Our guest today is Mohnish Pabrai. Mohnish is a legendary investor, a shameless cloner and an effective philanthropist. He is both, the author and the subject of several books.
Mohnish is the founder and Managing Partner of Pabrai Investment Funds, Founder and CEO of Dhandho Funds, Founder of the Dakshana Foundation. He is the author of “The Dhandho Investor” and “Mosaic: Perspectives on Investing”.
In this episode we talk about how Mohnish cloned his investment style from legends like Benjamin Graham, Warren Buffet, and Charlie Munger. Mohnish shares lessons from his book about businesses and investing. We talk about deep value investing, great compounders and the difference in mindset those styles require. We get into his investment funnel, investing mindset, and what Mohnish focuses his attention on. We talk about other great investors like Nick Sleep, Zak Zakaria, and more. Mohnish shares investing lessons from the sitcom “Seinfeld” and fantastic advice on personal and career development.
TRANSCRIPT EPISODE 83
[00:00:04] ANNOUNCER: Welcome to The Wall Street Lab podcast, where we interview top financial professionals and deconstruct their practices to give you an insider look into the world of finance.
Welcome to The Wall Street lab podcast, where we interview top financial professionals and deconstruct their practices to give you an insider look into the world of finance.
[00:00:22] AVH: Hello, and welcome to another episode of The Wall Street Lab podcast. My guest today is none other than the legendary investor, Mohnish Pabrai. The value investor fans out of you and the Buffett and Munger fans probably know Mohnish. For those who don’t, he has a quick introduction. Mohnish is a legendary investor, a self-proclaimed cloner, and a very effective philanthropist. He is both the offer and the subject of several books. Mohnish is founder and Managing Partner of Pabrai Investment Funds, founder and CEO of Dhandho Funds, and founder of the Dakshana Foundation. He is the author of The Dhandho Investor and Mosaic: Perspectives on Investing.
[00:01:12] AVH: Mohnish, welcome to the show, and Happy New Year.
[00:01:15] MP: Thank you, Andy. It’s a pleasure to be with you.
[00:01:18] AVH: You have the Dhandho Funds, the Dhandho investors. Can you tell us what does the word Dhandho mean?
[00:01:23] MP: Yeah. Well, Dhandho is actually a Gujarati word, which is one of the regional languages of India, the language of Mahatma Gandhi. And the direct translation would mean business. I would say the underlying real meaning of the word is doing business in a smart way, a way in which the risk is lowered and the return is high. It’s a word that encapsulates quite a bit. The Patel story that I documented in the Dhandho investor, it’s a good foil for explaining both how startups and entrepreneurial journeys work. But also, it dovetails into how investing works.
So basically, at the highest level, if you look at startups, when people start businesses, and I’m referring to non-venture backed startups, which is like probably 99.99% of all the startups, the laundromat, the Chinese restaurant, the pizza place, the mom and pop cleaners and so on. So when people start these businesses, the common misnomer is that they’re taking a lot of risk. But what entrepreneurs try very hard to do is they try hard to minimize risk. They structure things in a manner where their downside is very limited. And the upside is asymmetrically better.
And that approach, which I would short form as the Dhandho approach to entrepreneurship, is what the Patel’s used. That same approach actually is quite powerful because it is the approach that Ben Graham used, and then subsequently Warren Buffett, and Charlie Munger, and so on. So I think we have a lot of lessons we can learn on the investing side if we are able to understand how things work on the business side.
And the Patel example is a really good one because they were very successful at entering the motel business with very low capital outlays and then leveraging those low capital outlays into very strong cash flows. And then that allowed them to kind of acquire more and more motels, which got them today to the point where 70%, 80% of motels in the US are under Patel ownership.
[00:03:49] AVH: Could you talk a bit about your investment style and journey from being the Ben Graham, deep value investor, now recently to investing to great compounders? Could you explain to our listeners, what is the value? What are great components and why did you make the switch in mindset?
