Asking a Billionaire Investor How to Turn $10,000 into $1M ft. Mohnish Pabrai

How would I take $10K and turn it into a million?

What we are looking for is something that hits you in the head with like a 2x4. We don't need to know many things about many things. We need to know a lot about a little.

Why do you think most people don't do that?

Buffett always says the most important question to ask is, and then what?

Does he use Excel?

Warren wouldn't be caught dead using Excel. Okay. Usually the best ideas, when you finally figure them out, they're very simple. You should be able to explain your thesis of a stock in about 4 or 5 sentences to a 10-year-old.

Where do you even know where to look?

I'm going to lay it out for you. It's going to be so easy. All someone has to do is— I feel like I could rule the world. I know I could be what I want to. I put my all in it like no days off. On the road, let's travel, never looking back.

Okay, here we go. Anish, welcome back. Round 2.

Sean, it's always a pleasure.

So let's play a game. You're my coach. You're my investing coach, let's say. And I have $10,000 and I want to turn it into a million, right? Podcast called My First Million. I want to go from $10K to a million. So that's 100x. How would I take $10K and turn it into a million?

Right.

I gave you 128x in 49 years.

Without having to be a genius.

Give me an example of a great investment is one that doesn't make any sense. The numbers just seem wrong, you know, to you in the moment.

Well, I'll give you one example where, it was a moneymaker for me, but I didn't make even 3% of the money I should have. Okay. You know, I mean, it was like, it was given to me on a platter and I blew it. I still made money. Right. But you know, usually the best ideas when you finally figure them out, they're very simple. So in the year, I think this was like around 2001 or 2002, I had encountered this shipping company called Frontline, and Frontline was a company that owned a fleet of about 75 VLCCs, very large crude carriers. These are giant ships that transport crude from like Saudi Arabia to the US, and they're just huge. The entire global fleet at that time was 300 ships. 300 VLCCs, 75 of them were owned by Frontline, 25% of the market. The guy who ran and was the founder of Frontline, John Fredriksson, had put the entire fleet on the spot market. So there are two ways he could have dealt with his fleet. He could have done time charters, kind of one-year, three-year deals where he's guaranteed cash flows per day and all that. Or be a gambler, put it on the spot market and play it.

Whatever the price today is.

Okay.

Tripled my money. Yeah, in like 8 months or something. Okay. And I said, okay, this was exactly what I thought, right? Rates then go to 300,000 a day. Okay. At 300,000 a day, they're making something like 285,000 a day times 75 shifts. Okay, that number is like infinity. Okay.

Yeah, I was trying to do the math.

Right.

All right, let's take a quick break 'cause we got a little freebie for you. So if you're listening to this episode and you like what Mohnish is talking about, you might be like me. You're trying to take notes, you're trying to remember these principles that he's talking about because the dude is just a wealth of knowledge when it comes to investing. Well, the fine folks at HubSpot listened to this episode. They took the transcript, they put down the 9 principles that he talks about as well as the examples that he have. And they put it all in a PDF for you. So you don't need to take notes. They did it all for you. You could read that, learn from it. That's the much better way to get more value out of these episodes. It's in the show notes below. Just go download that and enjoy. So you, you tell me the story about these ships and when you explain it, I can see it just like you see it. Oh, that's the opportunity. But the thing I don't get is why are you looking at crude oil ships? How do I get to, like, how do I even know where to look? And so what is that process for you? Do you take, Do you pick one industry and look at 100 companies in it? Do you read books on 50 industries? Do you look at what other investors are doing and try to reverse engineer? Like, where do you even know where to look?

I'm gonna lay it out for you. It's going to be so easy, but, but it takes a certain temperament.

Okay.

So first I wanna talk about the temperament. Okay. Okay. So if you go back to Warren Buffett, when he was a teenager, he used to go to the racetrack in Omaha. And one of the things he did at the racetrack, he was like 14 years old or something, is after all the races had been done, he'd pick up all the tickets that people had left thrown on the ground, right? These are mostly losing tickets, right? They just kind of toss them from the garbage cans. He'd pull them all out. Then he'd go home and one by one look at every ticket. He would find, now sometimes a horse would come in second and the ticket was for win or place. It was actually a winning ticket, but they didn't understand. They were drunk or whatever. So he'd always find a bunch of tickets which were actually in the money, but they had been discarded. So now he was underage. He couldn't go to the counter to collect the money. So he gave it all to his Aunt Alice, his favorite aunt. She used to go to the counter, collect the money, and give it to him. Okay. So when Warren, when Warren became older, let's say when he was, let's say 24 or 25 years old, he went through the Moody's Manual. And what he was doing with the Moody's Manual, and you know, for nostalgia, I bought these on eBay and I want you to see the Moody's Manual.

Okay, so, so this is Buffett.

Buffett was 23 years old.

This was his nighttime casual reading.

This was his. So what he did now with the Moody's Manual They were, there were a number of these that came out. So like in the year 1953, this is just railroads, airlines, shipping, traction, bus and truck lines.

I don't even know what this is. Is this the earnings reports of all of the companies?

So this is the value line of that day.

Okay.

Okay. So if you, if I open the Moody's Manual to any random page, okay. What, what it's doing is it's got like 2 or 3 companies per page. You can see how fine the print is. Yeah. Okay. All right.

You need like a magnifying glass.

And you could do one of those a day.

