Mohnish Pabrai: This will save you 10 years of bad investments

What percentage of Americans who invest in stocks do you believe are good investors?

Well under 1%. The game we are playing is transfer wealth from the active to the inactive. If you have that type of a temperament, it is orgasmic activity. Okay. If you are even a slightly above average investor, you can't help but get rich over a lifetime.

What's the mistake that smart people are making?

Many people die at 25 and are buried at 75. I saw Charlie make investments 6 days before he died.

This is like life advice disguised as investing advice. Yeah. Just quick reaction, bullish, bearish on the S&P index right now?

Bearish.

AI, how do you think about it as an investor?

Invest in the pickaxe makers because the Alphabets and Metas of the world are playing a game they haven't played before.

So I want to ask you the hardest question, which is Mohnish, round 3. Here we are, elevated as always. We're on the pitch. What percentage of Americans who invest in stocks do you believe are good investors?

Well, under 1%. But why is that? But the good news is so a large number of investors invest in index funds, right? And index funds give you a great return without doing any work. So you don't need to be a rocket scientist or understand businesses or any of that, and you get a pretty good outcome.

Are you counting them in the 1% or are you saying that's a step?

No, I'm talking about the ones who are actually picking stocks, right? And so I'm just saying that you can take the approach of buying an index fund and you're going to be ahead of 90+% of the crowd, right? Which is awesome, right? I mean, just think about doing some activity which takes no brain cells and getting ahead of being in the top 10%, right? But if you decide that you want to actually study businesses and then invest in them after studying them, in that universe of people doing that, there'll be a very small sliver who would do well with that.

Yeah. What's the mistake that smart people are making when it comes to investing?

It's not a mistake, it's the lack of patience. So most of the nuances that would lead to a great investment result have to do with temperament. They're not related to IQ or other things, but they have to do with temperament. So it all comes back to watching paint dry, right? So When we make an investment in a company, nothing may happen for 3 years or 5 years. You know, it's just the nature of the beast is that it may not do a whole lot for a while. And also sometimes you made a, in fact, many times you made an investment, it's a mistake and you need to at some point reverse that mistake. So there is activity needed appropriately. But basically, the less the activity, the better the outcomes.

You gave me one of the commandments, one of the truths about investing, which is thou shall enjoy watching paint dry.

Yes.

I asked— I called your daughter in research for this podcast because I knew you were very into mental models and these frameworks of ways of thinking.

Yeah.

That produce benefits. I said, what's one that he loves? And he said— she said, the mistress is always hotter than the wife. So explain.

I didn't want to say that in front of my daughter, but unfortunately I did.

That was the first one she mentioned.

Yeah. So what we own is the wife. We live with her every day. And what we don't own is the mistress.

Right.

And the unknown has exciting attributes. And so one of the things we have to keep in mind is the wife is someone we know extremely well, and we may be discounting some great attributes she has. The mistress is someone we don't know very well. She just looks hot.

Right.

The idea of the wife versus the mistress is you have to have a very high bar for action. It's not that there is no action. Yeah, it's that the bar needs to be very high to have the conviction level. You need to become comfortable passing on everything below that bar.

Yes.

And I think in general, most of us would do well to raise our standards about all things in life, the people that we're around, the investments that we make. Exactly. This is actually like life advice disguised as investing advice. Yeah, right.

My dad used to say that to have a great life, you need one good wife and one good friend. And so less is more. Buffett says that if you hang out with people better than you, you get better. And if you hang out with people worse than you, you get worse. There's a gravitational pull either way. So the good news is we don't need many of these, but what we should be doing is we should be trying to make sure that our relationships are ones with people we have deep admiration for, people that can make us rise. Right. And I feel that, you know, I randomly stumbled onto investing. I'd never been in this field, etc. And I remember— so there's another mental model which is a very powerful model.

All right, let's take a quick break because I got a little freebie for you. So if you listen 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 can read that, learn from it. That's a much better way to get more value out of these episodes. It's in the show notes below. Just go download that and enjoy.

Pre-filtered.

And so when I look back now on my life, so much of it has come from the whole Buffett orbit, right? And the Buffett orbit, what I realized is when I got to know Charlie Munger and I started playing bridge with him, I got to know Charlie's friends. I used to have dinner with him, and one by one I met a bunch of his friends. Charlie's friends were some of the highest quality people I've ever met. They were much older, but I worked on, you know, building those friendships. And that was such an awesome thing, right? And literally every time when I talk to some of these guys, And the way the conversation goes, I said, wow, you know, hang out with people better than you, introduce randomness. So this is what Munger calls the latticework of mental models. So when you start putting these things together and you start using them all at the same time, that's when 1 1 becomes 11. Or if you put 4 models together, it's 1 1 1 1 is over 1,000. That's when you start getting what Charlie calls Lula-Palooza effects. And so then that's when you get a huge leg up on humanity. There are other people who may be a lot smarter, other people who may work a lot harder. Let's take Elon, for example. So I forget what he calls it, the idiot factor or something.

But he had index.

Idiot. Yeah, the idiot index, right? That's right. So what he says is they look at some part, that they need and they'll say, oh, this part is, you know, $5,000. So Elon says to them, what are the materials that go into this part?

Raw material.

He literally published the book.

And what you need to do is also known. But after knowing all of that, there is no movement towards that, right? There's no movement.

By the way, we wouldn't be here right now if not for cloning. So the story of this set right now is that my friend Chris, Chris Williamson, he did a podcast here. He sent us a video like, oh, I'm doing this crazy shoot, LED wall, 3D. I got this. Film crew here, blah, blah, blah. He sent us a video of it and I was like, wow, that looks cool. But my first reaction was, buddy, it's a podcast. What do we do? What are we doing? Why, why do you— does anyone really care if it's in IMAX 4K? Like, does that really make a difference? And you know, that seems like a lot of effort, a lot of cost. I sort of wrote it off. So then it comes out, first time I click, and then I see— not even before I click the video, I see the thumbnail. I'm like, wow, that looks different. So I click. Because I'm a lizard brain human. And if something is different, interesting, I click it before I even think. And then I'm looking at it and I'm watching this thing and it's interesting and it's entertaining. And so immediately I recognized, oh, a mistake on my part. Like, I thought, I thought this was not important. Turns out actually this is important.

So you had to travel a little bit in the sense that your first reaction was stay in your comfort zone. Right, right. But the second leap you made, which is after seeing it, you acted, right? So from admiring it to acting it is a huge leap, right? It's like 90% of humans will not do that. So Sam Walton, not that smart a guy. Okay.

Very founder of Walmart.

Yeah. Very hardworking, all-American, but not that smart. Okay. And no original ideas. Okay. Every single thing at Walmart came from somewhere else. Okay. Everything was copied. He goes to meet Sol Price, who's the founder of Price Club, which is the predecessor to Costco. And he meets Sol Price and he looks at Price Club and he says, no brainer. He sets up Sam's Club. Okay. And Price eventually sells to Costco. And so now we have Costco and Sam's, right? And Sam Walton would tell you in 10 lifetimes he could never come up with the concept of a Sam's Club. Right. He could not come up with the concept of a Walmart. Walmart came from Kmart. Sam Walton said, there is no human who has come before me who has stepped into more retail stores of my competitors. Than I have, right? And no human after me will ever beat that record. Okay. So anytime he traveled anywhere, he was going on vacation with his family and saw— he's passing some retail store, he'd stop his fam, stop the car, tell them, hang on here, go do his 15, 20-minute tour of the place and come back and make notes of what he saw. Right. One time he takes a bunch of his managers into one of the neighboring competitor stores. And they come out of the store and one of the managers says to him, Sam, that was such a poorly run operation because they could just see it was just a mess compared to where Walmart was. And then Sam says to him, yes, but did you see the candle display? The candle display was fantastic.

