Turning $1M Into $1B+: A Masterclass From The Indian Warren Buffett | Mohnish Pabrai Interview

An idea is like an [ __ ] everyone has one. Okay? Ideas don't mean anything.

This guy is known as the Indian Warren Buffett; he's billionaire investor Mish PAB. Last month I went to his house and asked him to teach me everything he knows about investing. How did you make your money? After taxes, after everything, I got a million dollars, and I, for the first time, had money in the bank. Right? That million became what? 13 million. And uh, I said, "Wow, well done, Mish." And uh, so they got 70% a year compounded. How the hell were you getting these returns? I'm always looking at what is hated and unloved. The key to moving the needle is inactivity.

Have met and become friends with Charlie Munger and Warren Buffett. Good afternoon, Mr. Buffett, and good afternoon, Mr. Munger. My name is Monish PAB. How does that happen? It shouldn't happen. When I look at a CEO, I always try to find out, did they run a lemonade stand when they were 12? Because if they didn't run the lemon stand when they were 12, they're not going to be that great at business at 30. How stupid can you be? If you know the big picture, you can change the big picture.

The most important thing in life is... Are you a fan of uh, Bitcoin? Are you a Believer? If you put a gun to my head, I would say... What do you think about uh, Elon Musk? Elon is not human. If I said, "What's the number one trait that makes a great investor?" What comes to mind? [Music]

All right, welcome. Good morning. Great to be here, Sean. You are a great investor, but you started as a businessman. I'm a businessman trying to become a great investor. Uh, how do those two relate? In our brains, we actually use the exact same part of the brain uh, in both activities. So Warren, Warren Buffett has a great quote; he says, "I'm a better investor because I'm a businessman, and I'm a better businessman because I'm an investor." And uh, and in his case, uh, a lot of people don't know, but Warren had done a lot of different businesses in uh, different areas before he was 17, starting when he was uh, I think five or six years old. His very first business was uh, buying um, buying Cokes from his grandfather's store at uh, at a nickel a piece and then selling them at a dime a piece. Right? Buy wholesale, sell retail. Yeah, so that was one of his first, first ones.

And one of the things that a lot of uh, people don't uh, understand about the way our brains work is the human brain actually, when we are born, it is the most underdeveloped organ uh, when we born, because the birth canal is not wide enough. So for the first five years of life, the brain is the fastest growing organ that we have as humans. The neuron connections are growing at an exponential rate. Uh, from the age of about 11 to about 20, uh, that window is when the brain is set up to specialize, and um, the neuron connections get cut, uh, so they actually go down quite a bit, but the brain allocates areas to own in and specialize. So you know, if you think of someone like Michelangelo or uh, Bill Gates or even Warren Buffett, these these guys started specializing at 10 or 11, and uh, if you start writing code at the age of 10 or 11, for example, um, like like Bill Gates did, by the time he was 20, the expertise that he had, someone else starting at 20 would not be able to match him even at 50. So that ten-year window is a very critical window in human development, and uh, unfortunately, our education system doesn't recognize that. And unfortunately, I'm 35, so it's too late. We hope there are some 11-year-olds listening, or we hope when you have kids, tell your kids, yeah, you, it's not all the, the, the cake's not fully baked yet. Uh, so I think the the thing with Warren was that that I think when he was about 10 or 11 years old, he was running uh, a bunch of very interesting businesses. What was he doing? I've never heard these. So uh, yeah, like I didn't know this. Back when his first businesses was, he used to go to this racetrack in Omaha called Ak-Sar-Ben, which is Nebraska spelled backward, and uh, he used to publish racing tips called Stable Boy Selections, basically telling you what what horses to bet on, and uh, and then also what he would do is when all the races had been run, he'd collect all the discarded tickets on the ground, and he'd go home and go through each one carefully to see if some drunk had thrown out a winning ticket, and and he'd find a few, he'd find a few, but he was too young to go to the window to collect because under 18, so he would give them to his Aunt Alice who would go and collect for him.

Around the age of 14 or 15, um, he had a very good friend in high school called Don Danley, and and Danley was a tinkerer; he was like very mechanically inclined. So one time, I think uh, Warren went to his home and he saw that uh, Don's working on a pinball machine in his garage, and uh, he asked Don what he's doing. He, oh, I just bought this pinball machine that wasn't working; they gave it away, paid like 15 bucks for it, and I think I can get it working. And uh, Warren asked him uh, how much is it going to cost? He said, "It's going to cost like $3 in parts and maybe a couple hours to get it working." And then Warren says, uh, "Can you find more machines like this which don't work?" He, "Oh yeah, there's a lot of machines you can buy which people, people don't want them because they don't work, etc." So Don and him formed a a company in their minds; they never actually incorporated anything; they called it the Wilson Coin Operated Amusement Company, and uh, they went to barber shops in DC, and these two boys, you know, kind of, you know, uh, nerdy-looking 15-year-olds, they went to the barber and said, "Look, we work for a Mr. Wilson," and Mr. Wilson did not exist, a fictitious character. "We work for Mr. Wilson, and Mr. Wilson has asked us to present you with a proposition that we can put a pinball machine in the barber shop, and we'll come by once a week and whatever coins are in there, we'll split it 50/50 with you, half for you and half for Mr. Wilson." So so the barber said, "Yeah, put it in the corner, right." And so Warren got Danley busy fixing pinball machines, and the two of them would go on weekends and, you know, get barber shops every week; they're making some money. And and so I think he had eventually something like 40 barber shops with with these machines, and Warren said that the first week he went back to the first barber shop, he thought he died and went to heaven; so there was like $5 or $6 in there, and uh, so their take was about like, you know, $3 on $18 of capital in one week, right? And uh, and he was, he just told Don, "Go as fast as you can, Danley. What are you doing right now?" Exactly. Warren had all these different businesses that he was a senior partner, and whoever he was working with was a junior partner. One time, uh, uh, Danley showed him an ad for a Rolls-Royce for sale for $300, but it didn't run; it was an old beat-up Rolls, and you know, people is giving away like like junk, right? And he thought he could fix the Rolls, so they bought the Rolls for 300, maybe another 50 bucks in parts, and Danley had it running, and then they, you know, sprued it up, and they would rent it on weekends for $100 to weddings, and uh, and then on the weekdays the two of them would go to school, the high school, in the Rolls, you know. So so what happened is, and Warren didn't, he didn't know this, but he was specializing and figuring out business in that window of time, the 11 to 20, right? And so by the time he was 19, 18 or 19, I think he went to college when he was 17, by the time he was 17 when he went to college, he had $155,000, and he told his dad, um, "I'm going to pay for my college myself," and he also told his dad, "I don't need an inheritance; whatever money there, there is, you're leaving, leave it to my two sisters, right? I'm I'm I'm good." And 15,000 back then is a lot, you know, it's about 10 to 1, so 150 grand, 17-year-old. Yeah, think about a 17-year-old with 150k, right? And at that time, college was cheap, you know, uh, and uh, and the other thing is that he got interested in uh, investing. His his dad was a stockbroker, so he used to go to the dad's office in the weekends, and he says that at the age of 11, he bought his first stock, and he said, "I was wasting my time till then," you know, and but you know, he didn't really have a philosophy; he didn't have an investing philosophy. At 19, he read *The Intelligent Investor* by Ben Graham, and that was transformational, and he thought Ben Graham was this guy who, you know, died and passed away, but then he discovered that Ben Graham was teaching at Columbia; he was a professor at Columbia. So when he finished his undergrad, he applied to Columbia to go to business school there so he could uh, he could learn directly from Ben Graham, and he joined uh, Columbia's MBA program, must have been 20 or something.

Hey, real quick, as you know, we're big on ideas here; we love bringing new ideas, business ideas, brainstorming ideas for the podcast. Well, a lot of people ask, "What do you do with all those ideas? Can we go find them? Is there a list somewhere?" The great people at HubSpot have put together a business ideas database; it's totally free. If you just click the link in the description below, you can go download a collection of over 50-plus business ideas that are from the archive, listed out for you, curated. And so uh, what are you waiting for? Go download it; it's free. Check it out; it's in the description below. All right, back to the show. And then, of course, after that, uh, uh, Graham hired him, and isn't there some story where he tells Graham like, "I'll work for you for free," and Ben Graham says, uh, "Your price is too high"? That's correct. Yeah, but he's still ended up convincing him somehow. So actually, Graham, uh, at that time, Jews were very heavily discriminated, a lot of antisemitism street, so Ben Graham, who was Jewish, wanted to give the fews that he had to Jewish kids and and young Jewish people because there just weren't many opportunities, so he basically told Warren, "Look, I got to take care of the community, right?" But but then Warren went back to Omaha in about a few months after that, uh, Graham called him and said, uh, "If you want to come to New York, I got something for you," and Warren never asked him what the salary was, what the position was; he just took the next train to New York uh, with his uh, with his wife. His experience as a businessman, uh, he was very lucky; it got seared in in that window of time. And both Warren and Charlie, they can crack businesses and business models really fast. So when we when we start a business, uh, we will spend maybe three or four, 5% of our time on figuring out the strategy, you know, what's going to be the product, service, market, yeah, all the how we're going to make it work and all the different plans, right? And then 95, 97% is all the blocking and tackling to make it happen, right? It's Danley fixing machines. Yeah, exactly. And so in the case of investing, we use the same brain cells that we use in that 3 to 5% of time, and and basically, uh, one of the things that attracted me to investing was that basically that 3% becomes 80% because uh, we don't need a Danley; we've got public companies and all of that, and uh, we just have to pick which businesses we want to own partially uh, and which ones we want to ride and so on. And so I think that um, I I always find it strange if I run into investors who haven't been entrepreneurs because I think they're missing a very key part, right? And on the other hand, I find that entrepreneurs are very naturally um, already set up to be great investors if they make a couple of tweaks. And but what what ends up happening is that we don't see a lot of entrepreneurs becoming investors, and we also don't see uh, we we see a lot of investors who haven't built businesses, met payroll. And so both uh, both have flaws. So if if you had the um, the good fortune of having the entrepreneurial experience, then I think looking at the Buffett-Munger Frameworks, it's a very easy transition, right? It's probably also easier to go business to investor than investor for a long time than suddenly go try to be an entrepreneur. Well, investor to business, the problem is the window's closed, right? You so you'd be you'd be at a disadvantage to start with, uh, and uh, but yeah, the earlier you start on both endeavors, right, the better off you are.