You could easily do one. Well, one of those a day is pathetic.

I'm saying even, but even you said if there's 300 total.

Yeah, but I'm just saying less than a year, it would be easy for someone without getting, putting too much work into it to read 4 or 5 ideas a day, right? I mean, they could have a full-time job and easily do that. That's not a difficult thing to do. And you don't need to read the whole idea. What I would say is you read the first few paragraphs and see if this is something that's interesting you or not, or something that's grabbing you or not. Right. Right. And what I do is I look at every idea that's posted, right? And I don't care to really look at them right when they're posted because they actually, those ideas will work even 5 years from now. Like recently I started investing in a, in a company where the original write-up was in 2021. Okay, it's 2025, still valid. Okay. Now what you still have to do is you should use it only as an input to ideas. Just like the Moody's Manual is not telling you what to buy and sell. Once you see the idea, you do all your own work, do your research, do everything, make sure it's something you understand well, make sure it's within your circle of competence. Whether you buy into the idea or not, et cetera. And Buffett, Buffett is still doing this. So his Japanese bets. So there's a, there's another book called the Japan Company Handbook.

Okay.

And, and I'm gonna bring the Japan Company Handbook. Okay.

Okay. All right. Here we have it. And I'm excited about this because you hear a lot about Buffett's, you know, See's Candy, Coke, GEICO, like those kind of well-known Buffett's best bets.

Yeah.

But as I understand it, Buffett made some incredible investments in Japan.

And it was not a small amount. It was like $5 billion.

Yeah, yeah. He put $5 billion, but he borrowed the $5 billion at half a percent.

The whole thing.

In yen. Yeah. In Japan, right? So now he's bought a Japanese company paying dividends in yen. Which he's bought in yen, right? The dividend coverage is 16 times his interest payment. Okay. So he put no equity, right? And he's instantly making 7.5% on 5 billion, which is like, you know what, about 350, 400 million out of nothing, right? It's just coming to him. Now what happens is because these companies are so cheap, In about 3 or 4 years, they all doubled in price, right? So now the $5 billion has become $10 billion, okay? The equity that went in is nothing, so it's infinite return. They all raised the dividend. The dividend based on the original purchase price is about 15%, okay? So basically, and then after that, what he did is he increased the bet. So he was under 5% of all of them. He's now approaching 10% on all of them. And anyone could have looked at the Japan Company Handbook. Basically, I think it's a matter of how hungry are you? It's the same as any entrepreneur, right? I mean, basically anyone who starts a business or whatever, they've got to go all in, intense passion, 18 hours a day, all in, very strong belief. It's the same thing here. Truly are focused on it, you can do very well. I mean, the universe is gonna conspire to help you with whatever your passion is, and it's just a matter of whether you want it.

By the way, does he use Excel?

Well, no, he does not use Excel for sure. Okay. He uses his computer now. Now he uses Google and all that, but he uses his computer mainly to play bridge. I mean, Warren wouldn't be caught dead using Excel. Okay. Because the thing is that, he's looking for things that hit you in the head with a 2x4, right? So when he's going through a Japan company handbook or a Moody's manual, there is no Excel needed. What will Excel help you with when the earnings are $25 a share and the stock is $15? You don't need Excel. Right. Okay. When the dividend yield is 8% and you're borrowing at half percent, you don't need Excel.

Okay. In fact, if you need Excel, It's an automatic pass because it means that there's something complicated there which is not fitting in. Did I need Excel for Frontline? No, I didn't need Excel for Frontline. I mean, I look up the liquidation price of the ships. I look up the where the ships are at. I look at all, I mean, the thing is all these things are very basic numbers. You don't need Excel for it. Right. You know, recently I was talking to a friend of mine looking, he's looking at some international stock exchange. Okay. This international stock exchange trades at a trailing PE of like 30, okay? It's growing at 15, 20% a year, very rapid growth, okay? 60% of revenue is profit, okay? And as they grow, that 60% might become 70% because they got operating leverage. So if you just forward 2 or 3 years, the PE becomes less than 10. Okay, there is no need for Excel, right? You can just do it all in your head. Okay, it's got $10 of earnings today, it's gonna have $12 a year from now, $14, $15 2 years from now, maybe $17 or $18 3 years from now. Stock's at 300. Now when you're at 18, you're already at a 15 multiple, right? You already cut it in half, but it's growing. By that time it may be trading, it should be trading at even more than 30 times earnings. So the stock may be at like, you know, 600 or 700 by then, right? It's just the math of all of that. So what I'm saying is that if you can't do the math in your head, it's an automatic pass because that means there's something complicated. So another important thing is you should be able to explain your thesis of a stock in about 4 or 5 sentences to a 10-year-old. Okay, and if you can't do that, it's a pass. You can't sit down with a 10-year-old with an Excel spreadsheet, okay? They're not gonna like you and they're not gonna be interested. Einstein used to say there's like 4 levels of intelligence. Smart, intelligent, genius, simple, okay? The highest level of intellect is simplicity. And the other thing about investing is that you have to have conviction. It's very difficult to have conviction if you keep needing to go back and look at your Excel model, right? You need it in your head. So Buffett never needs to go anywhere. It's in his head. He knows what the dividend yield is. He knows what he paid. He knows what the yen is. He knows all of that. It's preprogrammed, right?