Finding the one golden nugget.

I believe it's more than the next 15 car companies combined.

All of them combined. You can take the whole industry combined. You know, they won't, they won't get there. And on SpaceX. So if you look at Blue Origin and you look at SpaceX, They have completely different approaches to how they do things. SpaceX wants to blow up rockets. Their focus is to blow up rockets. Blue Origin focuses on not blowing up rockets. And he's miles ahead.

Right.

And in fact, he's clobbered the industry. You know, the whole landing, landing these things backwards and, you know, reusing them and all of them. People laughed at him at that. And he got it done.

I'll give you a story of two of your models combined, as you said. So introduce randomness. There was a period of time after I sold my first company, I was thinking about what to do next. I kept shuffling through ideas, couldn't figure out which one to do. And I realized I'm sitting here in San Francisco and I'm meeting the same people, talking about the same things, going to the same tech events over and over and over again. And I had this gut instinct of I need to introduce more randomness to my life. So I hear about this event called FarmCon, a farmers conference in Kansas City. Sign me up, I'm going. So I go and I'm the only tech guy. I'm the only, you know, I look out of like a literally fish out of water. Dress is, I'm dressing wrong. I don't know anything about farming. I even get there and I'm like, I don't know what the hell I got myself into. I took Ben with me and we're sitting there, they're talking about soybean futures. I don't even know what soybeans are. And so I, we're completely out of water, but it was a great way to just shake up the snow globe a little bit, introduce randomness, some serendipity. When we're there, we meet this guy, and his name is Kevin Van Trump, and he was the guy who owned this conference. I was like, how'd you get all these people? How'd you get so many farmers to come? There's 4,000 farmers here, and they all love you. How do they even know you? And he said, well, I've been writing this newsletter for 20 years for farmers. Half of the thing is just memes, just funny jokes, because the farmers just want to laugh in the morning. And then half of it is his letter about, like, what's going on in the markets today for farmers. And so we're sitting there and we, we essentially leave one of the conference rooms and we decide to clone because I had met with you for the podcast and you had this great analogy of who's the dumbest guy in the world. And we decided that the dumbest guy in the world is the guy with the gas station across the street from the more successful gas station. And it's like, you could be unsuccessful, but if you're staring at the gas station across the street and he's winning and he's doing everything right and you're just not doing those things, That's on you. Yeah. And so I'm sitting here, I'm watching Kevin Van Trump, and he's got his newsletter for farmers. And at this time, crypto had just started becoming very interesting. I said, you know, Ben, what if we created a newsletter for crypto just like this guy's done for farming? We'll do it for people who want to keep up with the crypto news. It'll be half memes, it'll be half news.

Yeah.

Oh, great.

And we sold it for millions of dollars and never hired an employee. We had one employee. It's like the best business I ever did at the time, just in simplicity. Yeah. And it was all because we strung together two of these models, just introducing randomness and then cloning on top of that.

I think that humans complicate things a lot, but I think that if you All right, let's take a quick break.

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McDonald's had this whole big department on figuring out where to put the next McDonald's, right? Location's very important. Burger King had two guys, they just looked at where's the McDonald's going. And they would look at where McDonald's are going, they'd put it across the street, right? And that was their model. Phenomenal, because all the work's already done. You know, cloning gives you a huge advantage. Now another bedrock model, I think no mental models work without this model, which is take a simple idea and take it seriously, right? This is, to me, none of the other models, cloning or not using Excel or anything else, works unless you buy into this first model. So you have to go all in, right? I made my first trip to Turkey purely on a limb, kind of like you going to the farmer's conference. Just because it was screening cheap. And I said, I just want to take a look at this market, which is screening so cheap. And that was in 2018. What I learned is that the average Turkish company, public company, cycles through its float every 17 days, which means like, let's say a founder owns 40% of the company, the other 60%, the shareholder base will just turn over. Literally about 4% of the shares are trading every day. Okay. And every 17 days you got new set of shareholders. Okay. Buffett has a quote that the stock market is a mechanism to transfer wealth from the active to the inactive. Okay. This is hyperactive. Okay. Now, if you look at something like Berkshire Hathaway and you look at how frequently its shareholder base changes, it might be the slowest in the world. It might be like 10 years or something or more. For the float, right? And here you have 17 days, okay? And then I even looked at places like India, right? So I actually compared Turkey and India, and what I realized is in Turkey, almost all the investors are gamblers and speculators. They want to buy at 10 o'clock, they want to sell at 3 o'clock, and they want to make 10%. That's their model. Okay. Whereas in India, what I found is that out of 5,000 public companies, there's maybe 100, 150 companies with good governance that are investable. And a lot of research has been done on those by a lot of smart people in India, and they've pounded into those companies and they trade at stratospheric valuations. Very expensive. I would look at a Coke bottler in India and I'd look at a Pepsi bottler in India and I look at a Coke bottler in Turkey and the valuation differentials were massive. Same business. And I'd look at an airport operator in Turkey, airport operator in India, huge valuation differences again, because here everyone was looking for long term and all of that.

So you're picking like poker tables to sit at.

So when you take the first model, take a simple idea and take it seriously, I said, India, zero. We're not interested. Okay. Even though I'm Indian. Turkey, I'm going all in. And so what I decided is to be an inch wide and a mile deep. And so I said, I understand the nuances of the Turkish market. I want to study everything in here. I want to be the person who's— this is my Moody's manual, right? Go through every single thing. Right. And what I found is whether it's a useless company in Turkey or a great company in Turkey, they're all cheap. So this is great. We'll focus on great, right? And no one's interested. You got all these people like buying and selling shares. And so we were able to make some investments which we couldn't have made anywhere else in the world at valuations we couldn't have made. You know, just the simple thing of the take the first model and it gives you an edge. So I think the mental model just carries so much weight that it makes your journey very light, right? Because they just carry the, they do the heavy lifting, right? And all you have to do is not violate them.

So I wanted to ask you about violating them because sometimes I could see a world where they clash.

Yeah.

Or that the definitions get fuzzy. So for example, one idea is invest in your circle of competence. But like with Turkey, it wasn't your circle of competence. You sort of made it your circle of competence. So in that sense, like, how do you think about that? Like, because it sounds like some of the best bets for you and others have been where you decide to go get smart about a space, but you were a complete beginner in that space maybe 6 months prior.