There's a great uh, I don't know if you've seen this, but I didn't know, like I always heard, okay, Warren and Charlie, great investors. I read the shareholder letters, and the shareholder letters are often um, they're amazing, but they're very like, they're high-level, and they're philosophical in a way. Then you have um, I saw this letter of Warren writing a letter to this, I think the CEO of See's Candy. I don't know if you've seen this, but it's a it's a letter, and it's, I expected it to be very again philosophical, amusing. Instead, he's like brass tacks right away; he's like, "I went to the store, and I have a few ideas for you." It's a very operational, tactical. "I noticed this price point; I noticed this," and I was like, "Oh, he's he's a businessman; he's just like..." Today we only think of him as one bucket, but actually, he's got both gears. See's is a wonderful uh, wonderful business; it taught it taught them a lot; it taught them more than they ever thought they'd learn from a stupid candy business, right? Uh, but one of the things Warren did when he first bought See's is he told uh, he told the CEO, "Listen, you got free rein; run the business like you've been running and so on so forth, but on December 26th, uh, I'm going to set the prices for the next year." Okay, okay. So he would sit down with the entire See's price list, and he would bump all the prices by 10 or 15%, and uh, inflation might have been 3%, right? And so he would raise prices significantly above inflation, and what he would observe is volumes went up. So and then the year after that, he'd again bump it by another 10, 12%, and volume still went up. And and so both him and Charlie were amazed that you could have a business where you're continuously raising prices significantly above the rate of inflation, and there's no resistance from the customer base to accepting those prices, and that's what gave them a huge lesson in brands and uh, you know, he was a die-in-the-wool, hardcore, deep-value investor; it was really hard for them; they paid three times book value for See's; they were choking almost when they paid that amount. Uh, so uh, I think they bought See's for like 25 million. Looking back, they could have paid 200 million, and it would have been still would have been a good deal. Yeah, and See's has uh, sent dividends to Berkshire in the billions; I mean, it's been about 50 years since the purchase, and billions of dollars have flown from See's to Berkshire, which has then been used to buy a whole plethora of other businesses. And and if you look at their uh, their purchase of Coke, for example, um, they they put a quarter of the entire book value of Berkshire Hathaway into Coke in 1988. If they had not bought See's, they would have never bought Coke, right? So the lessons that they learned about branding and the power of brands is what led to the Coke investment, which was a much bigger home run, and they've made many more brand investments since then. Half the portfolio is in Apple right now, right? One of the best brands in the world. And and I think I think Warren understood this notion of consumer behavior and how powerful brands can be and uh, how powerful habits can be and uh, and then he went from there. So yeah, absolutely. And uh, one of the interesting things about See's is that See's wasn't this fast grower; it wasn't uh, they bought it, and then its sales exploded. But what I think the the beauty of See's, if I remember correctly, is that it was just no additional capital had to go in, so everything was just free cash flow coming out. So so See's is very much a California story, right? I mean, it it was it was uh, founded in California; almost all the sales were in California. If you look at See's from the time they bought it till today, about 50 years, um, the unit volume has gone up on average 2% a year. Okay? California GDP, probably at least in the 70s, 80s, 90s, was going up about at least four or five percent a year, so they were actually, and part of that might have been the the price increases, okay? But even with those heavy price increases, they still got the volume going up slightly. Yeah, uh, but when you overlay that, you know, you do 50 years of 10%, that's that's a very big number, right? Right. And so See's is not cheap today, right? And now Warren was very excited about being the candy mogul of the world, so they tried really hard to send See's everywhere, right? I mean, they would open open a store in Chicago and then fall flat on their face; then they'd open in Arizona and they fall flat on their face; they repeatedly tried over and over and over again to broaden See's and expand it, and by and large those uh, those efforts didn't, not work. Even today, the bulk of the volumes of See's is in California, right? And um, and so when the Coke investment came about, uh, they discover they they found something very different than See's is they knew See's doesn't travel well, but they could look at more than a 100-year history of Coke, and they knew Coke travels really well. There are two countries in the world where you can't get Coke—North Korea and Cuba. Okay? If they opened up to Coke in either of those two countries, and Coke did not advertise at all, sales would take off; it's so embedded in the pop culture. So even in countries and places where they've never done any branding before, you know, um, people in Pakistan or India or Bangladesh, they're having Indian food with a Coke, right? Right. So it's it's ubiquitous, and that did not exist with See's Candy; it wasn't ubiquitous. And and Warren understood uh, you can't conf, you can't consume infinite amounts of candy; you know, there's an aftertaste and all that. Coke, you can actually consume a lot of, right? There's no uh, what does he call it? Taste memory; there's no aftertaste. Yeah, yeah, that's right. So so I think like I said, I think they they moved from being hardcore quantitative, deep-value guys to actually understanding a lot of nuances of brands and consumer behavior, which was very fundamental to how and why Berkshire did so well.

So you talked about uh, specializing, kind of that 11 to 20 years old-ish window, yeah, um, today you've done phenomenally well; you manage I don't know, almost a billion dollars or maybe more, who knows, uh, a lot of money, uh, and done incredibly well investing, uh, did you did you do that when you were 11 to 20 or or were you a late bloomer? So uh, no, actually, it was just dumb luck. A lot of things in my life have been dumb luck. Um, so my dad was a quintessential entrepreneur, and um, he was really good. So you know, a great entrepreneur, one of the first traits you need is you need to be able to identify offering gaps, some product or service that ought to exist but doesn't, like Starbucks before Starbucks or McDonald's before McDonald's and so on, right? And so my dad was really good at figuring out that, "Oh, this product should be there but isn't," and he was really good at identifying these offering gaps; he was also really good at starting businesses from scratch, but his downfall was that he was always very aggressive, and he was always overleveraged. So when the businesses were going, he was literally taking every last dime of profit coming in and everything that he could borrow and just pounding into the growth as aggressively as possible, and the negative was that when the first headwind showed up, the businesses had no staying power, right? And so they would run into trouble. So my brother and I, uh, I think after we were like maybe 9 or 10 years old, um, we were like his board of directors, okay? And I remember like when I'm I think 10 or 11 years old, my dad, my brother, and me would sit down in the evening, and we had to figure out how to make the business survive for one more day. So all the walls were caving in; there were everything going bad, and there were a lot of moving parts, and we'd put our heads together, and we try to figure out how to make it last, right? And then we'd make it pass the one day, and the next night the same thing over, right? And so I finished many MBAs before I was 12, by and and I think at 15 or 16, I was, I don't know why my dad did it, but I'm really grateful he did; he used to take me on sales calls, and you know, who takes a 15-year-old on a sales call? You know, it just doesn't fit, but my dad didn't care, and that was just incredible for me because I was getting to see um, you know, I was in um, I finished high school in Dubai, so I was in Dubai from the age of 16 to actually 19, and in in that window of time, my dad had a gold jewelry business, and uh, so we used to go, I used to go with him uh, to these um, uh, he was manufacturing gold jewelry, and he was selling it to these uh, retail merchants, right? And so he's going into cold calling, right? Right. And uh, and I'm I'm observing him going into a jewelry store; he doesn't know them. Were you a silent shadow or did you have a role in...? No, no, I I was very silent, but I was I was soaking it in. And sometimes when he was traveling, my brother and I would run the business, so they were like all these goldsmiths and all that, and we'd manage giving them the gold and taking the jewelry and all that. So basically, I didn't I didn't realize it then, but when when I went to college, I I studied engineering, and then I joined a uh, Telecom networking company as an as a R&D engineer, and when we were working on these products, I'd ask my boss, "So what are we going to sell this for? And who's the customer? And what kind of like what are you going to make on it?" And my boss would tell me, "Those are all questions for marketing and sales; we we don't need to care about that; just design the product," right? He didn't know the answers. Yeah, he, that's the poker; he didn't know the answers, didn't care, right? And I found that all the people I worked with, the engineers, didn't care. I said, "How stupid can you be? You know, you you don't have the big picture; the big picture is interesting and exciting. If you know the big picture, you can change the big picture," right? And uh, so what I did after two and a half years with the nerds is I switched to international marketing, and that was such a breath of fresh air; it was so great, and I my learning again skyrocketed, and I had a big advantage because I had a very strong engineering background, but I also had all the background from my teen years. And so uh, what I found is that I was able to connect with customers and figure out kind of what they wanted and how to really get the order much better than guys 20 years more experienced than me because they hadn't had all these experiences, and they didn't they didn't think like an entrepreneur, right? It was was just a uh, a small subset. And and later in life, when I heard about Buffett for the first time, I found a lot of commonality, right? I mean, he had a he had a very different experience in the sense that he was his own entrepreneur, right? But one of the things that's really important is that uh, when I look at a CEO, I always try to find out, did they run a lemonade stand when they were 12? Because if they didn't run the lemon stand when they were 12, they're not going to be that great at business at 30. Okay? The the little itty-bitty lemonade stand has a lot of lessons, right? And and so I think uh, when uh, when we have kids, I think it's really important in that window; they don't need to run lemonade stands, but they really need to uh, be doing what's going to be their calling, right? And uh, and I think that's what the biggest responsibility of parents is; they need to expose them to more of what they think think their passion is. You know, I've done like maybe 500-plus episodes now of this, and the podcast is named *My First Million* because when we first started, I would just say I was fascinated by the many different ways people became millionaires; I thought that's is cool to hear the stories, so that's how the podcast started. And along the way, I noticed three common things of what you were doing in your teens because I used to ask this question; I was like, you know, "You're amazing now; if I met you when you were 14, what were you doing? And would I have known that you were going to go on to do things?" And most people are very humbled; they're like, "Oh, you wouldn't have known," but then when I say, "What were you doing?" It's always something that no other 13 or 14-year-old is doing. It's like, "Oh yeah, I used to go to the shop, and I found these uh, you know, these CDs, Rosetta Stone, that I could go sell for 3x on eBay, and I made an eBay account," or "I you know, I started buying shoes and flipping them." So it was always like eBay flipping or sneaker flipping is like a a super common one. Another one was uh, competitive video games because a lot of the strategy, you know, communication, collaboration, um, you know, just extreme competitiveness gets built in there, and um, and there's a couple others, but another one is like a Mormon mission, so Mormons who go and have to sell, you know, Jesus to to a bunch of people, get rejected a thousand times in two years; they become incredible salespeople. And so you you you see these backgrounds where, "Oh, you were kind of forged at an early age to to do this." Well, we have a common friend, you know, S. Balky, right? And you you interviewed him for your podcast, and S. was an entrepreneur at the age of eight or nine, you know, even maybe even earlier than that, right? Uh, he was selling greeting cards he was making and selling on street corners, right? You know, and uh, and then by the time he was 11 or 12, I think he was uh, writing code and making websites, you know, and uh, went from there, right? You know. Yeah. How did you make your money? Give me the highlights of your progression in terms of your own ability to to generate money and then start to invest it. I actually never ever want to be an entrepreneur; I never wanted to start a business because I had seen so much turmoil, trauma in in my in my childhood, right? And I remember I was like um, uh, 24 or 25 years old, and my dad was visiting me; I was living in Chicago, and he tells me, "It's time to quit and start your own business." And uh, so I said, "You know, have you forgotten, have you forgotten my childhood and uh, you know, all the ups and downs?" He so my dad just said, "Oh, that's what makes life great," right? But he said, "Look, the company you're you're in..."