[00:04:10] MP: and I started my investing journey in ’94, at that time I focused mainly on compounders. So I didn’t start out being a Ben Graham investor. I started out being more a Munger investor, looking for great businesses that had very strong growth engines. That worked very, very well from ‘94 till about ‘99 or 2000. But as we got closer to ’99, 2000, there was a very serious bubble in the US equity markets. We had the big .com bubble. It was clear to me in late ’99, even when ’99, that it was a bubble likely to pop. I had no idea when or how it would pop, but it was likely to pop. I did not want to expose myself to that.
So at that point, about ‘99 or so, I made a switch, where I went back to Graham-like of investing. And what was happening in the US markets at that time was that very basic, but good businesses were undervalued, whereas these hyped up businesses were pets.com, [inaudible 00:05:29] and so on, were at stratospheric values. And for example, the day the NASDAQ peaked, I think like March 7th, or March 9th, 2000, was the day that Berkshire hit a multi-year low. Literally, people were pulling money out of Berkshire and putting it into pets.com.
So I, at that point, was investing heavily into very basic businesses, funeral homes, and such. And that worked very well. What I forgot to do, because it felt so comfortable, and that bubble was such a massive bubble, that I continued running down the grand path for the next almost 20 years. And what I should have done is I should have probably – The ideal time to switch back to great compounders would have been in the 2009 to 2012 timeframe. I think, at that point, between 2009 and ‘12 is when markets had corrected well enough that valuations have become more reasonable, and what one could again look at weight compounders. But I had become so entrenched in the deep value area and have done so well over that period.
So for example, from ’99, 2000, until 2007, I was compounding at mid-30s percent a year, while the S&P with NASDAQ had crashed. And the S&P and the Dow were like low single digits in that period. They were struggling because they were so elevated in valuations. But then in 2020, I read the chapter on Nick Sleep, and Nick can Zach, in William Green’s book, I realized that I needed to go back. Go back to – In the end, the best place to invest is a great growing business. That’s really where you need to be. The issue is that you need to be careful how much you’re paying. So every business has a value. And we want to be buying things for well below that value. So buying great businesses at 80 times earnings typically is not going to be a great way to get rich. I made the switch back. I was already used to the compounders and all of that. And I just need to kind of reset my framework. And I’ve been in the process of doing that. Yes.
[00:08:05] AVH: You kind of answered one of the questions that I would have had. What is the difference between a great compounder and a growth stock? Because nowadays, I mean, there’s always this battle between value stocks and growth stocks. And many people say that value investing is dead now the markets are different. But I think adding this thinking of great compounders is actually finding growth stocks at the value price. Am I getting this wrong?
[00:08:33] MP: I would say that capitalism is very brutal. It’s competitive. It’s a doggy dog world. Most businesses are not going to be around, forget even making a lot of money or not making money. They’re not even going to be around two or three decades after they are formed. Most startups will disappear in five or 10 years. But even the ones that make it past 10 years, very few will make it past 20 or 30 years. So there’s a very small sliver of businesses that survive for several decades and thrive for several decades.
So they have to have some kind of a moat, which is enduring and durable. Enduring and durable modes are very rare in capitalism. They almost happen by accident. Most entrepreneurs who start off saying “I want to create a durable most,” are going to fail. They’re very difficult to create. Sometimes you just stumble into them. So if you look at a business, like American Express, Visa, MasterCard, the payment system, obviously, payment is going through a lot of change. But those businesses have been very resilient, producing great returns on capital for a very long period of time, especially after Visa and MasterCard went public and became independent entities. They’ve done quite well. Most businesses, overall, are not going to be in this favored space of durable moats.
So we’re not so much looking for growth. We want growth. But we want durability of that growth. So for example, if you look at a business like Costco, it’s almost bulletproof. It’s not going anywhere. Amazon, almost bulletproof. Not going anywhere. These are very durable businesses. So what we’re looking for is strong durability, with strong growth. And that becomes a really, really narrow sliver of capitalism. And then on top of that, we want a great price. So the cherry on the cake is you want great growth, you want great durability, and you want a great price. When all these seven moons line up, that’s when you can make an investment. So you can’t do that very often. I mean, in a year, if I find a couple of things, I think I’m doing pretty well.