Well, so like, for example, before I went to Turkey, I had already studied Coke and Pepsi bottlers. I'd studied the Coke and Pepsi business quite a bit just because Buffett had made the investment. And the Coke concentrate syrup business is phenomenal. It's a software company, you know, it's just 80% margin. It's a great business. And the, the bottlers, not as good a business as Coke, but they are oligopolies. And most of them do really well as well. I mean, they have more CapEx and all that, but it's a good business. So when I'm looking at a Coke or Pepsi bottler anywhere in the world, one of the things to keep in mind is they had to be approved to become a Coke or Pepsi bottler. And Coke and Pepsi are very anal about who they're going to allow, especially at this stage, because they've got global brands and all that. So to me it was relatively easy that— so when I went into, for example, the Coke bottler in Turkey, it wasn't surprising to me that the management team was super high quality. The management team was multinational. They weren't Turks, like the CFO from Ukraine, right? And he had worked in Delhi before that and all of that. So you could just see that this was a global team running this business and all of that. So similar to the airport operator, I looked at other airport operators. So I started by using guardrails, right? And I focused on the, the simplest businesses, which were ones that were the easiest to understand. And one of the things about investing to also understand, the businesses that you spend the least amount of time studying tend to be the ones that make you the most money because they tend to be the simplest, they're obvious and all of that.. But yes, you have to couple the circle of competence with the introduction of randomness, right? And so those two are not in conflict with each other. The introduction of randomness is how you grow, and that's how you may actually— the circle is going to expand over time, naturally gonna expand, but you don't need to focus on expanding it.

In your book, you have some great stories. The one I remember is the American Express—

the salad oil crisis. Salad oil crisis.

I didn't know about this. It's a little bit before my time. Tell this story. It's an amazing story.

American Express at that time had, they've always had a number of different businesses that we don't think about. One of their businesses was asset-based lending business. And there was kind of a crooked guy. He basically got them to finance his inventory of salad oil where he said, I've got these warehouses filled with salad oil.

This is not a finance term. Literal salad oil.

Yeah, salad oil, right.

In barrels. Yeah.

And so they financed it and there wasn't any salad oil, it was seawater. Okay.

So somebody figured this out. How did they know this was, there was just seawater in the barrels?

40%.

40% into a single stock. It may have been about $40 million, $30, $40 million of capital. So maybe like $10, $15 million or something went in. The crisis abated. You know, Amex started to kind of get their balance sheet kind of straightened out and all of that. And of course, the stock eventually, because these businesses were fantastic and their credit card business at that time was growing gangbusters. You know, it was just on a rocket ship. Eventually the stock, and you know, the interesting thing is he met Walt Disney once just before Disney died. And then he felt funny. He went to see Snow White. He said, I went to see Snow White with my briefcase because he said everyone else is there with their kids. I went to actually study the business. Okay, study what Snow White's all about. I think he owned like 5% of Disney. And of course for him at that time there was no buy and hold. It was just, you know, look for the next cheap thing. So he, he had a significant ownership in Amex, significant ownership in Disney. He sold all of these at a good profit, right? But he could have just carried them on. If he had kept them for 20, 30 years, they would've done extremely well.

I'm trying to piece together this puzzle of What are some of the traits or some of the behaviors that can lead to great investing? When I think of investor, I think of finance, strategy, numbers, Excel spreadsheets. That's where my brain goes. That's the mental model, the picture I had in my brain.

Yeah.

When you're describing, it's like he goes to the movie theater to observe. He stands outside the restaurant, he asks the guy a question, and these are not spreadsheet— this is like Journalism. It's research. It's firsthand research. It's maybe gut, I guess, for you. Do you do the same? Teach me about that.

Right.

Right. So basically that is the nature of investing is that the game we are playing is there is continuous activity of a different kind than the way an entrepreneur, but it is orgasmic activity. Okay. If you have that type of a temperament.

Right, right.

If you really enjoy looking for needles in haystacks.

Right.

Then the payoffs are huge.

At the Berkshire meeting, Buffett had this line I loved. He said the stock market is like a church with a casino attached to it. And he said, seems like a lot of people— that casino is getting crowded. Yeah. Seems like a lot of people are visiting that casino. Nowadays. And I'm curious what you think about that, and especially in the context of you've got prediction markets and Robinhood and options and two-day options and leverage. And there's so many ways to play the casino.

And I think all of that, from my point of view, makes it better for me.

The wealth transfer.

Exactly. I mean, the thing is, the more hyperactive people get, the better it is for me. And I mean, it is unfortunate because the stock market serves a very important function of allowing gifted leaders and entrepreneurs to get the capital to pursue their dreams. I mean, that's really the reason why we have capital markets, right? Is basically to funnel capital to the best uses, best uses of the capital. And of course, the side effect of that is that you have all the casino activity that comes with the church. And the interesting thing is that after the, there was a big bubble in the UK, the South Sea Bubble, where there was a big speculation orgy and prices went crazy. And then eventually a lot of people lost money. The British government's response to that was to ban public markets for 200 years. So interestingly, like even when there were no public markets, a number of great businesses got created in the UK and capital still found its way to them. So it doesn't always need to be through an auction-driven market, but the main purpose of the New York Stock Exchange and the Hong Kong Stock Exchange and so on is to funnel and allow the capital to go into the Teslas of the world, go into the SpaceXes of the world. And allow those businesses to improve the lot of humanity. Right. And of course, the side effect of that is there's all the casino activity going on. And as we've seen with Robinhood and so on. And so it's a negative for humanity. And the more that becomes prevalent, that's more negative it is. But I, when I look at it from an individual point of view, like from my own self-centered, self-interested point of view, the more the merrier, you know, that's just going to be more helpful to someone like me.

I don't know if this is fully accurate, but New York Times said this on Polymarket: 0.1% of the users have 60% of the profits right now. And so they said some number like 2,000 traders had made like half a billion dollars this year. It's just 2,000. Yeah. So it was an immense wealth transfer from the casual gambler to what's likely an insider just sitting there who has more knowledge or a bit of a sharp. Who's being more selective?

Well, the simple, the simple thing is, so if you, if you look at something like horse racing, the track takes 21% of every dollar because, you know, physically paying for horses to run is expensive. Whereas let's say if I go play blackjack at a great game in Vegas, the house has a 0.2% or 0.3% or 0.4% edge. So every time a gambler bets, 49.5% or more is coming back to them, right? It's a 49.5% odds that they will win that bet. It's a pretty decent, whereas in horse racing, you've already lost, the 20% is gone already. But the thing is that there are people who make a livelihood only betting on horses. And the way they make the money is the same as what's happening in Polly Markets, which is they watch all the horses and all the races and they pick the one where the odds make no sense. Right. So they know the horses, they know the races. And because the odds are set based on how much is being bet, right? Just like the stock market or the way you're betting against the other bettors. Yeah, you're betting against the other bettors. Right. And that's what's happening in Polly Markets as well. Right.

I was looking through all the stories you've done, and one of the craziest ones is that you paid $650,000 to have lunch with Warren Buffett. Was it worth it?

So what happened is in 2007, my net worth hit, I think, $84 million, and most of it was because of the intellectual property of Warren Buffett, which I had paid nothing for.

Right.

Right. And I felt like I wanted to thank him and just look him in the eye and just say how grateful I was. Now, when Buffett does these lunches, his agenda is that whatever someone paid, they should feel like they got a bargain. And so from his point of view, he just wants to make sure that there's tremendous value delivered. Right. So before we met for the lunch, There was about a kind of 1-year gap between the time I won and we actually sat down for lunch. So his assistant had asked for bios of everyone who was attending, and he'd studied all of those. So when he got there, he basically told us, my entire afternoon is free. So whenever you guys get sick and tired of me, just let me know and I'll leave.