So we have— don't use Excel, don't overcomplicate it is really what that means. And the second is leverage. So don't over-leverage. And I think the story here that I like is there should be a third bust on this, on this table next to us. Somebody's missing. That was an original partner with them. Yeah. Can you tell that story? I think his name's Rick.

So actually, Warren, Charlie, and Rick Guerin used to do deals together and they were all independent doing their thing, but they used to share ideas and sometimes they'd go in together. Rick found blue chip stamps for them. And I think he also might have been the guy C.S. Candy contacted and so on. After the early '70s, we never heard about Rick. He kind of fell off the radar. So when I met Warren for lunch, I asked him just a very innocent question. I said, Warren, what happened to Rick? You know, it used to be 3 of you.

And then we never heard from him after that. And Warren said that Charlie and I, knew that we would get very rich and we were not in a hurry. And he said Rick was in a hurry. And so Rick was always using some leverage. And then when the '73-'74 downturn came, that was a very intense, that was a crash in slow motion basically. Okay. Over a 2-year period, the stocks went down like more than 40, 50%. It was a big, big drawdown. And Rick got margin calls. And Warren said that when he got the margin calls, I bought his Berkshire Hathaway for $40 a share, the stock that's now $700,000, right? So Rick was forced to sell it at a time when it was probably the worst time to sell. Right. Right. And so then Warren actually went one step further because he's always trying to add value at these lunches and all that. So he says, He says to me and Guy, he said, if you are even a slightly above average investor and you spend less than you earn and you use no leverage, you cannot help but get rich in a lifetime.

Tell me about the difference between risk and uncertainty.

Yeah, well, that's an important concept to understand because Wall Street gets confused between the two. And in fact, when Wall Street gets confused between the two, is where the greatest opportunities lie. Okay, so we talked about Frontline. Frontline was an example of a situation where uncertainty was extremely high and risk was very low, right? What Wall Street is looking for is certainty. Okay, so if we look at a company like ADP, you know, the process payroll, right? I don't know, they've had some like 50 years of nonstop growth because, you know, your payroll, your running payrolls is going to keep going up. Your cash flow is going to go up. It's all in a straight line. That's beautiful. And Wall Street will reward you extremely well for that.

Right. And it's priced accurately.

It'll be priced for euphoria. It'll be overpriced. Okay. Because they love that. That's what they're looking for. On the other hand—

That's their type.

I was looking at your portfolio and you have this company invested in Turkey that's like a Coke bottling company. Would you say that's a good example of kind of the risk and uncertainty mismatch?

Yeah, we actually made money on it, but we exited. Okay. And the reason I exited is that, so The Coke bottler basically had a parent company, which was the dominant beer bottler in Turkey and several other countries. Their largest operations were in Russia, where they had their number one market share, 50-50 joint venture with AmBev. And Russia has effectively nationalized that business.

I see.

And I think they did it because they were somewhat upset with Erdoğan about something.

So they—

went and did that, about his support for Ukraine or something. And when that happened, it became— went in the too hard pile for us.

Explain the too hard pile. That's something I stole from you last time I was here.

It's a Warren thing. We'll get to that in a second. But basically it was something I couldn't handicap.

Sure.

There's a guy who owns a bunch of real estate, but like in a very small area, right?

Yeah, that's John Ariega.

Yeah, what's his story? 'Cause it sounds like it's a good example of this, a very thin kind of circle of competence, but he knew the pricing and was able to—

Why do you think most people don't do that? Because when I hear that, I think, ah, there's a blueprint to just say, I'm going to go deep and in this 2-mile radius I need to become super knowledgeable and I don't need to get distracted by everything else and I'll hold forever, right?

Like, that's a blueprint. If you think about it, I think it was Nick Sleep who has this quote. He said, "The best investors are entrepreneurs who never sold." So if you think about entrepreneurs, that's what they are. They're John Arriaga, right? So if I look at Sam Walton, Sam Walton is John Arriaga. All he did was retail. All he did was visit competitor stores. He never bothered anything else, right?

Sam Walton, founder of Walmart.

Yeah.

What do you mean?

Tell me more about him. We can, well, so Sam Walton, I mean, he said that there is no human who has ever lived or ever will live who has spent more time in competitor stores than me. Okay? Whenever he'd go on vacation with his family and they were passing a retail store, he said, "I'll be back in 20 minutes." And he'd go.

And what is he doing in there? What did he do?

So I'll give you an example. One time he went into the store and this manager says to him, "That was such a badly run operation." And Sam says to him, "Yes, but did you see the candle display? Did you see how fantastic that candle display was?" So his perspective was, I can learn from losers, okay? I wanna learn that spark that's there in something that's a total loser, right? So he was going in and now one time, in Brazil, in this retail store, they find this older guy flat on the ground. They call the paramedics. It turns out it's Sam Walton. And what he was doing is he was measuring the space between the aisles and he didn't have a tape measure.

With his body.