The business I work for had 2,000 people, he said. "You're such a tiny cog in such a big wheel, you could drop dead tomorrow, they won't even miss you. Okay, you don't matter. And what you really want to be doing is figure out something where there's an offering gap, and uh, go for it, right? And and I was actually uh getting a little bit frustrated at work because the company had been growing; it was getting more and more bureaucratic. And um, so I actually uh started to think about um what might be possible. And I didn't have any money, you know, basically I was 24, 25. So what I did is I came up with some uh uh IT services offerings that I thought would be pretty unique because that time client-server computing was uh just getting going, early 90s. And uh, so I had about uh $30,000 in my 401k, and I said, "Okay, we'll worry about retirement later, and we'll pay the penalty." I pulled that out, nice and I I I applied for every credit card I could get my hands on, and uh, so I had 70,000 available to me in different uh credit limits in credit cards. And so I said, "Okay, we've got up to 100,000 that we can play with."

The third thing that I did is I basically did both: I uh was going to my my job and I had started my company at the same time. Because basically what I would do is like from like 6:00 to 9:00 in the morning I'd work on my business, and then from 6:00 p.m. till midnight I work my business again, and weekends, right? But somebody was paying the rent; I still had a paycheck and all that. And I said, "Okay, once we have enough Revenue, clients, profit, I can quit," right? And and I always tell uh tell people that basically um if you think about it, there's 168 hours in a week; your employer needs you for 40, right? And if you live close to work or work remote, the commute time is not that much. And even if you take out time for eating, sleep, everything else, you have at least another 40, 50 hours that you can engage on something other than work, right?

And I used to always get great reviews when I was starting my business. I said, "Okay, look, the plan is to not get fired; the plan is not to be employee of the year," okay, right? I don't need to overshoot, so I said, "I'm going to give them just enough so I'm just above firing level, you know, where it's not so bad they call me in and terminate me. I need to be above that," okay? And I did this for about nine months, and then I had clients, revenue, and all that, and I went into my boss and his boss, and I resigned, right? And uh, they they said, "You know, Mish, we really couldn't figure out last nine months like you checked out." I said, "Exactly." I said, "My my goal was to just do enough so I didn't get fired," but she said, she said, "Yeah, we saw a big drop in the old Mish and the new Mish, and we talked about it, and we actually said it's not so bad that we would fire him, but there's something off; we couldn't we couldn't figure it out," right? And then so I explained to them I was going into a business, my own business, was not comparative with theirs. Yeah. And so they said, "Look, when your business fails, not if your business fails, when your business fails, you can come back; we're going to give you more money; we're going to promote you, and you're going to do great." So I said, "You know, my my plan was that if I failed when I was going to my business, if I failed, I said, 'Look, I got my degree; I can look for a job; I can apply for personal bankruptcy, clean everything off and start over,' right? I said, 'This is even better; I don't have to look for a job,' right? I get more money, right?"

And so I actually felt like the, you know, people think there's a people have a a false mental model; people think entrepreneurs take risks; entrepreneurs do not take risks; they do everything in their power to minimize risk. If you think about Buffett's pinball machine business, what was the risk those two 14-year-olds, sans 14-year-olds, took? Nothing, okay? It's $15 in a pinball machine, which they could use themselves; worst-case scenario, $3, $3 in parts. So the second pinball machine will only get bought when the first one's already producing cash, right? And the third one after the second one. So basically there's no risk, right? If it fails, they sell those machines for more than they bought them. Entrepreneurs are actually great risk reducers; they start with something that seems risky, but so that's the other thing that is a commonality between entrepreneurs and value investors, uh, which is why the same brain cells get used; both are trying to minimize risk. You know, we as value investors want to go low-risk, high return, and great entrepreneurs, that's exactly what they're doing; they're going low-risk, high return. Nobody is doing high-risk, high return; the only only so if you look at the United States, probably around a million businesses, more than a million businesses a year get formed in the United States; venture-backed businesses um are less than much less than even 1% of that pie, might be in most years less than one-tenth of 1%, right? So if there was no venture capital and no venture-backed businesses, it would make no difference to the landscape, okay? We'd still have the million businesses being formed. Venture-backed businesses are a different animal because they are high-risk, high return, right? The what the VC wants you to do, the VC's got 10 bets; he doesn't care whether your bet works or not; he just wants one of those 10 to work. Yeah, so he wants you to step on the gas as aggressively as possible; if you blow up, you blow up, right? Right. Uh, when you are an entrepreneur who's not venture-backed, that is not how you go; you don't put just, you know, foot on the gas; you're very careful about downside protection.

So what happened, even some of the big uh big entrepreneurs, who Richard Branson, oh, I think is the people see him as this free, you know, risk-taker, reckless sort of guy, but you you've pointed out that that's not true about Richard Branson. In this case, one of the stories I love about Branson is is when he had the idea to start uh Virgin Atlantic Airline, right? The minimum that you need to start transatlantic service is a Boeing 747, okay, couple hundred million dollars, right? And uh, Branson got Virgin Atlantic off the ground with no money. So what he did is he calls um directory assistance in the United States, 555-1212 in Seattle, 206-555-1212, ask for the number for Boeing, okay, gets the number for Boeing, calls the main switchboard and says um, "I'd like to lease a 747 that you guys might have hanging around that you're not using." They hang up on him, right? Okay, keeps calling them, and finally the lady of switchboard says, uh, "Let me transfer you to someone who can get rid of you properly," right? So she transfers him to someone who's head of like commercial sales, and so this guy tells him, "Listen, Mr. Branson, in every country we have one customer, and you are not the customer in the UK; it's British Airways, and so therefore there's nothing to talk about." So Richard tells them, "Listen, I I I agree with you, that's fine, but just humor me for a second; do you have an old Boeing 747 lying around that you're not using?" And he says, "Yeah, actually we do, and if one of your customers, like the one of the UK called you, like British Airways called you, and they wanted a plane, what would you lease it for?" So he says, "Well, I really don't need to have this conversation, but we would lease it for about 200,000 a month," okay, "2 or 300,000 a month," and Branson was able to convince Boeing to lease him that 747 because it was sitting and doing nothing, right? Then when he set up uh Virgin Atlantic, he said, "You get paid for all the future flights in advance because people buy tickets," so the plan's going to fly in April; people already bought tickets in February, right? So you say, "I got cash coming in two months, three months before the plan's going to fly, and I'm going to pay for the fuel 30 days after that plane lands," okay? So he had negative working capital, and the lease payment is also in arrears, right? So basically he's he was able to get Virgin Atlantic off the ground with zero Equity, right? Now the way I look at it is that if if you can start an airline with no money, you can start any business with no money, right? Okay, you just have to replace Capital with creative thinking, right?

How is it possible that 0.1% of the population owns almost 70% of all the motels in America? I think this is an incredible story; can you explain how is that possible? In the early '70s, a dictator came to power in Uganda, Idi Amin. And Idi Amin noticed that in Uganda most of the businesses were controlled by East Asians, Indians, Patels; uh, they controlled like 80% of the economy, and these Patels had come to Uganda; they were brought to Uganda about 100 years ago to work on the railroad, almost as slaves, right? And but because they're natural entrepreneurs, they they went from railroad builders to eventually owning and controlling this old economy, and he was pissed. So so Idi Amin said, "Africa is for Africans, and you guys are not Africans," and these Patels had been in Uganda for three or four generations; that was their home; they were Ugandan citizens, you know, born and raised, right? And what he did is he nationalized all their businesses, and he threw threw them out of the country, which just means took their businesses, right? He just took them. Yeah, yeah, he basically confiscated all not their businesses, homes, everything; confiscated all their assets, and he told them, "You got 90 days to leave the country." So these these Patels in Uganda were stateless, okay? You you're being thrown out, you know, you're a citizen of a country; the country is throwing you out, right? And uh, and they lost all their money. So they they were able to convert a very little small sliver of their assets into gold, and uh, the United States took some Patels as refugees; the UK took them; Canada took them; India surprisingly refused to take the Patels; refused to recognize the Patels had any right to return to India because they said, "You haven't been here for 100 years," and uh, and India was at that time dealing with the Bangladesh Refugee crisis, so it couldn't deal with anything more. But a small number of Patels, a few thousand of them, uh, came into the United States in the early '70s, the refugees. Um, they didn't have skills where they could get great jobs; um, they didn't have they spoke English with a funny accent, and um, they they realized that, "Look, look, if we um buy a really small motel, 10, 12, 14-room motel, the family can live in one or two rooms; motels are labor-intensive," right? Um, "the family can do all the work; you know, it's a job and a house together," yeah. So basically cooking, cleaning, front desk, laundry. And so what what they started doing is they would buy these motels and uh basically fire all the staff and move in into two of the rooms, and because they had no costs uh they were able to charge nightly rates that were lower than all the neighboring motels. So what would happen is that the Patel-owned motel would be running 100% occupancy; the other motels couldn't match that rate because they'd lose money, right? Right, because they they had staff, workers' comp, and staff and all that stuff, right? And what the Patels started to do, and they Patels were very frugal; they basically were vegetarians; uh, at that time in the US if you were vegetarian you really host you couldn't really eat out anywhere. So by uh they were forced to just cook themselves, which was cheap, right? So there wasn't much of a grocery bill. And uh, what they started doing is as their nephew came of age, for example, they would help him out to buy his own motel, right? And then the nephew would get it going, and then the next one, the next one, and you run this for 50 years, and you end up with 70% of the motels in the country under Patel ownership. Not only that, they've actually gone up-market now, so a lot of the Hilton, Marriotts, Western, if you really look, you'll find it's under Patel ownership, right? Same same math; they always are very good operators, and then they went into 7-Eleven, laundromats, Dunkin' Donuts, all of it, you name it. And um, but bottom line was that these were entrepreneurs that were low-cost producers, right? Low-cost producers have an inherent advantage.