What was the one thing you took away now, 20 years later?

Yeah, I made some notes after the lunch, and I think we had a total between everyone about over 50 questions that we asked him. And of course, you know, Warren has this great skill of taking lemon questions and converting them to lemonade. So sometimes I asked him questions which were just innocuous questions, just an update. Like I asked him, for example, what happened to Rick Goran?

Explain who Rick is for people.

I've thought about that one a lot. I think I read in his biography, I think he called that The most important lesson his father taught him was to live life with the inner scorecard. How does one do that? How do you go from going from the outer scorecard to inner?

You've got critics who are very harsh, right? Who want to pull you down and taking you below where, you know, reality is. So one of the things I frequently run into is I've met people who criticize Gandhi a lot. Criticize Buffett a lot, criticize some folks that I think have lived remarkable lives, right? And they nitpick at, oh, what about this? What about that? And so the way I look at it is I say, okay, if they can criticize Gandhi, then I'm fair game. Okay. So, you know, just understand that the Gandhis of the world being criticized. And so don't be shocked when you are too. Anytime you have any kind of a public presence or anything else, you are going to get all of the above.

Berkshire has something like almost, what, $400 billion in cash?

Yeah, $380.

Yeah. What are they doing? What are they waiting for?

Well, I mean, I think that this has been the history of Berkshire where the cash will build up and then they'll find opportunities and they'll put it to work. They're not suffering right now because treasuries are playing pretty well, so they're making decent money. But the second is that we get dislocations and we don't know when these dislocations come. We had dislocations during COVID We had dislocations in the financial crisis. If I were to make a guess, I would say that 5 years from now, the cash may be half or less of what it is today. Mm-hmm. Berkshire used to be run by a great capital allocator. Now it is run by a great operator and a pretty good capital allocator. Berkshire's gonna get phone calls. And Warren used to say that when they call you on a Saturday, that's when you know you're gonna make a great deal. He said the Saturday calls are the best because it's the most desperate call, because usually they need, things are at its worst. They need the deal done before Tokyo opens on Sunday night, US time. So when there is a crisis and Berkshire is a little better known now than it used to be, Greg will get the call. And, um, you know, the investing game is interesting because you need extreme patience with extreme decisiveness. Charlie used to say it's like standing by a stream with a spear looking for salmon going by. And he says, you know, you might be there for a while., but then suddenly a juicy salmon comes in. And when a juicy salmon is passing by, you have to act fast. You can't start contemplating your navel at that point. Right. Right. So you have to be very patient where you have the spear and you don't know whether it happens in the next 5 minutes or the next 5 hours or the next 12 hours, but you're ready. Right.

In your whole investing career, what one investment has been the best for you?

So I had two more than 100-bagger investments, which went up more than 100x before I started the funds. So I started investing on my own in '94 or '95. And then by the time I got to 2000, I had two businesses. One went up 140x and the other went up about 100x.. And in one case, I had invested about $10 million— no, $10,000. I had $1 million in about '94. So I invested just $10,000 in one business. It became $1.4 million. But there was another business I invested in which became more than $10 million. And so these two were the outliers. So the original million became like $14 million or something, but it was driven by these two investments. More recently, the company in Turkey that we bought at 3% liquidation value, it's just about hitting 100x now.

Which one is that?

That's Reysas.

That's the warehouse?

Yeah, the warehouse operator. Okay. I mean, so what happened there is that we were buying a company I think when we first started buying, it was a $15-16 million market cap. Liquidation value was about $800 million.

And what was the big misunderstanding? Like, you know, you've told me these words before. I look for what's hated and unloved, or where people have confused risk with uncertainty. Or was it something else in the Turkish market? Why was it trading? When you say 3% of liquidation value, that means the price of the business. There's 30x that in just the assets that it owns if it had to liquidate everything. So 30, 33% or whatever.

Turkey was and even still is in such a weird state that it's hard to believe. So for example, at that time the company was trading at— what should have happened with a company like that was that the owners should have taken it private.

Right.

And the owners of the business did not have a good understanding of buybacks and taking it private. They are very good operators and they went to the public markets to raise capital so they could grow. They got the capital, they were growing, they never cared about the stock price. They've actually never, even now, even today, they don't really calculate their kind of wealth by the stock price. They calculate it based on what they think the business is worth. They don't really care about the stock price, which is actually a good way to—

Better scorecard.

Yeah, great way to run. But actually you really want the business to trade near the stock price, near the value, so that anyone entering or exiting is getting a fair deal. That's what Buffett tries to do. He wants to make sure that Berkshire's value is always around what it's worth. But there were other businesses, like I remember the first company I visited in Turkey was trading at a PE of 0.1.

Never heard of that.

Not 1, 0.1, which means that the market cap was equal to one month's earnings.

Okay.

And I remember my friend had sent me a list of the businesses we were going to visit, and I did no work on these companies. I said, I'm going to do work on them after I visit them because I don't want to waste time if I don't like them or whatever else. So as we were driving to the company, I start asking him questions. So I'm just somewhat intelligent in the meeting. So I said, okay, so what's going on here? He said, well, Mohnish, it's a PE of 0.1. I said, 0.1? And it's one of the largest banks in Turkey. I said, what's going on? He said, ah, they violated some UN sanctions. They were doing some wire transfers with Iran that were not supposed to do. And what happened with that company was that the CFO of the business, who didn't have anything to do with this craziness, went to the US to vacation with his family at Disney World. And when he landed in New York, the Southern District of New York folks picked him up at the airport and put him in Rikers Prison in violation of the sanctions and then told him the rest of the family can continue on to enjoy Disneyland. So when that news hit the street, I mean, that's like, you know, you're going to be cut off from the SWIFT system. The US can put sanctions on you. I mean, you could just, you know, kneecap the bank. And Erdoğan at that time was calling Trump in his first term saying, can you please release the guy? Yeah. And he didn't do anything. And Trump said, it's New York State. And so all of this was playing out while I'm going to see the company. And actually the business was a well-run bank. And I told my friend, It's too much hair even for me. I'm not going there. Okay, so Turkey then and even now has some crazily priced assets, which is why I decided, take a simple idea, take it seriously. I said, okay, this is a situation where half the winners of the Aksaban racetrack have thrown away winning tickets, right? Instead of 1 in 1,000 or 1 in 500, it's 50 out of 100 have thrown away winning tickets. So basically it's going back to the mental model. You take a simple idea, you take it seriously. You know, I remember when this company was 15 million, Turkish stocks are allowed to go up 10% a day. They were limited in a day company, you know? So I was concerned how much stock I can buy. So I told the broker, buy every share available. Don't worry about the volumes. Take out all the asks. You know, the stocks at 15, someone's willing to buy, sell at 16 or 17, whatever. I said, all the asks up to 10%, just take them all out. If anything more shows up, take it out. I said, just take everything you can get, right? So the guy calls me, the broker calls me and says, I have 5% of the company being offered by Templeton Funds. This is a US fund in Turkey. Templeton Funds is offering 5% of the company for $1 million. Okay, so $20 million market cap, basically $1 million. I said, why are you calling me? Take it. Right? And so now this is not a Turkish investor, right? These are not people who are day traders, right? Somebody in New York made a decision, I'm out of Turkey. And the reason they were going out of Turkey is the currency was very unstable and inflation was rampant. And they were right about that. So two things that were bothering investors a lot, which can be very detrimental to making an investment, is an unstable currency and high inflation, and other mental models came in to help me. So one of the things that I think I discussed with Charlie is let's say there's a thermonuclear event, global thermonuclear event, 99% of humans are dead. So we've gone to 70 million humans left out of 7 or 8 billion. And everything's destroyed. The 70 million humans that are left, someone is gonna start producing Coke concentrate and someone is going to resurrect a Coke bottling plant because there's 70 million humans and there's no currencies anymore. But humans will be willing to trade 15 minutes labor for a Coke. So a company like Coke is not dependent on inflation. It's not dependent on exchange rates. It's not dependent on anything. There is a benefit it gives. So it doesn't matter whether you're trading Coke cans in seashells or dollars or lira or whatever, there is an exchange that would take place. So I said to myself when I was looking at this warehouse company, I said, what is a warehouse? It's land, paint, cement, and steel. Okay? All four are inflation indexed. If the currency goes crazy, all of these prices are gonna go up. So I don't care about the currency. And then the exchange rate, also didn't matter because these are prime assets in a prime city. People need those assets just like they need to have a Coke. So I only looked at investments in Turkey, which were naturally immune to the whole inflation or whatever was going on. And what happened in Turkey is when we were buying this company, it was 5 lira to the dollar. Okay? That was the exchange rate. 7 years later, it's 45 lira to the dollar. Okay, the lira has collapsed by 90%. In dollars, I'm up 90x. Okay, in dollars. In lira, I'm up infinity. Who cares? Okay, I don't care about that. I'm just looking at it in dollars. And the reason we went up in dollars 90x is exactly, so there was another mental model where I said, All right, big news, we just hit 300,000 subscribers on Spotify.