[00:11:00] AVH: How many investment proposal, how many companies do you look at in a year? You said in another podcast, you invest into one to three bets a year? How big is your top of funnel?
[00:11:12] MP: Well, I think that will be a little bit difficult question to answer, because I look at hundreds and hundreds of businesses every year. But most of them, I probably spend less than maybe five minutes on, maybe two, three minutes on. I spent very little time. Because it becomes very obvious very quickly that there’s no moat here, or there’s no growth here, or there’s no durability here.
A big reason to get rid of companies quickly is I don’t understand them. They’re outside my circle of competence. So if I look at anything in pharmaceuticals, it’s gone before you can blink your eyes, anything in healthcare. I think US healthcare does not operate with market forces. US health insurance companies don’t operate with market forces. So I’m not interested in those kinds of businesses. So large swaths of businesses just go away because they’re just not in the sweet spot, or what I would understand. I look at a large number of businesses every year. I spend most of my time on very few businesses.
[00:12:17] AVH: What gets your attention in those first five minutes? Is there anything that comes to mind, just like, “I look at a business. And I want to look into this deeper.” Is there anything? Or is it a sixth sense that you’ve built up over the years? You just say, “There’s something there. I want to look into it?” Or is there anything? Any criteria? Looking at like price to earnings ratio? Or any stock price growth? Something like that way where it’s like, “Let’s dig deeper?”
[00:12:43] MP: Well, I mean, I think for different businesses, different things can trigger you. So first of all, one of the things that Buffett says is, unlike baseball, in investing, there are no called strikes. And so what that means is that if Amazon crosses my desk at $10 a share maybe 18 years ago, or 20 years ago, and I’m too dense to figure it out, and I let it go, I don’t pay a penalty for that. What I pay a penalty for is if I make an investment in pets.com and it doesn’t work. So that’s where you pay the penalty, is if you actually make the bet. Not when you take a pass.
So we can be somewhat sloppy in what we select versus don’t select, especially in terms of letting go some great businesses. That happens a lot with me. I’m sure, there are lots and lots of businesses I look at which are very awesome businesses, but I cannot see it. So what I’m looking for is something really quickly that grabbed my attention.
So I would say maybe a couple of decades ago, I saw that in value line, one of the cross sections of a list of stocks they have is stocks with the lowest PE. So they follow 1700 stocks. They list 40, 50 stocks that have the lowest Pes. And usually I scan those lists very quickly every week. And they don’t change that much week to week. But most businesses are there with Pes of two, and three, and four for very good reasons. They don’t make sense.
But I remember I saw over 20 years ago that they were two funeral services companies that were sitting at a PE of two. And I thought in my head that funeral services is a very stable business. It’s recurring revenue in the sense that we know that a certain number of people will die every year in the United States. We don’t know who’s going to die, but we know how many are going to die.
And the other thing is that it’s a protected business. 21-year-olds don’t go into the business world saying, “I’m going to open a funeral services business.” And it also is tradition bound. So when you’re looking to have your last rites done, you’re looking for a place that has been around for a while. And you’re also looking for the service to be done properly. So you don’t go shopping for the low bid. When your Uncle Steve has died, you don’t call six places and get the lowest price and then say, “Okay, that’s where we’re going to have the service,” Unless Uncle Steve was a real asshole. You might then pick a cardboard box for him or something. But you’re generally going to not want to do those kinds of things. So these businesses generally have good margins. They don’t face much competition. And what had happened in the US a while back, maybe what 25, 30 years ago, was there been a massive roll up in the funeral service industry. So they were all mom and pops all over the place. And these two or three large companies came in and they bought them all. They kept the same names and everything. But they were owned by these two or three players. And these players got over leveraged, and then the music stopped, and then their stocks went into tailspins. And that’s when I was looking at them.
They had a lot of leverage, a lot of debt. But on a pure free cash flow basis, they were sitting at two times earnings. And I said, “Okay, there is a lot of debt. Can the debt be managed? So I got intrigued because the PE was showing too, and it said funeral services, right? So that was a trigger to take further, and eventually made the investment, and it worked really well. So there are different triggers.