And I remember when I first uh when I first met Charlie uh he had he had read my book, and uh and we were discussing the Patels; he says, "Yeah, you know, I got some friends in the motel business; I just tell them don't ever ever try to compete with a Patel; if you ever find yourself in competition with a Patel, just find another game to play; just move on; it's not worth it." So you said you met Charlie. Um, that's got to be kind of a surreal thing for you uh to have met and become friends with Charlie Munger and Warren Buffett. Uh, how does that happen? How does that come about? It shouldn't happen, you know? I was this squawky kid who grew up in the suburbs of Mumbai, right? And um, I accidentally heard a Warren Buffett in the mid-'90s, and it was a big aha moment for me. At that time I was lucky; the first couple of biographies on him had come out, uh, and what I realized is when I read about how Warren was investing, I said, "All these uh all these models are the same models that an entrepreneur uses; it's the same exactly what I was saying that you know uh better businessman because I'm an entrepreneur and vice versa." So I said, "You know, but the big Advantage he seems to have is that 4% of time of strategy is 80% time for him, and even in the business I had created, the IT business uh which had grown and scaled, I always enjoyed the 4% more; I I I was strategy; the figure I was happy doing sales calls and um you know building teams and all that; that was that was great uh doing once I said, 'Wow, if I go into investing it would be 80% of my time because there's no blocking and tackling; someone else is doing that,' and so me that for me that was a big aha moment that I should switch." I was lucky in in the mid-'90s; someone bought a small portion of my business; after taxes, after everything, I got a million dollars, and I for the first time had money in the bank, right? And I didn't really need the million, right? So I said, "Okay, what we're going to do is we're going to take this million; we're going to invest in the public markets, and we're going to find out if we can actually do this, you know, this you know um an idea is like an [ __ ] everyone has one; okay, ideas don't mean anything, right? So you really have to execute; it's really execution on the idea that has value. You know, uh entrepreneurs get kind of hung up on, 'Oh, I need to get a patent and all that.' One of the things you have to understand is you can go to your most direct competitors; you can tell them all your Trade Secrets; they will listen to you really carefully, and they will not change Behavior, okay? So you don't need patents for anything; you don't the ideas don't mean anything; it's really the execution. And um, so basically I I said, 'Okay, let's take the million; let's start investing it; let's figure out what happens,' and I was surprised; we did really well. I think that from like '95 to 2000, five-year period, that million became about 13 million, and uh I said, 'Wow, well done, Mish,' and uh so like got 70% a year compounded, yeah. And um, so I was getting I was doing investing part-time while I was running my IT business; I was much more interested in the investing side; losing interest on the business side till till that point when in 1999 I didn't even feel like going into work; I I said, 'This is I I just want to just focus on investing.' And uh, so I made I made a couple of big changes then; I uh looked for and found a CEO to run my company, and basically uh 13, 14 million I felt was enough to retire, do nothing, you know, I could do investing full-time, right? And so my plan was, "Okay, someone can run the business; whatever's value is there is is there; it doesn't matter; I can go off and just now do investing full-time."

And um, I had a few friends who had uh basically uh I used to just give them stock tips, you know, in the mid-'90s; I'd find some company; I'd make the investment; after that I didn't care who bought the stock, right? I mean I already bought it, right? And so I tell my friends, "Hey, you know, I found this company; you're to uh see if you want to take a take a flyer on it and buy it," and so on, and they did really well on the stock tips, right? But you know, some guys worth like 5 million, they would put 10,000 into what I told them, right? And they would triple their money; wouldn't make any difference, right? So a bunch of these friends came to me and said, "Look, we don't like this randomness of these stock tips; we don't see you sometimes, and you may have sold; we don't know; we want you to manage some money for us." And uh, so they were proposing giving me $100,000 each, and it would be a million dollars in all, right? And I said, "Okay, I'll do it." I thought of it as a hobby; I didn't even think of it as a fund, but I want to do it in a format that works for me. So I love the Buffett Partnerships where he didn't charge management fees; he only charged performance fees. So so what's a normal structure, and then what did Warren do? So a normal hedge fund would be a 2 and 20 structure; they would take 2% of assets as a management fee for breathing every year, every year, yeah, and then uh 20% of the profits, right? So if a if a hedge fund, for example, let's say has a billion billion dollars under management, right? The general partners would take $20 million a year for breathing, for breathing, and then if if it went up 10%, so they would make 100 million, for example, on the billion, they'd take another 20 million on that, right? Uh, so basically what would happen is the investor who put up the money on a 10% return gets a 6% return, right? Below the S&P, right? Right, because of all these frictional costs. So Buffett had run his partnership by saying that uh there's no management fee; um the first 6% returns go to you, and above that I'll take 1/4 and you take 3/4. So in the same situation, if if the fund is up 10% in Buffett's case, the first 60 million goes to the investors, and the remaining 40 million is split, so it becomes 10 million to him, 30 30 million to the investors, right? So it's a it's a better it's a half the fee basically, and you're you're paying for performance; if he's not up that much, you don't pay anything. So I like that structure, and so I told them I want to set up a a fund uh so it's all legal, and we will do it with that structure; this they really didn't care what structure it was, and uh so PAB funds really started in '99 as a hobby uh with me and my buddies, and I had 13 million on the side, which was my main focus, and I said, "Yeah, the there's another million here; it's okay if I find something I can buy for both; it makes no difference," right? And um about a year a year after that, there was about 2 and a half million; we were up like 70% the first year, and uh some more money had come in, and I said, "You know, why do I treat the fund like a stepchild? Why don't I think of it like a real business, and why don't I basically grow and scale it like a real business?" And uh and so I I started to do that, and PAB funds uh we had a very good run uh for the first eight or nine years; I think we were doing like mid-30s a year on average, no down years, and the assets grew; we were at about I think in 2007 we were at about 600 million in assets under management, and I had made a lot of money uh you know the fees and the compounding and all of that. So in like a 10-year period, you turned the million dollars of managed money into about 600 million of assets of management, including new money coming. Yeah, yeah, it wasn't all it wasn't just organic, but but but the original money had almost tripled, right? You know, tripled or quadrupled in that period.

I had asked you yesterday when we were hanging out, I said, uh, "You know, there's really two questions when you hear the story: number one, how the hell were you getting these returns? What what what did you know about invest? What was that part? But the second part is how'd you what'd you do on the fundraising side? How'd you get so many so much more money to come through the door? And you've had a great line about that uh about how you get more money to come through the door, 'cause you didn't strike me as a a guy who wanted to be out there fundraising and knocking on doors and trying to raise funds." So how does it happen? Buffett has a great great quote; he says that if you are in a rowboat in the middle of the Atlantic uh they will swim to you in shark-infested waters to invest with you if you have beaten the market, right? They will find you; he says, "You could be a leper, and they will invest for you." That's what happened. And also one of the things that was very um difficult for me was that the SEC has a lot of rules and laws uh around hedge funds; one of those is you cannot solicit the general public, right? So when I was running my IT business, I could call on any CIO and say, "Hey, you know, uh would you like to use our services, etc." I could literally call anyone out of the phone book. Uh, when you're running a fund, you can't just get a list of dentists in North Carolina and pound them; that's that's not legal; you can't do that. Um, so the SEC said, "You can only talk to people you know," okay? I said, "The people I know, I'm going to run out of my Rolodex in like five minutes," you know, there's very few people I know. So what I did is I started to meet my investors once a year uh for an annual meeting where I would give them their results and uh take their questions and all of that, and I told them, "Listen, um there was one reason and one reason alone you were put on planet Earth, and that is to bring assets to PAB funds," okay? "Humans are always looking for a calling; they are looking for some cult leader to follow and be part of a cult," okay? So you gave them one. So yeah, you know, they were they were wandering in the wilderness; they needed purpose, okay? So I said, "Here's what you need to do: you need to go talk to your friends and family because I can't talk to them; the SEC won't let me talk to them; you can talk to them," okay? "You talk to them; you tell them about me; you tell them to contact me; once they contact me, I can engage with them," okay? "So go out and spread the word," okay? "And send me more of your assets, too," okay? So basically what like I like I said, I started with a million; a year later it's 2 and a half million; 2 years later it's 10 million, and it's growing, you know? And and part of it was that the annual return returns are adding, but part of it was that so I had eight investors when I started; a year later there were 17, and 2 years later they were 25. So now I had an audience of 25 uh to proselytize and spread the word, you know? And uh and and of course the results. Now the other thing that was happening is that uh when I started the funds in 1999, we were nine months away from the biggest bubble about to burst that had happened in decades, the dot-com bubble, right? And I I was able to see the bubble not very much in advance of the rest of the world, maybe just two or three months ahead; I I knew the internet was transformational, but I also knew that the Euphoria was too much, you know? We had Pets.com trading at multi-billion dollar valuations with no revenues, right? I mean, there was just common to have a lot of companies; people were counting eyeballs; they're not counting dollars; they're not looking at net income; they're not even looking at revenue; they're just looking at eyeballs, right? And so so I said, "Okay, this this is bad news; um it will blow at some point; it's going to the bubble's going to burst." I didn't know when. Uh, so I had always been a tech investor from like the mid-'90s, and I had done really well; Tech had had a great run, run from '95 to 2000; it had just done really well, and I'd ridden that coattail. But what I did in '99 when the fund started and also with my own capital is I did a 180; I switched completely to Classic Ben Graham deep value, you know, what Buffett had started doing in the '50s. And one of the things that was happening in the equity markets at that time was the day the NASDAQ peaked, I think March 8th or March '99, 2000 was the day that Berkshire hit a multi-year low, and literally people were pulling money out of their Berkshire stock and buying Pets.com, right? And then then that goes to zero eventually. And so I said, "Okay, basically there's a lot of basic businesses that had become really cheap because nobody was interested," so I was buying funeral homes at two times earnings and buying steel companies three times earnings, and so a lot of basic businesses which very predictable and doing well, trading really cheap, right? And uh and so PAB funds did really well; in fact, uh the NASDAQ imploded; basically it hit 5,000 in March 2000; by the time it bottomed out the next two or three years it was at 1,200; 75% drop, you know? And uh the Dow and the S&P didn't go down as much, but they also went down a lot, and uh so it was it was a traumatic period for investors; it was a great period for me. And and so it was very easy for me to talk to my investors because I was the only guy making money for them, okay? If they had like five accounts, they just moved it all to me because everything else was going down; everything else was red. And so that's how we we got going. So in 2007, um I I think my network at that time was like 84 million, and uh Warren had been running uh these uh uh charity lunch auctions where once a year you could bid on eBay to have lunch with Warren Buffett, and the money would go to the Glide Foundation, which was doing you know feeding the homeless and all that in San Francisco. So I said, "You know, I am using this guy's intellectual property and making all this money off him; um I really have a big tuition bill I need to pay," so I said, "The lunch is a great way to do that; I said, 'I can bid for the lunch, and I'll meet Warren; I'll be able to thank him in person,' and it goes to a cause that he supports." So I thought about it, okay, 84 million, what's an appropriate tuition bill? I said, "2 million is is good; I think if I if I gave him 2 million I'd feel good about that," right? So I said, "Okay, okay, I decided in 2007 I was going to bid for that lunch," and I I decided