Thank you to everybody who subscribed. If you're not, go there and watch on Spotify. It's the best place to watch our podcast.

There are many businesses in Turkey that will get hurt by inflation. We're not interested in those. So there was another company there called TAV Airports. All their revenue is in euros. Everything is in euros, right? Okay, they're listed on the Istanbul Stock Exchange with all the gamblers. Okay, now airport operators, these are phenomenal businesses. And normally you look at an airport operator, like you look at one in India, the trailing PE it'll sell at is 70 times, 50 times.

It's like a natural monopoly, right?

Natural monopoly, very desirable, everyone wants in. And so it's just overinflated and all of that. In Turkey, it's sitting at like 4 times, 3 times, you know, it's sitting at nothing, like basically. So, and in this case, in the case of TAV Airport, the currency is not relevant. They're not even, in fact, what is happening is their revenue was in lira, in euros, and their costs are in lira. So in fact, what's happening is the employees are getting poorer every year. And so basically it was, just using a few models. Take a simple idea, take it seriously. Active versus passive, understanding that thermonuclear event, people want Coke. And let's look at assets where the currency is not relevant, right? And when I was able to look at those, those four things, there was no one else on the planet applying those four models at that same time in that market. Right. That's it. How, how difficult was that?

So I want to ask you the hardest question. I think, I think the hardest question. Let me tell you how I arrive here. I love the idea of studying businesses because I love business and I love studying. Put them together, I'm happy. I enjoy it. I think it's a great intellectual sport and I do it. I pick some stocks and I have some index and, you know, I combine the two. At the same time, it seems like most people lose money doing this. Even smart people lose money doing this. And for example, I had Cathie Wood on the podcast. I said, Cathie, you know, she's super popular. I think she's really smart. I even agree with her about many of her theories and thesis about where the world is going. At the same time, I told her, I was like, look, if I look at the last 1 year, 2 years, 5 years, you haven't beat the S&P, but you're taking huge fees on your money. The way her model works is that. And I said, I think you're an honest person. Like, would I ask her the question? I said, would you invest in someone with your track record? And she said, you know, she had a great answer. Like, actually, I really appreciate you giving me the chance to answer that. And so she gave me a good answer. But I'm curious, you know, same thing. How hard is it to beat the market, really? And how do you feel? Because in some years you do and some you don't. I don't know exactly because you have funds and you have the ETFs. It's hard to even piece together fully. Yeah. But I guess Give me two answers. One is, what is your track record? You manage something like $1 billion. So what is your track record compared to just blindly put in the index? And secondly, how do you feel about that, you know, as a sort of smart, honest person who's studying this game and trying their best to do the best they can?

Yeah, so the track record, it depends on the fund because we've got different funds and so on. But if you look at our oldest fund, which is now What, it's 20, more than 27 years old. Every dollar is turned into about $30. So a dollar has become about $30 in the oldest fund. And I think the S&P is, every dollar is less than 7, approximately $6 or $7. That fund has done, done well. If I take the newest one, which is our ETF, for example, which is got about 2.5 years of history. If I look at the entire 2.5 years, we are behind the S&P because I think the S&P has done like 19% since on average per year in the last 2.5 years. And we've done like 15, 16%. But this year we are ahead. So if you look at 3 months, we are ahead, 6 months, 1 year, and even 18 months we are ahead. And I think in the last 1 year, for example, we are beating the S&P by more than 20 points. Pretty significant. So in this, in the ETF case, I think it took us some time to get properly invested because I only can find like a couple of things in a year. And I would, I would say that I would expect that in the fullness of time, if we look at after 5 or 10 years, we should be ahead of the S&P. Also, the S&P has— it's a handicap situation for the S&P because it's overvalued. You know, it's sitting kind of elevated in valuations and such. And so at some point the stock market becomes a weighing machine. And so I think that in general, the index, broad index of the S&P may not do that well for the next decade just because there's been so much growth into the future in the last decade. So I think we'll be fine.

Yeah, yeah. I guess, do you feel like— the question I think I'm trying to ask is more like, how hard is it to beat the index?

This is your circle the wagons concept.

Circle the wagons. So the thing is that we, we have to understand that capitalism is brutal and almost every business will eventually go to zero because of the competitive destruction forces. But there's a sliver of businesses that what happens is that a brand gets built or tastes happen. Like a business like McDonald's, it starts off with no moat, right? But now it has a brand. You know, there'll be a sign on the highway saying McDonald's 8 miles ahead, right? You see that sign and say, that's where I'm going, right? Right.

And even if Sean's Burger Shack is 1 mile away.

Exactly. That's the moat. That's the moat. Right. And so it's actually accidental for the most part how and when moats get built. But once a moat gets built, some of these moats become enduring for a very long time. Like if you look at something like FICO, for example, the FICO scores, I mean, that business just prints cash, right? But it started off with no moat. Then as more and more people start using that score, and now there's some movement where people are talking about other things, but people don't wanna move away from FICO. It's too entrenched. Right? And so we as investors have the advantage of buying into existing moats, right? And so if I look at, for example, the largest bet we have, which is the Turkish warehouse operator, they have prime warehouses, extremely well-built in prime parts of Istanbul. Okay? And that's a very important city. It's a big city, it needs it. It's, it's fundamental. I don't think that's going away. In fact, the demand for warehouses increases in an e-commerce world, right? Because you need, in fact, what they were building, quarter million square foot warehouses are now becoming million square foot warehouses because all the nuances happening with e-commerce. So we, we want to look at businesses where the moats have staying power for a long time. An airport operator, a Coke bottler, you know, it's going to go on, right? So we want to look at these enduring moats. Eventually we want to own parts of those enduring moats.

