50:51the leverage there is so different than
50:53investing. And so I think a lot of times
50:56the cool part of you sharing stuff like
50:57this is most people don't realize
51:00like you said the power of compounding.
51:02They don't realize the power of like not
51:04taking an action every decision which
51:05you've talked about. They don't realize
51:07the power of being patient. And when you
51:09have capital allowing that capital to do
51:11the work for you as opposed to you
51:13having to do all of it. And so I think
51:15it's really it's a it's a give to share
51:17that with people cuz most people I mean,
51:19how many employees do you have to manage
51:20your fund grow roughly?
51:22>> There's
51:23two people full time.
51:25>> Yeah.
51:25>> And there's two part time.
51:27>> I mean, it's wild. And then you imagine
51:29you know, if our company does let's say
51:32you know, shy of nine figures a year
51:34here we'll have 130,
51:37you know.
51:38>> Yeah.
51:38>> And so the leverage is so different.
51:40>> the other thing is that if if I went
51:42from
51:431.4 billion to 14 billion
51:46it might be a couple more people.
51:48>> That's why.
51:49>> You know, it's just it's not uh going to
51:51be 10 times the number of people we
51:53have, you know, it's just going to
51:55because that's the beauty of the
51:56business. It's a uh the reason I went
52:00into this business is because I could
52:02just see that the economics are great.
52:05It just works great. I'm a single
52:08player, single game player guy.
52:10>> Interesting.
52:11>> So, I'm not the kind of person who's
52:13happy being on a soccer team. Um
52:15probably won't be happy at playing
52:17tennis.
52:18>> Yeah.
52:18>> You know.
52:18>> That makes sense. So, so maybe for
52:20somebody listening, explain like sort of
52:23wrap it up. If you are looking at
52:24business models and deciding, I think a
52:27lot of what matters is the game you
52:28choose to play. Not just because of who
52:31you are, but also whether that is a good
52:33game or not. Like, you know, we talk
52:35about a silly thing like vending
52:36machines. I like vending machines to
52:38learn how to do business. It's cheap,
52:40there's not a lot of risk. You have an
52:42entire business encompassed with very
52:43little cap ex. It's sort of a great but
52:45it's a terrible business at scale,
52:47actually. Really tough business.
52:49>> Mhm.
52:49>> How do you think about business models
52:52in general? Do you have a mental model
52:53to determine if one business model is
52:55better than another?
52:57>> Yeah, I mean, I think that uh
53:00a lot of that comes
53:02um
53:02comes naturally. I'll give you an
53:04example that I think you might you might
53:06find interesting is um
53:09in uh when when when Buffett was a
53:12teenager,
53:13he was in Washington D.C. His father was
53:15a congressman.
53:16And he hated being in D.C. He wanted
53:18back in Omaha, but he was he was in D.C.
53:21And there was a guy in his high school,
53:24Don Danly. And one day Warren went to
53:28Don's house, and he saw Don
53:31tinkering with a pinball machine, okay?
53:34And he said, "What are you doing?" He
53:36said, "Oh, you know, I I got this
53:37pinball machine that doesn't work um for
53:41like five bucks because people just give
53:43it away. And I think for another five or
53:46seven dollars in parts, I can get it
53:48working. Okay? And uh, so Warren says to
53:52him, um,
53:53"Are there a lot of pinball machines
53:55that you can get that are not working?"
53:57So, there's
53:58people just have them sitting all over.
54:00So, what Warren did was, he's like 16 or
54:04something, 15. Um,
54:07he tells Dan Lee
54:09to fix pinball machines non-stop. Like,
54:13they get 20, 30 of them, right? And put
54:15them to work fixing those. And then he
54:19and Dan Lee go to the barber shops in
54:22D.C. And they tell the barber that we
54:25work for Mr. Wilson. Because they're two
54:27kids, right? There's no Mr. Wilson. Mr.
54:30Wilson is a fictitious character. They
54:32say, "We are We work for Mr. Wilson, and
54:34Mr. Wilson has authorized us to make you
54:36an offer, which is we'll put the pinball
54:38machine in your barber shop for free."
54:42And every week we'll come and pull out
54:45whatever coins are there, and half come
54:48to you and half we keep for Mr. Wilson.