I would go up to $2 million, and you can bring up to 7 other people to that lunch. So I was going to take my family, but there still were a couple of seats empty. So I contacted my friend, Gra Gpar. He lived in Zurich. I said, "Hey guy, I'm going to bid on this lunch, blah blah blah," and I said, "Uh, do you want to come in with me?" Uh, and I said, "If you and your wife want to join us, uh, because there'll be four of us and two of you, you can pay one-third," and uh, "and I'm willing to go up to 2 million." So the guy says, "Wow, that's too rich for me. I can't pay 1/3 of 2 million." He says, "Uh, I'm good for a quarter million." So I said, "Okay, whatever the bid ends up at, you're capped at a quarter million, right?" And uh, so I bid for it. It settled at uh, 650,000, uh, much less than what I was willing to pay, and then one-third of that got paid by the guy, and uh, so my only agenda in meeting Warren was to just say thank you, Warren, right? I didn't have—and of course, a big fanboy—and you know, meeting him and all that. Warren's agenda when he has these lunches is really different; his, his agenda is he wants the people who won that lunch to feel like they got a great bargain. So he would take all our—what I would call our lemonade—lemon questions and turn them into lemonade. So he's always—is exactly what he does in the booksh show meetings—he's a great teacher, and so he was trying to uh, give as much value as he could in that lunch. And like he told us when we met him, he said, "Look, I got nothing going on all afternoon, right? So when you guys are sick and tired of me, you just let me know, and I'll leave." Right. We kept asking him questions for three hours, and then we were exhausted, and so we said, "Warren, we just have anything else to ask you," you know? He said, "Okay, I'll I'll I'll take off, no problem."

And in that lunch, um, I told him, I said, "Look, Warren, um, my, my wife, then—heren—I said, 'She's uh, a huge fan of yours, but her true love in life is Charlie.'" Okay. And Warren got competitive. He said, "Charlie is a very boring guy; he's a very kind of pessimistic, always says no to everything. I'm the guy who's really interesting." So he said, "What I'm going to do is you guys live in California, in LA, I'm going to set you guys up to meet Charlie for lunch, and then when you meet him for lunch, you're going to find that he's useless, and I'm the guy." So I thought he was joking about that, right? And two days later, I got an email from his assistant, to Charlie's assistant, copying us, uh, basically saying, "Hey, I met this wonderful couple in California, and they seem to think you're more interesting. I think they just don't understand, so I want them to meet you so we can set the records straight," right? And so this is really what he was saying; this is exactly what he said in the email, right? Was he joking or was he not joking? And then I—I—Charlie's assistant sets us up to meet Charlie for lunch. Now, Warren, you can bribe and have lunch with, okay, Charlie. There's no bribing this; this is great. And so, uh, we met Charlie, my, my wife and I, we met Charlie in 2008, uh, at the California Club in LA, and uh, I actually found that lunch a lot better than the Buffett lunch. Okay, it was great because I think Charlie is just so direct, you know, and um, and I never expected these lunches or any of this to lead to any—anything, you know, just a one and done, but it led to a friendship with Charlie. He started uh, asking us to come to his place for dinner, and uh, uh, I would meet him like four or five times a year for dinner, and then uh, we started playing bridge together, usually on Fridays. He'd play bridge at the LA Country Club. I'd meet him about once a month or something to play bridge, and that used to be lunch and then about four or five hours of bridge after that. So it was a, it was a, a, a wonderful, deep friendship for 15 years, uh, which was unexpected, you know, just never expected that.

So let's go back to the lunch. You asked him questions for three hours. Yeah, uh, what were the interesting uh, questions and answers? I know you've said one that I want to hear you, you explain because I didn't fully—I I've heard the tidbit, but I want to hear the full story, which was he said something about being a harsh grader of people. Yes. What does that mean? Well, I, I told, I told Warren, I said, "Warren, um, you know, you are both—you and Charlie—are such good judges of humans and human nature. Were you always that good at figuring people out?" So he says to me, Monish, "You have mistaken; I am useless at figuring people out." He said, "If you put me in a cocktail party with 100 people and you gave me five or 10 minutes to meet each person, uh, I could tell you three or four people exceptional, and I could tell you three or four people you want nothing to do with, and the remaining 92 I would have no opinion on because it's not enough time to figure them out." So, but he, but he also said that, "Look, what you do in life is those three or four people who are exceptional, you bring them into your inner, Inner Circle, and obviously the three or four people who are, you know, not, not the great humans, you're not going to have anything to do with them. But the third thing you do is you treat the 92 just like the useless humans, and you exclude." So he says, "Be a harsh grader." So he says that when you have friendships and when you have people you work with, your peers and all that, he says there's a gravitational pull: if you hang out with people better than you, you're going to get better; if you hang out with people worse than you, you're going to get worse. So he said that one of the things that most humans are not willing to do is loyalties get in the way for them, right? So they may have a friend who's kind of weird or quirky or has ethical issues, but they've had a long friendship, so they'll keep that person going with them; that has detrimental impacts. So basically, um, I really took that to heart, and I said that uh, I'm really going to try to see if I can uh, focus on the great relationships, you know, the great people, and that's actually been um, a journey I've been on now for like, you know, 16, 17 years. It's been tremendous; it's, it's great. Now, it's, it's unfair, right? Because you're treating the unknown the same as the useless people, but, but that's the way life is. I think that sometimes you have to make these difficult choices, uh, because if you don't do that, then uh, the impact of that is significantly negative. And one of the things I realized when I started to uh, get to know Charlie, I got to meet Charlie's friends. So I would play bridge with his friends; I'd meet his friends, and what I realized is his friends were so off the charts, they were so exceptional. I said, "Wow, this is like a different world," right? And I said, "I'm going to take a shortcut; I'm going to make Charlie's friends my friends because he's already done all the work; he did the filtering," you know? Can't get a better filter than Charlie, right? And, and so I, I worked on building relationships with Charlie's friends and some of his family, and that's been beautiful. I mean, some just great friendships, uh, and you know, I realize that there's such a huge Delta in off-the-charts top .1%, top 1% of humans and the rest. And you know, we, we talked about this; Adam Grant uh, wrote this wonderful book, *Give and Take*, right? And he categorizes people uh, in three buckets, right? The givers, the takers, and the matchers, right? Now, the takers, you don't want to have anything to do with, you know, they just going to like want to extract whatever they can from you, so they're just not people you want to uh, have in your life. The givers are people who are selflessly trying to help the planet, not really concerned about what comes back to them, right? Those are the ones you want to be with, and then, then the matchers, they're kind of doing math in their heads, "Oh, you know, Shan did this for me, so I'm going to do something similar for him." They kind of—and so even the matchers aren't that great. So what you really want to do is you want to seek out the givers, and more important than that is you want to be a giver, right? And uh, and so the, the interesting thing that he pointed out in that book is that when you're a giver, the universe conspires to help you, and I found it magical how—and Warren and Charlie are great examples of givers—everyone's trying to help them in any way they can. And so that's the, the funny thing is that the matchers who are trying to do this, you know, equalization, they end up losing. The best way to get the most is not ask for anything; it'll all come to you, right? You know? And so, so these are wonderful models to incorporate. Yeah, there's even some Game Theory with that, which is the cost of excluding somebody who might be good or might be great is quite—is actually quite low to you, but the cost of accidentally including somebody who might be—have some toxicity or—is quite costly to you. And so, uh, you know, I think even in investments, he has the, the good pile and then the, the two hard pile. Warren has a lot of baseball analogies. He says that in investing there are no called strikes, right? So in baseball, uh, you're at the pitch, three strikes, you're out, right? He says, "I can let a, thousand balls go by, thousand stocks go by and not swing, right, right? I, I only need to swing when eight moons line up," right? And so the fat pitch, right? The fat pitch, right? And so the thing is that we live in a world with infinite humans. If there are infinite humans, it also implies that there are infinite numbers of good humans. So basically, uh, making of—excluding a good human from your circle because you can't figure them out, there's no penalty for that, right? Because there's an infinite supply, right? Just to put it for the mathematical way, mathematically, uh, but, but when you bring in a substandard person, it just—there's so many drains; it's just negative.

I want to hit you with some of your big investing philosophies and give me the kind of the, the punchy version of like what is that, what is the phrase mean, and how you use it. So um, let's do one: Heads I win, Tails I don't lose much. Well, I mean, I think this is classically uh, comes from the Patels, right? The, it's the dando philosophy, uh, but, but this is, this is how we want to uh, do all our bets—with people, with stocks, uh, with everything—asymmetric. Yeah, basically where uh, we always want to look for things where the, the odds are so heavily in our favor. And uh, so in investing, uh, we do get these anomalies where you, you take—what's one that you've benefited from, or what's an example in your portfolio or your career investing where you felt like you, you, you recognize asymmetric upside, your downside was capped, but your upside was high? Well, I mean, I think that if I look at my first business, for example, right? I mean, I, I'm taking 30,000 for my 401k, which I can make up, and at that time the uh, credit card laws were very different where if you uh, declared personal bankruptcy, you got a clean slate and actually didn't affect your credit because you couldn't file again for seven more years. So everyone would give you money after you filed. Okay. So actually, they've changed the laws now, but at that time, uh, what I had, uh, I realized that starting a business has high rates of failure, right? And so I said, "How do I um, minimize the risk on that?" And, and this is what all entrepreneurs do, and I said, "Okay, so basically, if this thing blows up, which there's some probability that could happen, um, I got my job already; they want to take me back, and I, I clean up the slate," and and I'd also drisk it because the company was already cash flow positive by the time I quit my job, right? And so there was already a pipeline and such. And so repeatedly, what I've, what I found is uh, even, even in investing, uh, I mean, I'll give you an example, like, for example, I think in 2003 or 2004, there was a steel company uh, in Canada, uh, IPCO, and um, I noticed that they were trading uh, for three times earnings, right? And they, the, the stock was at $45; they had $15 a share of cash on their balance sheet; they had no debt, and they had contracts uh, over the next couple of years where they had said, "Our earnings for the next two years are going to be $15 a share each year," um, given because these were, these were, these were not forecasts; these were hard contracts, right? So I said, "Okay, so the Stock's at 45. If I just buy the stock and hold it for two years, I got $45 cash in the company." Now, it was a cyclical business; the third year could be zero, could be negative, but I said, "I, I own all the plant equipment everything for free," right? So my, my—I made the investment; I put 10% of assets into IPCO, and I said, "All I want to do is I want to see what Mr. Market does with this stock in two years; just going to hang out and see what happens." So we make the investment, and then a year later, the company announces is that we're going to have one more year of $15. Okay, so now you're going to have 60 versus 45, right? And by now the stock has kind of gone up, and it's sitting at about $90—double in one year. So I said, "Okay, uh, it's still a very cyclical business; maybe we should take our chips off the table," and while I'm thinking about all that, one day I wake up, and the Stock's at 155. Some Swedish company came and offered 160 to buy them. Five minutes later, I sold the company and moved on, right? So what, what I'm saying is that that's what we're looking for, right? We—and in the equity markets because these are auction-driven markets—when you look in areas which are hated and unloved, you will find these anomalies. Um, last year, for example, I spent about seven or eight months uh, studying the coal industry—four-lettered word—hated and unloved more than anything else. Yeah, I mean, uh, a lot of endowments and funds are not even allowed to invest in the coal industry; it's so much hatred for it. So you got excited? The math, the math was like this: if there's a business that is going to exist for 50 years on average, it's going to produce a billion a year in cash flow that's going to be distributed to shareholders, available to buy for less than two billion, where do I sign? Okay, that was a coal industry, okay? And so it's like you, you, in auction-driven markets, you repeatedly, repeatedly run into these things where things, you know, the companies emerging from bankruptcy, there's things that people just don't like; there's different reasons why things get mispriced, right?