I want to ask you about some new things. So, you know, it was very interesting to look at the kind of investments of maybe early days Buffett and just things that are around for 100 years. But then there's new things that might be around for 100 years from now or might not. I'm curious your opinion on these. So I'm going to throw 4 kind of topics at you that you can rapid fire. Give me just your kind of where you're at mentally on these different things. So first is AI. I don't think you could be an investor in the world and not have AI thoughts, whether you think it's going to disrupt certain businesses or create new industries or really be huge tailwinds or headwinds.

Invest in the pickaxe makers. So I think, I think that the Alphabets and Metas of the world are playing a game they haven't played before. Which is having businesses with very high CapEx. May work, may not work, I don't know. But what I do know is they have to pass through some toll bridges. They all have to pass through TSMC. They have to pass through ASML. They probably have to pass through Micron. Right. So I have no bets in any of these areas because it either goes in the too hard pile or it goes in outside circle of competence or it's too expensive. So if I'm not making a bet, it doesn't matter whether I'm right or wrong. Right. So what I'm saying is that there's no way I'm going to sell the Turkish warehouses, right, to buy TSMC because that, that trade makes no sense to me. Right. The mistress looks much uglier than the wife.

Yeah.

And there's no bonus points because of the valuation. Yeah. Yeah.

You know, when I came to your house once, You were telling me about your investments in coal and you talked about how you look for things that are hated and unloved. Yeah, it's a clue for you to go, go spend some time. Yeah. Because you think that there might be opportunity there. I feel like the right now in my world, the hated and unloved bucket is SaaS companies, vertical SaaS companies. And I saw you invested in Constellation.

Yeah.

So I'm curious and I've been thinking about this too. There's, you know, a lot of great businesses are on sale right now.

So, so that was an area, that was an area where things fell within circle of competence and it made sense. So the idea that Betsy in HR is going to fire up some AI software, whatever, and develop her own software and get rid of Workday or whatever else they're using in HR is just a pipe dream.

Yeah.

Explain who he is because he's this mysterious guy. There's no— like, there's like 2 photos of this guy on the internet.

Mark is a highly, highly unusual leader. Okay. There's no other person like Mark. Let's put it that way. What he's built at Constellation is very unique. So there are probably 70,000 to 100,000 vertical model software companies, private companies in the US. They have a team, a biz dev team that touches all these companies twice a year with a phone call and twice a year with an email. Okay. And in fact, the funny thing is I was in Omaha at the Berkshire meeting and a guy comes up to me and says, Mohnish, I'm a huge fan of yours. I'm in the Constellation M&A team. I said, don't go anywhere. Need to talk to you. Right? So tell me what's going on. And, you know, I try to get a conversation going because, you know, Constellation is such a black box. Right. But anyway, they have this large M&A team.

And they buy a company like every 3 days or something, right?

Somewhere between— Explain, what's the math there?

I don't understand. The math there is that a business is doing 10 million, in sales and let's say they're putting $1 million to the bottom line. Okay. And that $1 million is going up 3% a year. Now let's say you were buying that company for $10 million. Okay. Your alternative is put it in treasuries. You put it in treasuries, you're going to get $400,000 a year. Right. Okay. You put it here, you're getting $1 million a year. Right. And the million is growing, but it has more risk than treasuries. So you won't pay exactly what a treasury is paying. So that's the math is, you know, the, the risk-free rate effectively makes it that if you knew a business was growing at 3% a year, you would be willing to pay in a low interest rate environment 10, 15 times cash flow, whatever. And so they're, they're effectively buying it for 3 or 4 times because they get these efficiencies, right? So now you are taking the cash flow the business is generating and you're reinvesting it at a 25% rate. Right? I mean, that's— and then you're continuously doing that, right? So nobody else has the patience to put in the engine to touch the 70,000 twice a year. And also the more difficult part is integrating them, right? So the culture to say, let's do this and that. In many ways, Constellation is superior to Berkshire Hathaway. Berkshire Hathaway buys businesses of all kinds. These guys buy only one kind of business, right? And they're buying one kind of business and they're buying it in a delegated manner now because the people doing the deals are not even at headquarters. They don't even need an approval for it. They've been told any business up to $20 million, you can just do your deal. And as those teams have kept doing that and have the track record, they bump up how much they're willing to. So it's actually a delegated model now at this point. And so from my point of view, you've basically got a mousetrap that's growing cash flows at 20-25% a year. What should you pay for a mousetrap that's growing cash flows 25% a year? You would be paying 40 times if you knew that was gonna continue forever, right? You'd easily pay 40-50 times. It went down to teens multiple, right? And it came down to a point where even someone like Mohnish, a cheapskate like Mohnish, got interested. And the thing is, so I think that the DNA he has is very, very special. And this universe of companies that he's going after is too small for private equity, right? Private equity hates doing these itty-bitty deals, right? And the second is they don't wanna buy and hold them. So he's buy and hold. These guys want to flip. So the frictional cost of buying a tiny company and then trying to find another buyer and all that, there's too much nonsense involved. So quite frankly, the only competition they would have would be if someone decided, I want to do everything exactly the same. And the market could tolerate 3 constellations, right? It's large enough for 3 or 4 constellations. I see. But there are none. There's only one, right? So that's why we are in. And, and now the thing is that we don't need— you have to understand the 4% rule of Buffett, right? Only 4% of his bets work. So if you look at my bets, like, you know, airports, coal, warehouses, Constellation, if all of them work. Now, if you ask me about each one, I'll give you a case why it works, right? All of them not going to work because there's no way. If I were doing, if all of them work, we're doing 100% a year, right? Okay. That's not going to happen. But if half of them work, we have a home run, right? Even if 40% work, we have a home run. So this is a very forgiving business. And so that's where this is, which is I don't know which half works. I wish I knew.

Yeah, if you knew. Yeah.

If only. I don't know which half works. So I know that our Kohl bets, for example, there are things that can cause that bet to fail. They are low probability, but they could happen. So maybe those things happen, maybe they don't happen. I don't know. Constellation, maybe cloners arrive. I don't know. Maybe the DNA of the company deteriorates after Mark is gone. I don't know. Right. So there are these unknowns, but it's a favorable bet. It's not 100% bet. It's a favorable bet. And as long as we keep making these favorable bets, we're okay.

So Howard Marks came on the podcast. Oh, wonderful. And he was, he laid out why the S&P might be a bad bet for the next 10 years. And his take was basically, if you look at the current P/E ratio of the S&P, I think it was like 23 or something like that, that the forward 10-year return had vacillated between -2% and 2% any time that had happened. Yeah. So I just want to give you kind of like a just quick reaction. Bullish, bearish on, on the S&P index right now. If you were to be an investor.

Bearish.

Bearish. Same reason.

Yeah, I, I don't— Howard is very, very smart. I don't disagree with that. Yeah.

GLP-1s. So it's amazing. We have them.

We have the best thing since sliced bread.