So he laid down, he laid, and you know, the space between the aisles is a very important data. Point for a retailer because you're gonna either waste square footage or be too narrow and the people won't enjoy the experience. So you have to get that right, right? And so he was in Brazil saying, how are they doing it? Am I 3 inches too wide in Walmart? Am I 3 inches too narrow? What am I, what's going on here, right? So that was, this was a game of inches. That's who Sam Walton was. And in fact, Walmart has not innovated at all. At least for the first 20, 25 years that Walmart ran, everything came from somebody else who was already a competitor. They took a lot from Sears, they took a lot from Kmart, and then they killed them. And they kept learning from one competitor after another. Sam Walton actually used to say, I'm not the smartest tool in the toolbox. I'm not a smart guy, but I'm a learning machine. I'm gonna keep at this. And what others have become, so, you know, it's very funny. He goes and visits Sol Price, the founder of Price Club, which eventually leads to Costco, right? And he looks at Price Club and he says, this is fantastic. And he creates Sam's Club, right? And Costco was also taken from Price Club. So both Sam's Club and Costco They would not have existed.

So Sam's Club is Sam Walton. I didn't even know that.

Oh yeah, it's part of Walmart.

Oh, I didn't even know that.

Oh yeah, it's part of Walmart. And it was completely cloned from Price Club, which was a predecessor to Costco, right? So Sol Price was an incredible entrepreneur. Someone goes to him and says, you know, no one has had more impact on retailing than Sol Price because Sol Price influenced Sam Walton in a major way. And he influenced Jim Sinegal, the founder of Costco, in a major way. I mean, these are the pillars. And then these two companies influenced Amazon.

Right.

Right. So it's all coming from Sol Price. So someone told Sol Price, you know, you are like the father of retailing in the US and actually globally. What do you think of that? He said, I wish I'd worn a condom.

That's too good. That's amazing. So Sam Walton is—

Yeah, but I just wanna say that, for example, some of those things that Costco does, Costco pays 50% more than Walmart pays its employees. So the entry-level people are making 50% more. Okay? Hasn't hurt their profitability. In fact, Sol Price's view was similar to Henry Ford's view that I want the people who work in my stores to be able to shop in my stores. Just like Henry Ford said, I want my workers to be able to buy my cars. You know, at that time, there were cars where automobiles were for the rich, right? And Henry Ford said, no, I want them for everyone, right? So he wanted to drop the price. And so I think at Costco, the lowest wage is like $20 an hour, you know, like when you're starting out or whatever. And then they have tuition reimbursement and all kinds of other things. And they get a lot of productivity out of their people. Yeah, because of that.

You've got these books here and we're sitting in your— we're at your house, we're in your library. You've got— how many books do you think you have in here? This is 1,000 books?

A few thousand.

A few thousand books. I mean, just to set the scene so that your office, your computer's over there.

Yeah.

We're surrounded by a cave of books on every topic. So I see some business books over here. I see investing books. You got— you just brought a retail book about Sol Price, the founder of Price Club, from over there. There's science. I think on that wall, this— what does this door go to? What is this?

Is this like a bedroom?

That's a bedroom. Okay. So you live in the library essentially, and you nap every day, I think.

Absolutely. Yeah.

So we're both nappers.

I've been so used to napping that if I don't nap, my productivity goes down. And so I actually don't like to work if I'm not productive. And what I find is that even if I I lay down for half an hour, 45 minutes, I'm re-energized. Right. And I think for the work I do, I need to be all in.

Yeah.

So I actually can't do this work if I'm tired.

Yeah. There's this athlete, Conor McGregor, and they asked him about his training schedule and he said, one of the big mistakes I made is that I was always trying to train all the time. I wanted to come to the gym 3 times, 4 times a day. I thought that's how you win.

The—

his coach was basically like, you're like a light that's always just dimly flickering because you never turn off and therefore you can never turn on and be as bright and as effective as you could be. And this flickering dim light, it's not doing you any justice. And so I've used that in my own model of like, where's my light right now? And if I need to just shut it down briefly, 30 minutes, an hour, whatever it is, to come back full brightness, that's, that's the way.

Jeff Bezos, you know, he said all decisions, important decisions in the morning. And he's very particular. He needs a solid 8 hours at night. Right. And he, he leaves work at a normal time. Right. But he says that they don't do these important decisions in the afternoon. Right. It's the first thing in the morning because he wants the highest energy levels. And in fact, what I also try— I find my best work is in the morning.

I'm curious about your style because I came over to your house once and you were You were very calm. You weren't like— it didn't seem like you were on the clock. You're moving from one meeting to the next. Didn't— there was not a big bustling team of analysts and junior people. And it didn't seem— you seem like you keep a pretty clear calendar. Is that intentional? Do you think that's— is that just what you like or is that effective?

Well, in the business I'm in, if I can find a couple of things to buy in a year, in the case of Buffett, one thing to buy every 5 years, right, I'm doing well. And so this is not a situation where having some packed schedule or whatever. I think the thing is that this is a case where you are taking in a lot of information, but there's not much action, right? And so you're basically trying to improve your mental models. You're trying to understand more about the businesses that you already own. And I'm going through like, you know, Value Investors Club and SumZero and that sort of thing and just looking at what else is there. Right. And, and sometimes I find an amazing idea or whatever. And then now then there's a deep dive. Right. Right. And then that might take a while.

I was reading something interesting. So in our first episode, we talked about your— how you got started. You were actually an entrepreneur first. And then basically you said this great thing. You go, I realized that as an entrepreneur, maybe 3 to 5% of my brainpower was on strategic decisions, really clear thinking. Coming up with the right answer. And then 95% of my time was blocking and tackling. And you're like, as an investor, it's great because that 3% becomes 95%. Yeah, I'm just— it's just about clear thinking and making the right strategic move and not— I don't have to busy myself. But one thing I thought was cool was I read that you took some personality test or you got some analysis done on you that basically helped you. You know, they sort of told you your temperament is for single-player games. What is this? I didn't understand what what you did.