You talked about like um, private markets versus public auctions and why you think public auctions present more of these dislocations, more of these opportunities. Well, I think, I think that uh, let me put it this way, um, let's say this home of mine was a publicly traded company, okay, listed on the NYSE, right? Every day its price would change, right? It would be wiggling here and there, and if I look at the average uh, public company on the New York Stock Exchange, the 12-month range of the stock might be 70 to 140 in 12 months. If, if I just throw a dart at any company in the New York Stock Exchange and I just look at the 52-week range on that stock price, it's going to be 60 to 100, 70 to 130, so like a 50% swing; it's a big swing, right? My home, which maybe might go up 4% in a year or in a good year maybe 3%, would be vacillating in value; it would be sometimes trading 20, 30% more than it's worth and sometimes trading 20, 30% less than it's worth. And if I had a realtor friend and I said to him, "Listen, um, can I call you every day and just tell me what my house is worth?" The guy would think I was stupid, but I would call him on Monday and say, "Hey, what's my house?" He said, "It's worth 2 million." I said, "Oh, thank you." I call him the next day; he said, "Still worth 2 million." Okay, third day, he said, "Listen, idiot, it's 2 million," okay? And after a month, he would tell me, "Oh, it's moved to 2 million, 30,000," okay? And then again, he would be at 230,000 for a while, okay? It wouldn't move because it's an intelligent buyer facing an intelligent seller, and so you're not typically going to get um, a company like IPCO available as the whole company for the price you can buy some shares, right? Because the whole company—there's an intelligent guy; the Swedish company paid 4 times that price to, to buy the company, right? And so that's just the nature of—so reason I like the—I've always like public markets is because there is so much irrationality, and if you're just willing to be patient, uh, you know, in a year, in a year, if I can make two good investments, it's a good year, okay? So we don't need a lot of activity, right? We just need to be patient and wait for, for the times when uh, something weird is causing a mispricing, right?

So uh, let me ask you a few questions. So number one: Should, in your opinion, should somebody just buy the index, uh, low-cost Index Fund or actively invest? Uh, the index is a really good way to go. The index is too dumb to know that it owns Nvidia, and it's even more dumb—it's even more dumb that it won't—it'll never sell N, okay, or it's own Apple the last 10 years and never sold it, for example. So I would say for the overwhelming majority of humans—probably more than 99% of humans—you're best off just buying an index, and I think that the uh, the US Equity markets and the US Financial uh, Services industry is so efficient that the frictional cost for owning, owning an index through an ETF is, you know, single-digit basis points, you know, less than uh, one-tenth or 1%, less than 0.05% or 1% or so on. So it's very, it's very small, and so I think it's very smart to uh, go with indexing, absolutely. Yeah, for, for the vast majority of people. Yeah, for almost everyone. And for whom—who shouldn't do that? Well, if you are, if you have the talent and the patience to figure out what a business is worth and then um, you know, have the ability to buy those businesses well below what they're worth and patiently hold them, uh, those sliver of humans that can do that uh, would be better off just doing it that way. If I said what's the number one trait that makes a great investor, what comes to mind? Patience. If you are a guy who loves to watch paint dry, you know, you paint a wall and just sit there and watch it dry, you will do very well. Did you ever watch *Seinfeld*? Some episode—not, not religiously. The thing is that uh, Elaine, Elaine is on a flight uh, with her boyfriend, okay? I forget the name of the boyfriend, and I think if you pull up Google, you can probably find this clip. The boyfriend is just staring at the seat back in front of him, okay? And so Elaine says to him, um, "Would you like something to read?" He keeps looking at the seat back and says, "No." Um, "Do you want to talk about something?" And he says, "No." He just, he's just doing nothing, just looking at the seat back in front of it, right? By the end of the flight, she's broken up with him. Yeah, he would have made a great investor. That's what you need; you can be—if you can be happy or—like, you know, Pascal, Pascal had a great quote. He says that all man's miseries stem from his inability to sit quietly in a home, in a room alone and do nothing, right, right? And so if you have this ability to watch paint dry, watch the back of an airplane seat for a few hours and just be in a nirwana state, this is the, this is the work you need to be doing.

I don't know if you know this, but you have a fanbase in a subreddit on Reddit. I don't know if you ever—have you ever been on—I haven't done much on—so I went, when I was doing my research for this, I'm seeing what do people think about, about you, what questions do people have, and I go, and one of the best comments I thought was such a great compliment. They go, "The day I knew that this is my guy I want to follow, he's on CNBC, he's on a TV show, and they're asking for stock picks. So give me a stock pick," and they go around the horn, and everybody gives their stock; it's going to be this, it's going to be this, it's going to go up. They go to you, and you go, "I don't really give public stock tips like this," um, and they're like, "Well, you got—you're on TV, you got to do something," and they're like—the comment was, "He refused to just like randomly name a pick or tell people to go buy something," and the TV hosts were like, "Why are you on TV?" And he was like, "That's not what I do," and then he just stayed steadfast, and I thought it was such a great compliment, but also so, so big of a contrast from—you go watch Kramer or these guys, and it's like—you go on, and it's like overstimulation, telling you you got to do something right now—the opposite of patience. Basically, uh, is that should people avoid that? Yeah, I mean, I, I think that it's a big red flag if you're taking stock tips from some guy on TV. I think that's just not going to end well, you know, the guy on TV is not going to be there when it's down 30%, right? He's, he's all somewhere, not available. Have you seen the reverse Kramer index? It's—not just people just—whatever he said, do the exact opposite, and you're up—like you're crushing the market if you just did the exact opposite of this guy. Yeah, so I mean, I think, I think that like I said, I think indexing is a great way to go for most people. I mean, uh, so you know, uh, I wish, I wish um, in high schools or even Middle School, compounding was part of the curriculum from an investing point of view, and, and you know, just uh, it's really simple, but, but you know, the people, people don't pay attention to the math, you know? There are three variables that uh, matter with compounding, right? I mean, one is the, the starting capital you have; the second is the um, the annualized rate of return you get; and the third is the length of the runway, right? Now, there's something known as a rule of 72, which is a kind of mathematical—just a very helpful rule—explain it. It's—I learned this luckily—one teacher in college, she used to be a student; she came back to teach—said because she's like, "I wish we actually taught things that were relevant in the real world," so she took it on herself, became a teacher, to come back and teach personal finance. And the one thing she did was she's like, "You know, compounding is the eighth wonder of the world, and let me just tell you the rule of 72." Very simple math, but explain. So the rule of 72 is just a mathematical quirk that happens to work. So, for example, if I'm getting a 7% return a year and I want to know how long is it going to take for this money to double, I can take 72, divide by 7; it's approximately 10, 10 years, take 10 years, right? Now, if I have a 10% interest rate that I'm getting, and again, if I do 72 divide by 10, it's 7 years. So you can, you can switch between the years or the interest rate, and it tells you the other one, right? And, and this is um, the most important thing in life is how long does something take to double, okay? Because that basically leads to everything else. So, for example, if you look at someone like Warren Buffett, right? He started, he started his compounding journey when he was like 10 or 11 years old. I think he's—he would say it's when he was 7 years old. He's going to be 94 this year, okay? That's an 87-year runway so far, right? Uh, now, the thing is that if you have a really long runway, then a low rate of compounding would still get you a big number; or if you have a shorter runway and a higher rate would again get you the same result. So it's very important in life, uh, and that's why I think that I wish they do this in high school is to start that engine early. So, for example, let's, let's take a situation of someone who's just finished college, right? At 22 years old, they got some job, maybe like making, you know, 70, 80,000 a year or something, and they, they put away $10,000 in their 401k, right? They're 22 years old, in, in an index, right? The index has done 10% a year. Now, what that means is the 10% a year means that that $10,000 will double every seven years. So let's take a situation where the person is now 64 years old, right? Now, they started at 22, with 64, so it's 42 years. 42 years is six doubles, right? I do this to make it easy, right? Okay, so six doubles, right? That's 2 to the 6th; 2 to the 6th is 64. So that $10,000 that the person saved at 22 is $640,000 at 64. But that's not all they have; at 23, they save $11,000; that's again sitting at some big number, and you keep going, and you know, sometimes we see these news articles; there's some guy who's a janitor—janitor of some college—and he gives 4 million to the college and lived in a one-bedroom apartment, whatever, right? Why are we surprised? Okay? If you actually run the math, he actually didn't even save that much, and he didn't even have that, a such a great compounding engine; it's not like he found Apple 20 years ago or something; that's not what happened. What, what happened was that there was a consistency. And so actually, my, my pushback to my dad when he was telling me to start a business is I was telling him at that time, I said, "Look, I got a 401k; I got 30,000 in the 401k, right? I'm going to—I'm continued with 15% a year; my employer at that time was matching the first 2%, so it was becoming 17%, tax-free, basically; it's tax-deferred, and my income's going up over time." So I was—when I first started working, my salary was 31,000, right? So I'm saving 4500 a year, right? But if I was still working, my, my, my pay would have been hundreds of thousands or more, and I'm putting away a lot of money. So by the time I get to retirement, it's like, it's game over, you know, lots of extra cash available, no problem, and I never missed the money because it was pre-tax, right, taken out, so it's just great. So I think, I think, I, I wish that uh, young people understand that. Yeah, listen, you can pursue lottery tickets, you can pursue entrepreneurial dreams, you can do all of that; that's fine, but on the side, keep this going, and, and start it early. Let it be boring; let it be a stupid index fund—Vanguard and whatever—and uh, and that's it. The uh, the tortoise is going to win the race, right? You know what's the uh, circle the wagons philosophy? Well, the circle the wagons philosophy actually came...