Another time, I think in 2012, I was looking at the auto industry. And I first looked at GM, because a couple of guys had bought it. And I was trying to understand why they would buy such a crappy business. And I was then looking at Fiat Chrysler, and I noticed that their revenues 140 billion, and the market cap was 5 billion. They were trading at like around 3%, 4% of revenue. And there were a number of things that had happened in the auto business in 2009 after the financial crisis, which actually made the business really good, because they got rid of a lot of the nonsense. So that was another where the valuation was so cheap. And a lot of the things that people hated about the business had actually changed.
There are some things we understand. And based on this understanding, we can look at businesses, and sometimes with our life experience, when we look at a business, we might say, “Oh, I see something here, and I should look at it.” But I’ve also missed so many. Like, I mean, to give you an example, every time I go into a Starbucks, I marvel at the incredible business it is. So when they open a Starbucks store, it takes them like 18 to 24 months to get all their money back. Okay? So you open a store, and outside the US, they get it back in a year. Okay? So the international Starbucks. And the other thing that I’ve known for a long time, and they did this in New York City, was you have a Starbucks in particular intersection, you open another one diagonal from that intersection. No change in the store sales of the original one. You open a third one, there’s still no change. The demand for a Starbucks coffee relates to the convenience.
So we don’t even know where that end point is. You take milk and coffee and whatever and you’re charging $4 or $5 for it. Most of it is carried out. They’re not even in the store. They’re not using your facilities, not using your WiFi. So a few people in the store kind of gives the atmosphere. But it’s an incredible business. I only looked at it, always thought it was expensive. Never bought it. And it just keeps going. And I’ve been not a big fan of Chipotle for a long time. I mean, I think probably 20 years I’ve been a customer of Chipotle, right? And I knew 20 years ago it was a great business. And again, just watching, raising my navel instead of doing something, what an incredible business.
[00:19:13] AVH: Do you look at those business and like, “Dammit! Had I invested? I wish I had done that?” Or is this like a little note in your head, tracking it, “Okay, maybe I should, next time when I see something like this, should act.” Does it change your thinking in any way? Or is this just like mental note gone. I have to focus on the next winner.
[00:19:34] MP: Well, I think like Munger says, we are old too soon and wise is too late. What is gradually sinking in is a willingness to pay up. And the other thing that is syncing in, which is more important, is a willingness to hold. So the two big mistakes that I have made aren’t – I mean, one is very obvious, passing on a number of great businesses, because they looked optically overpriced. In the end, it turned out they were not overpriced. But when you looked at them, they looked expensive. It’s just that they were such awesome businesses that you could have paid 30, 40 times earnings and still done really well on them.
And the second more difficult thing is that you buy something that’s an incredible business. Maybe it’s available at 10 times earnings and you know it’s worth 20, 30 times earnings. And it does well. It gets 20, 30 times earnings, and you sell it. And it keeps going. And that’s the other thing. So those are the two big mistakes, is being too much of a cheapskate. Not paying up. And being too much of a cheapskate and not willing to hold. And I’m hoping to get better at both of those. So there’s still a lot of learning and growth for me to do.
[00:20:48] AVH: What do you do to try to get better? For me, like whenever I see something amazing, I write it on a post-it to my monitor. Do you have any post-its? Or do you have any other routines to not forget the lessons that you learned?
[00:21:02] MP: No. I think the main thing I try to hammer into my head every day is the very simple notion that capitalism is very brutal. There are very, very few businesses that are truly exceptional businesses. If you find yourself in the favored position of being an owner of such a business, don’t worry about the valuation. So I’ll give you an example. When I made the Fiat Chrysler investment, embedded inside that 5 billion of Fiat Chrysler was Ferrari. They own like 90% of Ferrari. And then a few years later, they took Ferrari public. I think Ferrari is at about $270 a share right now. And effectively, when I look back, and when I made the investment in 2012, I got my Ferrari shares at about $13. So it’s gone up about 20 times since the 2012 to 2021 or ‘22 20 times.