Yeah. So this was kind of accidental that happened. And I think it turned out to be one of those great things that happened in my life is that in, in 1999, actually, I was at a crossroads where it was very clear to me that the business that I had built, my IT business, I had lost interest in it and I had become a lot more interested in investing. And it was a difficult time because I had like 170 people in the company who thought I'm motivated and I can't fake it, you know? And so very accidentally, I was with these two industrial psychologists and they basically did a 360 on me. So they had me take a bunch of tests. They talked to my direct reports, they talked to my friends, family, spouse, so on. And they built a kind of 360 view of who I was. And then they gave me what I call my owner's manual. And I think everyone should have their owner's manual.

Like it comes with an appliance you bought.

Yeah, I mean, we show up, we don't have an owner's manual. And each one of us is programmed differently. So what they said is, look, the way a human is, his traits, likes, dislikes, and what passions they are, that is hardcoded at the age of 5., and that is not gonna change from the age of 5 to the age of 95. Okay? You might try to— so, so you cannot change traits. You can try to change behaviors, but you cannot change traits. Traits are between your genetics and the first 5 years of life hardcoded. Now, the problem most humans have, which I had, is we don't know what those traits are. What most of us try to do is we do what, what they call mirroring. We look at what the world considers acceptable. And we adapt our behaviors so that we kind of fit in. But that can be a big disservice. Okay, so basically what they were able to tell me is they said, look, you are a person, they said, when we look at the company you're running and we look at who you are, we don't even know how you can go to work.

How you're functioning.

Yeah, we don't know. And actually I was in pain. I was in a lot of pain. And the thing was that I loved that business when it was just me. And I loved the business as it was growing until we got to the first 10, 15 people. And then as it started growing beyond that, my life became, and my job description became HR. I'm just herding cats. I'm not a cat herder, okay? That's not who I am, okay? So, What they said is that, that business that you have, you need to get rid of it in some way as soon as you can. And I was just thinking at that time, this was in March or April of 1999, I was just thinking of starting Pabrai Funds, right? They looked at it and they said, this is perfect for you. This is gonna work extremely well for you. In fact, one of them invested, he's one of the first investors who came in.

He was so— He put his skin in the game.

He was like, I believe this. And I told him, listen, you know, I'm paying you guys $2,000 to do this. You're giving me $100,000. I really don't wanna lose your money. They said, I don't have any doubts, Mohnish, you're gonna do very well. So I don't see any risk here, right? And he did extremely well. And so they were actually right because now it's been 26 years since I've been running it and haven't gotten bored.

So what did your owner's manual say? So I said, don't like that.

My owner's manual basically said that, well, first of all, they said that I had very high horsepower, right? And they said that I was one of the smartest guys they had come across, et cetera, which was great. But they said that you are a guy who likes to play single-player games. You are not the kind of guy who would be happy being in a soccer team, for example, where you're one of the forwards or whatever, and your performance depends on the team. Right. They say you do, they say you seek out games which are single-player games where you think you have some edge. And when you think you have some edge and it's that sort of game, you will kill it. And actually what I've noticed is like, so for example, I got banned in Vegas playing blackjack, right?

Okay, I gotta know this story.

I figured out a system which basically beat them.

Okay. Counting cards? What were you doing?

And actually did it without counting cards, right? And in fact, it took the casino almost a year of watching me. So I used to go every like 6 weeks or something and they played those tapes over and over because the markers that they look for were not there. And, but we'll talk about that in a second.

Okay.

So what I'm saying is that, so what are the games I like? I like blackjack, I like bridge, I like investing, and even Dakshina, for example, Dakshina Foundation, that's also a game, right? These are—

That's your philanthropy.

Yeah, but they're all mathematical games. Even Dakshina is a mathematical game because what I'm looking at is input-output ratios. People think I'm doing all this good in the world and all that. What they don't understand is I'm a game player, okay?. And what I'm trying to do with Dakshina is how much money is going in and what's coming out, right? And that's the only thing I'm focused on is what's going in and what ended up happening with an entity like Dakshina is, you know, Warren Buffett wrote me a letter saying that this is the best, right? I mean, like, he took the time to write the letter like, this is the best, okay? Never done that for any philanthropy that he's looked at. And the reason is because there's a game player who's not focused on, you know, name and lights or bunch of fancy pictures in the annual report. We have no pictures in the annual report, you know, just like the Berkshire report, right? But it's, it's about an honest input to output singular. So what I did is every year that we ran Dakshana—

well, explain what it is, I don't even know.