Out of uh, when I was thinking about Buffett's letter last year to shareholders, the uh 2023 letter, he he pointed out that in 58 years of running Berkshire, uh, there were only 12 decisions that he had made that had moved the needle for Berkshire. Now, Berkshire had a tremendous run; they've compounded um, I mean, till recently, were compounding at 20 plus percent a year for 58 years. That's, you know, if you're doing uh, if you're 20% a year, you are doubling every three and a half years, okay? And that means after 35 years, it's 10 doubles, and 58 is another 23 years, so you've got another uh, what, 16? So 16 doubles uh, 2 to the^16. Now, the way to do 2 to the^16 is 2^10 * 2^6. 2^10, round number, is 1,000; it's 1,000 x, right? And 2^6 is 64; it's 64,000 times what you started with, okay? If you started with $100, it's 6.4 million, okay? $100 is 6.4 million, okay? So he he's saying, I would calculate in the last 50 years, 58 years, Buffett's made three, 400, at least 400 different investment decisions. He's saying 12 are the ones that mattered, right? The god of investing has a 4% hit rate; that's the god of investing. That's why we should index, right? What are the rest of us mere mortals supposed to do?

So now the thing is that I was thinking about his 12 bets, right? And I I I thought about, okay, which were the 12? And I think he never mentioned that, but you could guess which one. See's would be one of them. Coke would be another one. AMX, uh, Gillette, Cap Cities, Washington Post, you know, you can come up with the names, you know, uh, Berkshire Hathaway Energy, a Chan hiring a chain, probably was the biggest bet for them, with paid off huge for them. What's the story with a? There's something about the recruiter for him. So what I realized when I thought about these 12 bets was it wasn't the buy decision. The buy decision is important; the important thing was they never was sold. See's stayed in the stable for 50 years. Coke has been in the stable for 40 plus years, right? So it wasn't the buy decision; it was the paint drying decision, okay? That was the important thing. So when you find yourself in the happy position of a small ownership in a great business, just find something else to do with your time, uh, play bridge or whatever. Have you, have you considered golf? Uh, I have. Golf is great. And and so if you ask Charlie, he would say the single best decision, best investment Berkshire Hathaway ever made was the search fee they paid to hire Ajit Jain, okay?

Now, Ajit Jain walks into their offices in 1986, 1985 actually, never having worked in the insurance business, right? Um, from scratch, without them putting up venture capital or anything, the business he's created for them today probably has a value north of $100 billion, okay? I mean, it just gets lost in Berkshire because Berkshire is so big, but I'll give you I'll give you an example of um, of a uh, a discussion I had with Charlie, I think there maybe two, three months before he passed away. So he was telling me that um, a, you know, Berkshire Hathaway writes uh, super catastrophe insurance, like, you know, uh, insurance against hurricanes, uh, earthquakes, and so on, right? And um, many many years uh, there when people are looking for earthquake insurance in Florida, uh, hurricane insurance in Florida, Ajit would look at the rates being offered and just take a pass, okay? Basically, he would find it's too competitive, whatever else, people not giving enough, okay? Uh, what he did in 2023 uh, and they mentioned it at the at the meeting actually, is that um, he wrote um, hurricane insurance uh, on Berkshire's behalf, uh, reinsurance with a maximum payout of $15 billion. So if if these hurricanes had hit now, uh, basically the math is like this, I just want to explain how how Ajit's mind works. Um, Berkshire would pay out on a big catastrophe like in uh, earthquake, uh, hurricanes, 3 to 5% of the total insured loss incurred. So for them to have a $15 billion payout, you would have to have had an event with insured losses in Florida of $300 billion. It's beyond and and beyond Katrina, right? Is beyond all of those, right? So it's it would be need to be a really big event to for them to have a $15 billion payout. The premium he collected uh, to write that $15 billion policy, take a guess. Take a guess. Five billion. He collected five billion, okay? And I was sweating that guess. No, no, but but but he he collected that's exactly what he collected. How much did he pay out in '23? Zero. There was one. My guess would be they might have paid out 3, 400 million, okay? You know, some 300 million, collect 5 billion, and and what Charlie said to me is Ajit's done this about six times, okay? Where he's picked the years that he's written these policies, because what was happening in most years is the premium offered was 2 billion; he just took a pass, right? Right. A lot of all the other insurers wrote that policy; Berkshire took a pass, right? No C strikes, right? And and and now, for example, uh, we've had um, we had some unusual uh, losses, like, for example, um, that uh, that ship in Baltimore, right? Now that's going to end up being about three, 3 to 5 billion in losses, right? And it's the biggest maritime loss in global history; it's going to change premiums for ships in the future. Berkshire will probably be writing when everyone else is saying I don't want to do that. You know, it's like the cat who sat on a hot stove and doesn't want to sit on any hot or cold stoves ever again. You know, you have a thing over there; I saw in your office that says it's like a placard; it says, "Trouble is opportunity." Absolutely. That's a that's a the story of that; it's a quote by John Templeton, uh, and I actually uh, the good friend of mine, P.R. Watta in Canada, they call him Berkshire Hathaway of Canada, War Canada, and uh, I had seen that uh, that plaque on in his on his desk, and somebody sent it to me, and so it's a great quote. I mean, I think that that's what what we're trying to do as investors is we uh, want we we need to be fearful when the world is greedy, and we need to be greedy when the world is fearful. And so basically, when the world is running away from coal, we need to run towards coal, right? So I'm always looking at what is hated and unloved, right? And usually you will get a lot of mispricing when something is hated and unloved, right? Uh, tell me about Bitcoin. Are you a fan of uh, crypto, Bitcoin? Are you a believer? Outside my circle of competence, and I would say that if you put a gun to my head, I would say it's going to end badly. M. And why is that? It's in the eye of the beholder; there is no intrinsic value, as I understand it, to Bitcoin. Now, you can argue that there isn't an intrinsic value to the dollar, uh, but it has the full faith and credit uh, of the US government, which is then backed by the uh, hardworking American people. So basically, I think that uh, I think that it's U, for me, it's in the too-hard pile, but I think for most people, I would just say take a pass, right? Most people who have invested in Bitcoin couldn't really tell you um, why it's or what it's going to be worth and why it should be worth that, okay?