And the thing is that when they took it public, it came public at $40 or $45 a share. And my thinking was that, “Okay. These guys are pretty smart. When companies go public, they will try to extract maximum value. They’re not going to take it public when it’s undervalued.” So maybe Ferrari is worth $50, $60 a share or something. Who knows? It wasn’t the part of the business that I was very focused on. I was focused on all the Jeeps and Ram trucks and all of that. And I’d really figured that business out. This business was a little strange because it came public at like 40 times earnings. So that already is above my paygrade. I didn’t think it’s going to go to 200 times earnings. I think I sold some Ferrari at 60 and 100, and maybe 130, and so on. And all those prices I felt were pretty good.
And in hindsight, the unfortunate thing was I bought a Ferrari, but I bought it after I’d sold the stock. I really understood the business after I bought my car. That’s when I realized what the moat of Ferrari is. And why it is such a – Ferrari that business that can earn whatever it wants. It can have whatever net income it decides it wants. It’s in a very favored position. They are one of the most well-recognized brands in the world. And in 70 plus years of history, they have never spent $1 on advertising. There is no other brand I know that’s in the top 10 or top five most well-known brands on the planet that got there without a boatload of advertising. Just look at Coke, for example. I’m just saying that this is a very unusual business, where even today, from 2022, going back to 1950 when Enzo Ferrari formed the business, they have not advertised.
[00:24:03] AVH: That’s crazy. I mean, did you then try to revise your mistake of selling? And even at a higher valuation, try to get the shares back after you understood the moat?
[00:24:15] MP: That is usually too painful for a brain like mine, and too much above my pay grade. I’ve never been able to do that really. And of course, you already paid the penalty. You paid the taxes. You’ve paid all that. Another one was the Chinese company, Maotai. It’s the most valuable liquor company in the world now. It’s a brand you never heard of. But it’s worth several 100 billion dollars. It’s worth a lot more than the top two or three companies put together. Maotai is a business where a bottle of Maotai sells for about – I don’t know. It might be probably much higher now. Not over $1,200 or $5000. It’s a small bottle.
I visited the Maotai factory in China, middle of nowhere. The cost per bottle must be less than $3. It’s one hell of a business. And 80% or 90% of the Maotai sold in China is counterfeit. So the demand is so high, and the company cannot keep up with the demand that even the fake stuff gets sold at those prices, even though they try so hard. And they come up with these special editions. 40,000 a bottle, 70,000 a bottle gone, 15 minutes.
So when they crackdown on corruption in China, because it used to be that you took these government officials out for lunch or dinner, and you gave them Maotai to drink, and then your projects got approved. It became such that in China, if you were a government official caught dining somewhere and someone took a picture with Maotai on the table, that was pretty much the end of your career. Because nothing clean was going on when there was Maotai in the table.
[00:26:02] AVH: Interesting.
[00:26:02] MP: When that happened, that’s when the stock tanked. Because so much of their sales were detainment. That’s actually when I bought the stock. The thing is China – The rise of China is still going on. I mean, the thing is that Maotai is very limited in terms of the quantities it can produce. But Chinese per capita GDP is going to double, triple, quadruple in the next few decades. And so all those hundreds of millions of people who suddenly become upper middle class or rich, they have very few ways to express their wealth.
[00:26:35] AVH: It’s like the LVMH of China a bit.
[00:26:38] MP: Yeah. I mean, like if you look at all the European luxury brands, LVMH, and so on, look at what portion of their sales, not only in China, but to Chinese origin people all over the world.
[00:26:51] AVH: So you are still very bullish on the Chinese market.
[00:26:58] MP: I think in general, China’s going to keep rising. They are a naturally entrepreneurial people who were artificially kept in a non-capitalist system. That genie is out of the bottle. They are rising. They’re getting more educated. They’re getting better infrastructure. So I think that it’s going to keep continuing for a while. Yeah.
[00:27:22] AVH: I want to switch gears just a little bit. And this is something that I found that I got reminded of a lot. On one of the lectures, you talked about Peter Thiel. How competition is for losers. You often talk about finding monopolist, the 100 baggers and the great returns, and to find great compounders. This really reminds me of the venture capital and private equity business, because I also talked with a lot of venture capitalists. And their investment approach seems, on the outset, very similar. They tried to find a company with a moat and then fund it to the next stage. Did you ever think about investing into the private markets? Or was it always for the public markets?