If you take a step back and say, okay, I want to give money away to make the world a better place, so the natural second step you would get to with that is I want very high returns on the money I'm putting out, right? So social return on invested capital should be extremely high. Now, most nonprofits don't even think this way. They're all heart. There's a homeless guy, let me help the guy, right? They don't really do an analysis of, okay, what is going in and what is coming out? So I ran into this model this guy was running in, I think in 2006 I ran into it. Where he was taking 30 kids who were very, very poor in India, in Bihar, and most of these kids were coming from illiterate parents, et cetera, but they have very high IQs. And he prepped them for about 10 months and he had them take the IIT entrance exam. The IITs are the, you know, the, they're the best technical institutes in the world. And now the thing about the IITs is that There's about 1.3 million kids applying for 16,000 seats. It's about a 1.3% admit rate, okay? Princeton is about a 5% admit rate. Harvard is about 5 or 6%. This is 1.3%. And if you get into the IITs, it's basically free to attend. The government subsidizes it. If you're a very poor person and you get into the IITs, well, now Microsoft will hire you, Google will hire you, anyone will hire you, right? And, but getting in is expensive because the coaching is expensive. So what this guy had done is he had made the coaching free for these very poor kids. And now what was happening is you had a family that was making $60 a month, let's say. And the kid graduates and Google hires him for $120,000 a year. Okay. I mean, you know, the transformation in 5 years, the guy's making $300,000 a year, right? And so just that, and he was spending $800 per kid.

On the training, the whole—

Right.

Okay, I mean, what's the ROI on that? And you're gonna do that for this whole lifetime and you're gonna reset the extended family and all of that. It's a, the ROI is off the charts, right? So when I saw that, I said, wow, this is the holy grail. So I went to the guy and I said, I'd like to fund you, right? He said, I don't wanna scale. I do 30 kids, I don't want even 31 kids. I don't wanna take outside money, none of that. So I'm the shameless cloner. So I told him, Do you mind if I clone your model? He said, no, this is a very good thing. I think you should clone it. It'd be great. I'll help you in any way I can. So I took his model and that's what Dakshina is. So we are spending, Dakshina spends about $3 or $4 million a year. Just imagine what the output of that is. Right. You know, when you look at it from each family and then you, and we're doing $3, $4 million, we've been doing it for 17 years. So basically what we get out of $3 million a year, a lot of other nonprofits would not get out of in $100 million a year.

Right.

So we actually, you know, have a footprint that is much larger than what it should be in terms of impact. Right. And to take it back, it's a math game.

Right.

So basically, We, we had 2 or 3 things that were important, and that's how I looked at this. The first was the yield. So the IITs accept 1.3% of the kids who apply. They accept 70% of our kids.

That's amazing.

So now what I'm doing is I have a game which puts 2 models together. So one day before I die, I want to have $10,000 left. Okay, so basically inheritances just don't do much, right? I mean, my kids already have, they're doing well.

Yeah, what is your philosophy on that?

So, well, in general, large inheritances are going to do more harm than good. And, you know, basically you don't want a person to be on an IV drip for their whole life. I mean, that's just the worst thing you can do to someone. And so Buffett has a great quote. He says, I want to give my kids enough money for them to do anything they want, but not enough to do nothing. Okay. Okay. So because I am investing for a living and we have this kind of compounding going, I'm going to end up with more than I need. I mean, basically I don't need to spend any more than I'm spending. I could not increase happiness by spending more. So there's no point to spending more. I mean, I'm, very happy with the lifestyle and everything else, right? So everything else basically needs to get recycled, but it needs to get recycled at high returns. So on one hand, I have a compounding engine and a net worth that's growing. On the other hand, I have to give it away. So God Google told me that on June 11th, 2054, I'll be leaving planet Earth.

Okay, so you asked AI, what did you do?

If you go to God Google and just say, hey, I'm, you know, 52 years old and tell me when I'm gonna die, he will tell you. Okay, and now that we have the date, so, you know, my birthday is June 12th, just to make it poetic, I made it June 11th. Okay, okay, so we have an exact number. So basically, 2054 means I've got like, 29 years and change left, right? And at any kind of compounding rate, it's a ridiculous amount of assets that get built over time. But I want to end on June 10th with $10,000. Okay, so there's one game, which is to give it away, and the other game is to make it. And we need the two curves to be where the giving away becomes probably in the next few years needs to become very much more dominant.

So, right.

Like the $3 million a year needs to go to $5, $10, $15 eventually, and so on. And so for me, you know, it's the same as playing blackjack. It's just a math game. These are both math games, right? And yeah, there are a lot of families getting helped and my investors are happy. And so then that's fine.

Okay, so what was your blackjack system? I'm skeptical.

So the blackjack system, it would destroy the casino. They would have to either change the game or something. But basically, I'll give you some pointers of kind of what's going on here. There's a publication called BJ21, bj21.com. Okay. If you go to bj21.com and you give them $100, they're gonna give you a PDF. It gives you the odds of every blackjack table in North America. Okay? So for example, if I go to the Wynn Las Vegas, right? The Wynn Las Vegas has a bunch of different blackjack games, single deck, double deck, 6 decks, whatever else. Every single one of those, it gives you the odds if you play perfect blackjack. And these odds vary depending on how competitive. So if I'm going to some, you know, riverboat in Indiana, I'm not gonna get the same odds as Vegas. Vegas Strip is gonna be more, more efficient because it's more comparative. So usually the house will end up with something like a 0.3, 0.4% all the way to like 2% edge over the bettor, which means every bet you're making, if you make a $100 bet, every bet you're making, you're losing your 50 cents or whatever. So there's a casino in Vegas called the El Cortez. And the El Cortez is a small casino. So in order to kind of induce people to come, they kind of improve the odds.

Okay.