54:51So, the barber said, "Put the machine in
54:52the corner." Like, I mean, there's no
54:54downside, right? So, those pinball
54:57machines, when
54:59uh, Warren was leaving D.C. after high
55:02school,
55:03he had 45 barber shops with the pinball
55:06machines. And he said the first week he
55:09went in the first barber shop, there was
55:11five dollars in there. And he gave two
55:14and a half to the barber. He thought he
55:16died and went to heaven, because on a
55:18$10 investment, in four weeks they were
55:21going to clear the money, and then, you
55:23know, the return on capital is infinite.
55:25So, what I'm trying to say is that you
55:27talk to other vending machines, right?
55:29The vending machine,
55:31the entrepreneur is not doing anything
55:34unusual.
55:36If Warren bought pinball machines at
55:38market price
55:40and put them in the barber shops, it'd
55:42be in terrible business.
55:44Right?
55:44>> Yeah.
55:45>> It became a great business because
55:49they flipped a little bit.
55:52So, understanding the economics
55:55of a great business is not difficult. In
55:58fact, what I would just say I would say
56:00the following. My my filter
56:03for understanding where a business is
56:05great or not is
56:07does it blow me away?
56:09Okay? Does it hit me in the head with a
56:112x4? Like when I see Buffett's pinball
56:15machine business, you instantly know
56:18that's a great business. Right? You know
56:21they're not spending anything on the on
56:22the pinball machine. It's fantastic,
56:24right? And
56:26the same business when you buy it at
56:28list price and you put it there,
56:30you lose your shirt. You're going to be
56:32in a you're going to be a terrible
56:33business. So,
56:34what we want to do is we want to find
56:36the anomalies, right? And so,
56:39that's exactly how I look at businesses
56:41that is it the pinball business?
56:45Is it Buffett's pinball business? And if
56:47it is, like level three was like
56:49Buffett's pinball business, right? So,
56:51we look for these weird things
56:53and we're looking for weird things that
56:55make no sense.
56:57And then we find them and we go back to
56:59doing what we're doing and look for the
57:00next weird thing.
57:02>> So good. Not enough people try to
57:05take the complex, simplify it,
57:06>> Yeah.
57:07>> and just do it a few times.
57:08>> Yeah. So, we can make the vending
57:10business really good. We just have to
57:13get the machines for free.
57:16>> [laughter]
57:16>> That's true. It'd be the one that can
57:18fix them.
57:19>> Yeah.
57:19>> Cuz you're right, that is the
57:20>> Yeah.
57:21>> That's where the the best businesses in
57:23vending when we had a bunch of them. Cuz
57:24we had a bunch of laundromats, so you
57:26put vending machines in the laundromats.
57:27>> Yeah.
57:28>> Kind of similar to Warren.
57:29>> Yeah.
57:29>> Uh but the best part of that business
57:31ended ended being the people who fixed
57:34the vending machines cuz they break all
57:35the time.
57:35>> Absolutely, yeah.
57:37>> And so um and they do the same thing.
57:39They then take the vending machines, fix
57:41them up, resell them.
57:42>> So I think that's that's the thing is is
57:45the business opportunity that all over
57:47the these were kids coming up with this.
57:49>> Yeah.
57:49>> Who didn't even have any experience.
57:51>> Yeah.
57:52>> You know, and you know what Warren had
57:54so many you know, he had he had this
57:56other kid where
57:59he used to sell golf balls on the street
58:01corner in Omaha. But he had a he had a
58:04couple of friends who'd go dive in the
58:07water to get the golf balls out and
58:09Warren never wanted to do that. He he
58:10said I never want to do any hard work.
58:12So he paid those kids to dive and then
58:14he sold the golf balls. But again, the
58:16golf ball is free.
58:18You know, it's free and so you're going
58:20to make a lot of money when you do that.
58:21So basically we want to look for these
58:24businesses where some part of the
58:26equation is different than the
58:29mainstream. And that just changes it
58:31completely.
58:32>> Ambitious but lazy. I love it. This was
58:34such a useful conversation. Thank you so
58:36much for being here. Where do you like
58:38people to follow along?
58:39>> Well, you know, I'm on I'm on X and
58:42LinkedIn Monish Pabrai.
58:44>> Okay.
58:44>> Yeah.
58:44>> Um so let's start there.
58:46>> Okay.
58:47>> follow along for the ride. But thank you
58:49so much for being here.
58:50>> Always a pleasure, Cody. Thank you so
58:52much.
58:55>> [music]

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