Uh, fair enough. So one of the reasons I wanted to fly here is because it's fun to meet these kind of outlier investors or even just hear the stories, and I've heard you tell a couple stories about guys I've never heard of that um, I would love for you to to tell the story because I think most people have never heard of these people. So tell me about um, Nick Sleep. Who is Nick Sleep or uh, Junjin Wala, whichever is your favorite? Give me give me one of the the stories that that well, I think Nick is uh, Nick is a wonderful guy, and there's a book called uh, uh, "Rich, Richer, Happier" that came out uh, two, three years ago, and there's a chapter on him. Nick is very uh, he's a recluse; he doesn't do uh, interviews and such. I was actually surprised he even talked to the author, but it's worth reading the the book, and uh, you know him, he he and his partner, Zach, uh, they would uh, come into their office and basically just sit and read annual report after annual report till they were blue in the face, you know? I mean, they were just and um, and and they would uh, want to see if they could understand uh, different businesses, and that exercise of reading those annual reports led them to the annual report of Amazon, right? And for example, I I've been a customer of Amazon, known Amazon for a long time, etc., familiar with the business, but every time I would uh, take a cursory glance at Amazon, it looked very expensive on an earnings basis, a PE basis; it looked really expensive. And the reason it looked expensive is they were investing so far ahead of the curve on the growth that uh, what what should have been categorized as capex wasn't was just categorized as expenses. So the US government was really funding their growth because there were no taxes uh, being collected. Now, what what uh, Nick and Zach were able to do because they were just sitting in their office with no distraction, reading year after year of Buffett uh, of uh, Bezos's letters, and the Bezos letters are worth reading. I mean, I think they're they're very uh, clear; he clearly laid out in those letters what he was up to, right? That he's basically, Ally, that he wasn't he wasn't uh, completely candid, but he was basic; you could tell that the business had very high returns on capital, and he was investing uh, he was throwing a lot of things against the wall, but basically they were very low-risk bets; if any single bet didn't work, it didn't wouldn't sink the company. And um, so for example, one of the bets they made was AWS, right? Which became a huge, and they didn't know it was going to become as big as, but but basically, um, they also made a bet on Fire, Amazon Fire, which didn't work, but basically, I think what uh, what Nick and Zach realized is that here was a very gifted capital allocator who understood all the different facets of building a team, going after different markets; he actually disrupted multiple industries. And so they had placed u a bet on Amazon, and uh, and because Amazon was doing so well, it was becoming a larger and larger portion of their fund, and in the UK, there are more regulations on hedge funds than we have in the US. The UK regulator was telling them that we see this position as very high risk, uh, and you guys need to diversify. So they were getting pressure, and they felt that they understood the business so well. So they looked at each other; they were they were managing I think two or three billion; they had made hundreds of millions in for each of them, and uh, they said, "Look, uh, we are independently wealthy; we never thought we'd be here; we're young; uh, why do we have to listen to some regulator, right? We could return all the capital to all our investors," and uh, what what Nick said is, "If I return the capital, I'm going to put everything into three stocks," and these are three stocks he owned, maybe a dozen stocks, but he was going to go into three stocks. The three stocks he was going to put one-third each into was uh, one-third Berkshire, one-third Amazon, one-third Costco, right? And so he said, "I'm very comfortable with these three talks; they very built-to-last businesses," and he did that. And what what happened uh, a few years after they hung up their boots is um, it's really funny; the uh, Amazon still kept, you know, it's a juggernaut; it still kept going, and so it became 70, 80% of the pie. So instead of them being one-third each, it was 80, 10, 10, for example, right? And uh, uh, Nick decided that, "Oh, maybe I should take some chips off the table here," and so he cut the Amazon position in half and bought uh, another business which has not done well, went sideways, and that goes back back to Buffett's point of 12 that worked in 58 years is we are not going to if Warren Buffett has a 4% hit rate, the rest of us are going to have a 2% hit rate, okay? So but you also need to get rich just one. So I I think that what worked really well for Nick and Zach was they took the Buffett lesson, which is that once you have a great business, just leave it alone. Now, even after he was sloppy and he took chips off the table from 80% or whatever, still done very well, right? And and I think one of the things that uh, investors forget is that um, if you look at the the Walton family, um, none of them are running Walmart. Sam Walton passed away a long time ago; it's been several decades since Sam Walton passed away. The Waltons have, for the most part, kept the Walmart stock, and for most of them, it's almost the entire net worth in a single stock, right? So more concentrated than even Nick Sleep's, right? And uh, it's not a business that they control; it's not a business that they run; it's not a business that they are on the board of; um, none of them gives them sleepless nights, right? And uh, so for example, in 200 um, 18, I started visiting Turkey, and I was just looking at things hated and unloved at that time, and I saw that the Turkish markets were screening really cheap. Everyone in the brother was just exiting Turkey, and I have a really good friend of mine in Istanbul, very good investor, kind of classic Ben Graham investor, and I told him, "Hey, Haider, I'd love to visit Istanbul, and I'd love to if we could visit all the companies in your portfolio, starting with the company with the your strongest conviction, biggest position to the smallest position, and I said, 'Don't take me to see any companies where you don't have money in.'" Okay? He said, "Mish, it'll be a blast." So I went in 2018, first time to Istanbul; the Blue Fish on the Bros forus was great, and all these different businesses we saw were great, you know? And I didn't really do much work; he told me what places we were going to, but I just said, "Let me meet the companies first." I went back in 2019, and we're driving to this company, and I like I said, all these Turkish names and companies, I said, "I will do the work on the back end; I'm I'm not going to spend time." So as we're driving over, I said, "Hia, remind me what company are we going to? What's the what's the cliff notes version?" He said, okay, he says, uh, "This company going to visit, RAS, has a $16 million market cap," $16 million market cap, and he says, "A liquidation value of the business if you sold it today is $800 million." So I said, um, "Is it a fraud?" He said, he said, "No, I'm I'm invested in the company." And so I said, "You're telling me the company is trading for two, 2% of liquidation value?" He said, "Yeah." I said, "Why?" He said, "It's Turkey; you know, everything's cheap." I said, "But this is outlier cheap," okay? And RAS basically is a very simple business; they uh, the largest warehouse operator in Turkey; they rent out all these warehouses; these are 99% leased, inflation indexed, and um, they lease to Amazon, Ikea, Car 4, Mercedes, Toyota, like blue-chip clients, and all of that, right? So I went and uh, met the father and son who run the company and the founders, and um, and then after that, I went and visited a bunch of the warehouses, and I couldn't find anything wrong with it, basically, uh, and he was absolutely right. If you just went to any realtor in Turkey and said, "This is their ad warehouses, uh, give me a value in each one," he would just look at the rent, and he would tell you, okay, you know, you're looking at about $70, $80 a square foot for each warehouse; they had 12 million square feet; it was about a billion dollars, and there was $200 million of debt, so $800 million liquidation value and $16 million market cap, okay? And so then I thought, okay, this thing probably um, trades by appointment and maybe can't buy the stock, but Turkey has very high trading volumes because they're all gamblers, and um, so I found that when I when I started buying the stock that huge volumes are available, and I I spent $8 million to get a third of the company, okay? Now, the way I look at it is that you know, when you look at, you know, Buffett's letter with the 12 positions or you look at Nick Sleep with Amazon, right, um, the family that runs the business, they have maybe 40, 45% ownership, right? Uh, I'm an outside investor at 33%; I'm no board seat, but the way I look at RAS is the way the Walton family looks at the Walmart stock, right? Uh, I said, and what what I've noticed since then, since 2019, is they have increased the value of that business. So I would say that probably today the business might be worth one and a half to two billion, somewhere in that range, and I think they'll I've never seen them make any decisions that were stupid; they're very smart about the decisions; it's very well-run. So I say, okay, basically, uh, we are done; we will keep that business; I don't care about the stock price. So the $16 million market cap now now is about $500 million, you know, in four years, and you know, the Turkish lira, which when we were investing, it was 5 lira to the dollar; today it's approaching 33 lira to the dollar. Turkish lira's collapsed; um, in dollars, we are up almost 30x, right? Right. But uh, the business is worth more, right? And so the thing is that it's exactly what what Buffett says is that basically, uh, just leave it alone, and uh, as long as that family and that father and son are running the business, we will just uh, keep our stake and uh, and uh, let keep running. So basically, the idea is that uh, I'm also going to, when I look back, going to find there were a few things that move the needle big time, and the rest it and and the key to moving the needle is inactivity, and so that's what you you got to be just you got to be very patient and be very inactive, right? You talked about uh, Bezos being a capital allocator, um, Buffett obviously a capital allocator for Berkshire, and what, you know, who are the other, I guess, like if I just throw some names at you or some companies at you, like I'm curious to hear your take on how well they allocate capital, because we know how maybe how good their brand is or their product is, but uh, we were talking about this yesterday; there's a transition from you're a product manager where your focus is building product, and you're a people manager where you're building an organization, and then you're a money manager, and you're now, you know, you're sitting on $100 billion; you have to figure out some way to invest it; this is like, you know, so so tell me, Meta or Facebook, what do you think? How do you think they've done with uh, capital allocation?

Well, I think I think it was really surprising to see how um, he did a 180. I mean, uh, I think uh, Mark basically moved from being a spendthrift to being a Patel, you know, uh, he I mean, literally, I I just can't uh, I think it was remarkable to see uh, an entrepreneur pivot that way, right? So uh, you know, Meta was a country club, you know, they had all this spending going on in all these areas, and he really tightened it up. I mean, I was really I mean, and it showed up up in the numbers uh, they I mean, Facebook is a great business, you know, all the different brands they have and different properties they have are tremendous. Um, it is the norm in capitalism that great businesses will be sloppy with how they execute. I think normally it's very rare to find a great business which is also tightfisted, and Meta wasn't tightfisted, but it is now. M. And uh, so that was just wonderful to see. So I think yeah, I think the capital allocation there is excellent now, right? What do you think about uh, Elon Musk, fellow uh, fellow Texas resident, um, the United States? This is one of the just be most beautiful things about the United States is Elon wasn't born here, okay? And he wasn't educated in his first 20 years of life over here. We the United States got a finished product basically, and uh, he's created tremendous value, tremendous jobs, and disrupted multiple industries. Um, I think I think Elon is an exceptional allocator of capital. Yeah, it's terrific actually, and Tesla gets a lot of there's a lot of conversation is Tesla overvalued, is it undervalued, is it, you know, too frothy? I guess what's your take on uh, when you look at a business like Tesla, how does your mind analyze a business like T? It would it goes into the too-hard pile. I I would I would I would I would say this; I would say that Elon is not human, okay? He's beyond human. Um, if you just think about all the things he's done, I mean, now the neural net uh, and and um, you know, Boring Company and uh, you know, what he's doing with SpaceX and all that, it's uh, it's just really very remarkable; the execution is off the charts, um, and uh, I think I think like I said, I think it's just uh, uh, unbelievable in terms of what he's been able to accomplish. So I have a lot of respect; I think I think Elon understands capital allocation really well, and I think uh, all the businesses that he uh, he gets involved with or he founds, they do so well because he gets so much out of the people, which basically means he gets so much out of the capital, right? I mean, he's his hiring is so good; the teams that he's building are so exceptional that uh, I mean, when you're hiring a software engineer, uh, there could be an engineer who's worth $10 million a year, and they could be another guy worth $100,000 a year, and he can tell the difference, right? And so he's that's that's a great skill to have.

Yeah, I love that. Uh, we'll end with this: We have Charlie, uh, you know, here, and he passed away, and you were friends with him. What's a uh, maybe your your favorite story or lesson from uh, from Charlie Munger? Yeah, I mean, I I obviously I miss Charlie. I think uh, he he was one of a kind, I think he was just a and and I I've been thinking last several weeks, several months about so many of the lessons and things, but one of the things Charlie said in one of the last interviews uh, he gave, um, uh, someone asked him, I think uh, "What would you like on your gravestone?" And he said, "I tried to be useful," and I think those those words, "I tried to be useful," um, encapsulate Charlie really well. Uh, if you look at Warren Buffett's tribute to him that he did this year in the letter, um, Charlie selflessly helped Warren uh, a lot. I mean, without Charlie Munger, there's no Berkshire Hathaway, um, even though you had a Warren Buffett there. And I twice I went to Charlie when I was facing uh, difficult personal situations, nothing related to investing, right? Extremely helpful to me, on point; I just did exactly what he told me to do, and those issues disappeared, right? And so Charlie always was trying to see how can I help the world uh, in all the institutions that he touched, uh, you know, his memorial was at the Harvard Business School in California and LA, um, transformed that institution; he was at the board of the Good Samaritan Hospital, transformed the hospital; Berkshire Hathaway, transformed. I met so many partners he had in different businesses; always gave them the better deal, and uh, I think in every way possible, he I think that was just absolutely correct; he selflessly tried to be useful. And you know, Charlie, I don't think Charlie believed in God; I don't think he believed in religion, right? And I think he didn't believe in legacy; he I think he believed that when we're gone, we're gone; it's ashen than dust, right? Till one day before he passed away, he was in the hospital; he knew he was dying; he was trying to get one last grant done to a nonprofit; no upside to him; he's dying, right? Right. Uh, um, six days, um, six days before he passed away, he was buying a stock, okay? You know, a stock we discussed, you know, and uh, I'll send up a write-up on. So uh, I'm just saying that I think Charlie extracted everything he could from his mind and his body. The other thing was that he never complained; lost sight in one eye uh, many decades ago; he was almost blind in the other; he cared most about reading, right? That was most important to him, and I saw him one time when the second eye was giving him a very serious problem where he could have gone blind; this was maybe 10 years ago in the second eye. Even when he was facing the prospect of complete blindness, um, he was so stoic; never said, "Oh, poor me," self-pity; his response to me was, "I'm going to have to learn Braille," you know? You know, that's that's how he was going to deal with it, you know? And so I think yeah, there I think it's this great uh, we have such a big rich body of work that he left, "Poor Charlie's Almanack," and uh, I think a lot to learn from him, right? Well, thank you for sharing that, and uh, thank you for doing this. This is hopefully your, you know, process of uh, of sharing some of your wisdom, so thank you for doing this. It's a pleasure; I really enjoyed the session. Thank you. Right on. Okay. Hey, all right. Sounds good. Thank you. Great. [Music]