Still in their favor. But the single deck game at the El Cortez has the thinnest house edge of any blackjack table on the planet. Okay. The house edge is 0.18%. Okay, so if you look at that BJ21, all of that, they have the edges of every table. This one is the lowest, right? So this is a very thin, and I have a system which took them a long time to figure out. They play single deck blackjack, right? But they only deal half the deck. Right, then they shuffle. So the reason they deal half the deck is so they can, just make it difficult for the counters because you may be counting cards, the deck becomes very favorable, but then they shuffle. Right. Right, so the high cards at the back, but they never get dealt.

Right.

So the counters get screwed, right? So I had a system where it basically relied on the fact that blackjack occasionally has streaks. It has streaks where you may win 6 or 7 or 8 hands in a row. Or you may lose 6, 7, or 8 hands in a row. And what I did in the betting was that usually when I was losing, it was always the minimum bet. And when I was winning, the bets were increasing. So with the variance of that, what happened is I was able to overcome the 0.18, right? Right. So I don't want to give more than that. Sure, sure. That gives it enough. And what I'm going to do is when the cameras turn off, I'll I'll explain it to you.

Okay, great.

So when you go to next time, when you go to the Al Cortez, but now what happens is, so what happened with them, what really confused them, which they had never dealt with before, is normally what the counters do is on a brand new shoe, it's a low bet.

Minimum bet, yeah.

In my case, there was a brand new shoe, there's a high bet. So they said, we just shuffled.

Right.

The whole deck is there. There's no odds edge he has on that deck because the entire deck is there. Right. He has a high bet.

Did they ever figure it out or did they just— They figured it out.

It took them, so what happened is I'm playing blackjack, the general manager who's very friendly to me comes and sits down next to me and tells the dealer, stop dealing. Okay, so she's in the middle of a hand, she just continued dealing. He says, he screams at her, stop dealing now. She never heard that before. Okay, like literally middle of the day, she said shuffle.

Right.

We're done. We're not dealing anymore. Then he tells me that, Mr. Pabrai, I like you. Okay? I read your book. I watch your videos. And you have a system that we cannot beat. Right. So I told him, I said, you know, I'm not counting cards. He said, that's what threw us off. He said, we know you're not counting cards. And we know you'll beat us. And so you can come to this casino anytime you want, but you cannot sit down at a blackjack table. Then I'm thinking, why would I come here? Okay, why would I come to El Cortez if I'm not going to play blackjack? And so that was— but whenever I go someplace to talk or something and they're introducing me, I always tell them, listen, just say that I have a lifetime ban in Vegas. Yeah, I mean, street cred through the roof. I really don't care about everything else on my CV that's really irrelevant. And that's what's relevant.

It's just like if you get into Harvard, wow, that's impressive. You're a Harvard dropout? That's the higher status signal. And so you're good at blackjack, made money in blackjack. I was banned from a casino. That is the highest status.

Yeah, so I mean, I took them for like about $150,000 or something. And you know, this was a very low table limit. The table limit was only $2,000. But at $2,000, I took them. So they said, okay, we're done. You know, I love it.

You've run into all these characters. We've talked about Warren, we've talked about Charlie, but I want to know about some of the other characters. Your stories are amazing. I could listen to your stories all day. So, uh, Michael Burry, one of my favorite movies is The Big Short, and Michael Burry is this kind of mysterious character. Did you ever meet Michael Burry?

Well, so what you're going to end up when we finish this conversation is you're going to know that my middle name is Forrest Gump. Okay, that's really where we're gonna end up. So, you know, I always tell people that God loves me. He loves me more than other people, and I'll explain why, right? In 2008, okay, so the financial crisis is not yet happened. It's like March or April of 2008, right? So things are getting topsy-turvy, right? And I was visiting San Jose for some, something. I was going to San Jose and I knew Michael Burry had an office in San Jose and I didn't know him, but I sent my email saying, you know, Mr. Burry, I like you, admire you, et cetera. And would love to visit you.

So he was kind of well known?

That's, I mean, what, where does that rank in terms of like, you know, sort of the best calls or, you know, foresight in terms of that you've seen in your career? Was—

Well, I mean, I think this has happened to me a lot. I mean, in the sense that, like I said, you know, we put 98, 99% or too hard pile, right? Even now, I think it was right of me to not do anything with it because I couldn't understand it. Right. Even after the financial crisis, it took me a while to understand the CDSs. Right. And all these tranches and how they were like doing all this stuff and all that. I mean, that took me a while to like really get my arms around it. And even after knowing all that, I would've been skeptical about making that bet. So hats off to him. I mean, he figured it out. A few people figured it out, but it was a very small number of people who figured it out.

Right. Tell me about the greatest investor from India. Who is the greatest investor from India?

Well, the greatest investor from India would be Rakesh Jhunjhunwala. I never met Rakesh. I mean, I know his friends quite well. Guy actually met him. Guy actually went to his office and met him. Wonderful guy, died relatively young a few years back. But Rakesh was a very interesting kind of split brain in the sense that he'd have like 3 or 4 Bloomberg screens in front of him and he had all these charts and everything going on, rapid-fire trading going on. But on the other hand, he had these 2 or 3 stocks that he never touched. So he had, I mean, I don't know anyone like that who's, okay, who's, and he was great at both, but the ones that he never touched, I mean, they just went through the roof. Like there's a company in India called Titan Industries and Titan Industries does branded jewelry. Branded jewelry basically didn't exist in India, you know, it was all mom and pop. Yeah. There was a trust deficit, right? So you go to a jeweler in India, and in India they have like 22-karat gold, right? And you're buying the gold, you don't know whether it's half gold, 80% gold, or what the hell is going on, right? The jeweler knows, but you don't, right? The Titan brand is owned by the Tatas, who have very high integrity. So basically they were able to take a sector which had a huge trust deficiency, and I mean, they've, I think Titan is still in its infancy, right? And I think Rakesh made a huge, huge— I mean, Rakesh, I think, compounded at north of 40% a year for several decades. It's unbelievable. And, you know, he started with like, uh, $10,000 borrowed, you know, didn't even have that on his own. Someone lent him the money.