Yeah, exactly. And it puts sliced bread out of business. I read a stat that the GLP-1 drugs, Ozempic and the others, they're currently generating double the revenue of the AI companies. So it's like $79 billion a year versus, you know, $40 billion a year.

And we are embryonic right now.

And we're early stage.

And also I think the science is going to get a lot better.

Yeah. So like, give me your— how you're thinking about that right now, whether from an investor point of view or just—

Well, I think, I think from an investor point of view, for me, it goes in a too hard pile. And the reason it goes in a too hard pile is industries with rapid change are the enemy of the investor, according to Warren. So Vigovi was king, then Monjaro became king, and then now they're talking about some of these tablets. The tablets are going to have a hard time because they have to go through the liver and all that. But basically to me, I think that this trajectory is going to continue. But given the valuations and given where it's headed, it's— there are too many— right. Coal is simpler.

A few years ago when I was at your house, I asked you about Bitcoin and you similarly were like somewhat bearish on it. But you said, you know, ultimately too hard pile for me.

Yeah, it's also too hard pile, outside confidence.

Has anything changed in your opinion? Because the more time goes by, in a way, like all money is a confidence game, as you know, right? Every currency, every gold bar is a confidence that this will last. I was curious if anything had changed over time for you with Bitcoin.

I prefer gold to Bitcoin. It's not used by a bunch of scammers and ransom seekers and whatever else. So to me, the whole thing is in the too hard pile. But I would just say that Given that we already have gold, why do we need Bitcoin?

Okay, I won't debate you on that. It'll be a 4-hour podcast. Yeah, there's a couple of life models I wanted to ask you about because I asked you many of the investing truths. Yeah, but then some of yours I feel like maybe are related to investing, but probably not. One was, don't die at 25 and get buried at 75. Yes. What do you mean?

What does that mean? Get your music out? I saw that on your list, but I didn't know what it meant.

Well, all of us have music in us. And it's different, you know, for the musicians, it is actual music that they, but the thing is, we have to understand who we are and understanding who we are is not easy, but we have to understand who we are and we have to understand what would be something we want to bring to this world that makes the world better and makes us feel a sense of accomplishment for doing that. So we all have special talents and there's no person who's got nothing, if you will. Everyone has something special. We have to get that out because that's going to be a fulfilled life.

September 28th, 2075. Apparently that's the date I'm going to die. One of your pieces of advice is, and I quote, ask God Google when you are going to die and act accordingly. Last night I Googled when I would die. I gave it all my info. I told it I'm a nonsmoker, this years old, I've done this, etc., etc. And it gave me a, hey, here's your range. Yeah. And here's the most likely date. September 28th, 2075.

Awesome.

All right, now what do I do? You freaked me out. Now what do I do?

So contrary to Seneca, life is short. And Gandhi has a quote, he says, live as if you were to die tomorrow, learn as if you were to live forever, right? And even Steve Jobs said that if he spent 2, 3, 4 days doing not what he really wanted to do or love doing, he would make a change. So I think that 2075 seems a real, really long ways away. You know, like 49 years or whatever, but it's not that far away. And I think that there's a Buddhist saying about living in the moment, and living in the moment is fantastic. So I think that treating every day as if it's your last and living it to the fullest for the full 49 years, that's what you want to be doing. So I think, you know, people say, oh, I'm going to graduate and I'm going to work 3 years at McKinsey, then I'm going to get some experience, then I'm going to start my business. Buffett would say to that, that's like saving sex for old age. Not a good idea. Okay, so don't make a lot of long-term plans. We have to enjoy today.

Don't wait to live.

We have to enjoy every day. So I think getting the music out, doing what we love to do, working with people we like, admire, and trust, and pursuing our passions, we have to do that. All the time.

Right. Those are sort of like the eat clean, exercise, get good sleep. What those are to health. Yeah. I feel like what you're describing is to like living life well.

Absolutely. Yeah.

You know, one of the things that I think is your part of your music you get out is that not only do you study investing and study companies to invest in, but you study the investors. And my favorite learnings from you have actually been the stories and the insights you have Having studied all the great investors, I want to ask you about a couple of names I didn't ask you about in previous ones. The first is Ed Thorp. Right. Tell me about Ed Thorp. What do we learn from Ed Thorp?

The first time I met Ed Thorp, I was naked.

Go on.

So just to give you the long-form answer. So Ed Thorp, MIT-trained PhD mathematician, very smart. He actually worked with Claude Shannon. And if you study Shannon, there's podcasts on him and all that. But Shannon is probably one of the smartest humans around ever lived. But Ed Thorp basically used MIT's mainframe computer to figure out how to optimally play blackjack. Right. And he came up with what we now call basic strategy. And at that time in the early '60s, when he did this, casinos in Vegas and Reno, et cetera, played single deck blackjack to the end of the deck. And blackjack is a game where every time a card is played, the odds change. And so if a deck gets filled with more aces and tens or whatever else, then you're basically, as a player, it's in your favor. And smaller cards, it's against you. So he's counting cards, it's easy to do. And when the deck got loaded, he increases bet and not loaded, he reduces bet and he cleaned the casinos out. And at that time, the casino was mob-run. And so they basically showed him a baseball bat and said, don't ever come back. Okay.

And so— Did they even know what he was doing or they just said, we don't need to know.

They knew that they were losing money. They didn't know why they were losing money. And that's all they cared about, that they were losing money.

Right.

And so He went back and he's a very meek, timid guy. He said, wow, this is like, they might actually kill me or something. So he says, I'm not going back. But to get back at them, he wrote a book called Beat the Dealer, which sold millions of copies, which basically says, here's how we beat the casinos. And the casinos freaked out because they said, now we've got like 10,000 head tops coming at us. So blackjack became a game from then till now, which where the rules have continuously changed, where they started not playing to the end of the shoe. They introduced multiple, multiple decks and all these different, and all the different, you know, rule changes and everything else to keep up with all of that. And it's been a kind of, and you know, the movie 21 where the MIT kids went in with all of that. So anyway, he did well. He wrote Beat the Dealer. And then he realized that there was a better casino than Vegas, which was the New York Stock Exchange. And there's something known as the Black-Scholes formula, which is the way how options are priced. So the guys who came up with it, Black-Scholes and another guy, they got the Nobel Prize for that. Basically, it tells you if you've got a stock with whatever volatility, how to price the options, the call options, whatever else on that. Ed Thorp cracked how options were priced before Black-Scholes, but decided instead of getting a Nobel Prize, he was gonna make money off it. Okay.

So he's—

Good choice. He set up an entity called Princeton Newport Partners and they killed it like 25, 30% a year and no down years and any of that. And did that for a while, became very wealthy. He moved to Newport Beach, became a professor at UCI, and then someone introduced him. Just think about this is like a kind of Forrest Gump story. Someone introduces him to Ken Griffin, you know, Citadel's founder, while he's at Harvard, you know, trading out of his dorm room. Ken asked, because Ed was not using all his algorithms and everything else, he had retired. Ken asked if he would give it to him. Ed talked to Ken, realized he's very unusual and said, you can have it all and I want to invest with you. And so he becomes one of the early investors in Citadel. So that engine just keeps going.

Oh my God.

He also beat roulette too, did he not?

Oh, yeah. He had a device by which they could— I forget, something where they wore—

Something in a shoe or something.