What made him great? Was he a brilliant mathematical mind? Was he, you know, because what was the trait that really helped him?

So he was a trained CPA, India's equivalent CPA, Chartered Accountant. So he obviously understood numbers well. And just before he died, so he had figured out that Indigo, which is a low-cost carrier in India, they have like something like 70% market share growing very rapidly. It might become the largest airline in the world. I mean, they've got like 1,000 planes on order or something. Okay, so they're growing very fast. He had done well as an investor in Indigo, but then he took the next step and he set up a clone of Indigo. I mean, just think about the guts you need to set up bloody airline, okay? From being a passive investor. And while he was dying, you know, he was like in bad shape in hospital and all of that. And that airline's up and running and cranking and all of that and doing great. So, If he had lived longer, I think he would've gone not just as an investor, but also shown that he could be an operator.

You said something like if he had lived longer, this idea of like runway and how early you start. Yes. Matters a ton. Even Buffett, I think you've said that if had he not been giving away so much money along the way.

Oh yeah, he'd be the wealthiest guy.

Yeah. He'd be the wealthiest guy in the, in the world right now.

Yeah.

And I guess when you, when you go talk to people, are you just sort of like, you know, you should have started 30 years ago? Is that the number one message?

What we started our conversation with, right? I think the important thing is that if there's a young person listening, the funny thing is that if you look at the rules for an IRA or a Roth IRA, there's no minimum age. You could be 6 months old and have an IRA. Right. The only rule is that you can only put in wages that you earn. And I was just reading in the Wall Street Journal, there's some entrepreneur who's hired his kids who are like 4 years old and like 6 years old to do like different things in the business because he's putting like $6,000, $7,000 into their Roth IRAs.

Which is equal to their W-2 earnings. Probably stretching the limits of what he can get away with with the IRS. That's beautiful. I mean, the thing is that, but even if you're not doing that, if you start at 22, I mean, that's the important thing is that when you start earning at 22, a small amount saved at 22 is more important than a larger amount saved at 32, right? Because you get started earlier. So it's really important to have the whole spend less than you earn and put it into Berkshire, set it and forget it. Right. Yeah, because then if you start at 22 and you're 22 today, you're gonna live over 100. Right. You know, you're gonna go to 100, 110 by the time, you know, because all the advances taking place, that's a 90-year runway. I mean, a 90-year runway is something. I mean, if you're talking about even a 10% return, We are only going to look at doubles, right? So every 7 years, that's 2 to the power of 13. 2 to the power of 10 is 1,000. That's 2,000, that's 8,000x, okay? The first $10,000 you invested is at $8 million. The second $10,000 is another $8 million. You know, so the thing is, it's a mind-blowing amount of money. If you start early. So the length of the runway is really important.

Do you pay attention to the macro? Because, you know, my head starts to spin. Interest rates and then there's wars and there's all these different factors that you could pay attention to. And there are some people who really pay attention to that. Do you pay attention to the macro?

No, because I can't handicap and I wouldn't know what to do with the information. So I always try to keep the bet simple. I need to be able to explain to a 10-year-old in 5 sentences. Right. I'm not going to be able to figure out the macro. That's why I couldn't make that CDS bet. Right. You know, it was like so much stuff going on about housing's going to crash, this is going to happen, that's going to happen. I mean, I just couldn't get my arms around it, you know?

In my world, everybody's talking about AI. Do you think about AI at all?

The problem is I bring nothing to that party and I'm probably going to get my head handed to me if I try to participate. It's not in the no-brainer category. It's not something where I have an edge. Of course I do believe that it's transformational, but you know, I knew the internet was transformational. We've known electricity is transformational. We've known the app store is transformational. But in investing, you can do extremely well without understanding all these things. You go back to John Ariega, you know, don't understand any of these things or even Warren Buffett. And, and you know, Apple, Apple is in the rearview window. They sold most of it. Yeah. They might have sold all of it by now, but basically that was a one and done. But basically, yeah, I think that we don't need to understand flavor of the day. We don't need to understand NVIDIA. We don't need to understand AI. If you understand it, more power to you. That's awesome. And if you know how to leverage that understanding into dollars you can make, that's even better. But that's not me. So we all have to play to our strengths. Yeah.

Okay. Well, Manish, this has been incredible. Part 2. I'm happy with it. This is— I asked you at the beginning, I said, is this like one of those Hollywood sequels where the first one was incredible and the second one, they just, they just did it? But no, I think we did a good job. I think the sequel was, if not better, at least as good.

No, it was fun. I enjoyed it. It was awesome.

Awesome. Thanks for doing it.

Okay. Thank you. I feel like I could rule the world. I know I could be what I want to. I put my all in it like no days off. On the road, let's travel, never looking back.