Yeah, they had something they wore which would kind of tell them what was going on with the roulette.

That is an unbelievable story. You mentioned Ken Griffin. I've heard some of the kind of Ken Griffin lore. What do you know about him and what kind of made him special and why maybe Ed initially spotted that this guy might be a little bit different?

So I met Ken around 2000 or so. I was running the IT company and someone I knew said that they were looking for consultants and my wife went in as a consultant to Citadel. Okay, so she's actually at Citadel. Ken is like, there might be like 10 people at Citadel at that time. And she'd come home every evening with a whole bunch of Ken stories. Like he said, she'd tell me this guy is very unusual and the place is very unusual. Everything's very unusual. So he had hired some whiz-bang Russian mathematician, PhD, postdoc, whatever, who was working on the algorithms. And everyone at Citadel would come to this Russian guy with their problems. And Ken didn't want anyone coming to him. He just wanted him to crank without anyone bothering him. So my wife told me that there's a temp that was hired and Ken told the temp that here's your desk, here's Hugh, here's the mathematician, no one crosses. So the temp says, oh, what do I do? Nothing. Your whole job is to make sure no one crosses, no one talks to him. So she's just looking at this temp. And the temp herself is in shock. Someone's paying me to file my nails. So yeah, Ken is a very intense guy, but I think he's very smart. I think he found all the different nooks and crannies, built a tremendous business. And so I have a lot of respect for him. Awesome. Did a great job.

Yeah. I feel like Ken Griffin intensity stories is something that I can binge on. I've heard when Enron was going out of business, did you hear the story?

Yeah, they all went in and they bought all the— got all the trades. Got all the smart guys out. Yeah. Like a rescue mission. I just read the other day that they had made an offer to some guy at Harvard or whatever, some new grad, and Ken asked him, so let's say you made $10 million a year, what would you do? He said, oh, I'd quit, I'd go climb the tallest peaks, this and that, whatever. So Ken says to him, please reject our job offer. We've already made the job offer to you, we can't rescind it, but please don't accept it because we really don't want someone like you. We don't want someone at $10 million who dies at 25.

Right. You know, you've done podcasts like these before with me and then others. I think our podcast together, more than 5 million people have listened. However, the sad part of that is I bet if I talk to those 5 million and I say, what'd you really take away? What did you, what do you remember? What was the thing that you took? I'm not sure how many would have something that clicks. And so I want to make it easy for them this time. What's the thing that they can't miss out of this one? Because I don't want people to just listen. Be entertained and go back to doing things exactly how the way they were.

Lead an aligned life. So who we are is hardcoded at the age of 5. So between our genetics and what happens till in the first 5 years. How old are your kids?

I have a 6-year-old, 5-year-old, and a 2-year-old.

What do you ask them for? What do you, what do you ask them to do? Is there a name for this?

Is just— you're going to tell them that I want to understand who I am and what is my calling in life. What am I supposed to be doing? Now, you could go to my guy. You can go to him.

Yeah. Who's your guy?

His name is Jack Skeen.

I've met Jack.

Okay.

Yeah.

All right.

Yeah. He does the kind of full life 360 sort of analysis.

Yeah. So, so you can go to Jack and Jack can only do like 20 a year or something. Okay. So he can't do it at scale, but he may know others. Right.. And so that's a pretty foolproof way to get there. Other than that, I think you have to feel your way. If you don't, not willing to do that, then you have to look at what you like, what you don't like. You have to look at whether doing something energizes you or doesn't energize you, that sort of thing, right? And so you have to find what you love doing. And if you only do what you love doing, you'll do it very well.

And why do you think most people don't do that?

It's because the world The world tells us what we are supposed to do. And we think that what the world tells us what we are supposed to do is what we are actually supposed to do. For example, the human brain is set up optimally to start specializing after the age of 11. And from the age of 11 to 20 is a window to specialize. That is the exact window when the education system makes you a jack of all trades. So like Michelangelo, you know, he was doing his sculptures and paintings and all that. 10, 11. Buffett picking stocks, right? Gates coding at 11 or 12, right? So you have to try to, within the context of a world that wants to be a jack of all trades, start getting to what is your calling. Like the way Buffett and Gates did it. They were in a world of jack of all trades, but within that world, Gates spent an inordinate amount of time doing coding. He would slip out of his parents' home at night and code all night and come back and sleep and whatever. And so he got 10,000, 20,000 hours of coding experience by the time he was in his early 20s.

Right.

And nobody could touch him after that. So yes, we have to at that age, that's your job as a parent, make sure the kids at 11 or 12, you're trying to figure out what they're good at and trying to increase the time that they get for that.

Well, I don't know what my calling is just yet. Actually, if I look back at that age, I was doing something very similar to this. The two things I really loved to do back at that time was I loved to play any kind of game where there was a score. I was playing online poker at a very young age, things that related to business and money. And then the other was I was doing improv all the time. I loved it. What's a podcast but an improv session? I just did this for whatever, 3 hours, and it was no problem, right? I could have known that signal at a younger age.

I think if you're not there, you're damn close.

Yeah. I want to leave you with one thing. I have a gift for you in this envelope. I want you to take a look. We asked somebody who knows you well to write a letter, and it's your friend Guy Spier. Oh, wow. And Guy wrote this letter for you. He knew you were here today.

All right, so let me just start reading it because I'd really like to read it later at leisure. But that's awesome. So the title is What I Did Not Learn at HBS. Mohnish Pabrai taught me everything I needed to succeed in business. Dear Mohnish, this is fun. Dear Mohnish, I met you some years after my MBA, but the truth was, despite the degree, I knew next to nothing about business. My real education didn't begin until we met for dinner at the restaurant at the Delamar Hotel in Greenwich, Connecticut. I remember that evening vividly. I came away from that one dinner with more ideas than I had in 2 years at Harvard. Books I'd never heard of and ideas I'd never thought of. You introduced me to Power vs. Force by David Hawkins, and to Gandhi's autobiography, The Story of My Experiments with Truth. We discussed Robert Cialdini's influence, the psychology of persuasion. But what struck me was that you had not merely read about these ideas, you had put them into practice in your own life in a way that I did not even know was possible. Sitting opposite you, I realized that I was a conventional thinker. You, on the other hand, had a very unusual mind. Someone who knew how to get things done in the real world and translate ideas into action. I myself was very misaligned at the time. I'm deeply grateful that you were willing to become my friend. That allowed me over time to untangle some of the misaligned elements in my personality. Alignment. You couldn't give me a better gift. This is very special. Yeah. Thank you so much.

I want to thank Guy for doing it. We called him last minute. I said, you know, who knows him better? Excellent. Manish, thanks for doing this.

Okay. Awesome. 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.

Hey, let's take a quick break. I want to tell you about a podcast that you could check out. It is called The Science of Scaling by Mark Roberge. He was the founding CRO of HubSpot, and he's a guest lecturer at Harvard Business School. The guy's smart and he sits down every week with different sales leaders from cool companies like Klaviyo and Vanta and OpenAI, and he's asking about their strategies, their tactics, and how they're growing their companies as, you know, head of sales or chief revenue officer. If you're looking to scale a company up, if you're a CRO or a head of sales that's looking to level up in your career, I think a podcast like this could be great for you. Listen to The Science of Scaling wherever you get your podcasts.