[00:28:09] MP: The venture capital game is a much more difficult game. It’s a very hard game. And in fact, it shows up, because I think the guy at Yale had written about it in his book. If you look at the top quartile bond fund managers and the bottom quartile bond fund managers, you will make almost no difference in returns between them. Hundreds of basis points, or 10s of basis points difference in endless returns, almost non-existent.
[00:28:43] AVH: And there’s no correlation. If you’re in the top quartile one quarter, you’re at the bottom of the next, and you’re in deferred, and you’re in the last, and so on.
[00:28:52] MP: As an investor, you could throw a dart and pick a bond fund manager and will not hurt yourself. Okay. In the venture capital business, there’s a night and day difference between top and bottom quartile. So Sequoia fund has been not just top quartile. They’ve been top 5% or 3% for decades. And I have a number of investors from Silicon Valley who are venture capitalists who have invested in my fund. And when I talk to them, they’ll say to me, “Look, if we had access to sequoias, garbage can, the stuff that they’ve turned down, our annualized returns would triple.”
In the venture business, a big part of the issue is the deal flow. What deals are coming to you? And so brand drives deals. So, Andreessen Horowitz, or Y Combinator, or Sequoia, all these brand names, they’re going to see the deals, okay? And if you’re some Mickey Mouse venture capitalist who’s put up a shingle and opened a shop, whatever deals come to you, trust me, 300 other people turned it down before it’s come to you. You are the 301st person looking at it. And so that’s your universe to pick from. And the results are going to – So I think there are two issues. With Venture Capital, one is the deal flow is a very big deal. And you’re not going to be able to just get the deal flow. The second is obviously, place like Sequoia, or Andreessen Horowitz, etc., they’ve got great DNA. So not only are they seeing the deal flow. They actually have some expertise in sifting through what might be good are not so good.
And then I think the biggest issue with venture capitalists is there are no trademarks. So when I look at businesses, if I look at a Starbucks, or I look at Chipotle, or I look at Maotai, or Ferrari, there’s a lot of trademarks, right? And there’s a lot of history in those businesses. And we can make bets based on the history.
Here, how are you going to tell the difference between Theranos and Apple? Okay? They’re both wearing turtlenecks. How are you going to tell the difference? And one’s blonde, so you might go for the blonde. And you might go for the blonde versus Steve Jobs. I think that the trademarks are not there. And so you’re forced to make decisions. With very little history and data. You can tell if somebody has a great business model. You might bind to a business model. But then they may have no execution abilities. Okay? Or they can execute, but the business model is wrong, and they’re not willing to change it. So there’s so many different variables that come in that I don’t think it’s a game I would be good at.
[00:31:44] AVH: Probably, it seems like the decision criteria, and what you’re looking for is very similar. Just that you have access to a lot more data. And the public markets are an even playing field, basically, for everybody that wants to look, right? You can get better reports. You can buy a Bloomberg. But honestly, everything is going to be on Yahoo Finance anyway.
[00:32:06] MP: The key with value investing is we don’t have an information edge. We have an analytics edge. It’s not that I’m able to know some inside information about the funeral business. That’s not where the issue is. The issue is, for me, the key thing there was I concluded that this was a great business in a bad capital structure. Can it withstand that capital structure and transcend it? That was the question, right?
And so I was able to do the work to figure it out. So usually we have no information edge. We have an analytics edge. For example, the largest position I have right now. I don’t talk much over my current portfolio. But the largest position we have is micron technology. It’s in the memory business. And for the longest time, the memory business, for decades, [inaudible 00:33:05] business. Too players. Someone in waits, cuts the cost in half. The price of your inventory above the selling price. And you’re losing money while they’re still making money hand over fist till you catch up. And maybe you can catch up or maybe you don’t. And in all of that going on Moore’s Law and prices declining, till we hit a point where we’re left with three players. And we got left with, I think, three rational players. And the game changed.
Now, everyone saw that there were three players. But they had so much history and pain from the decades in the memory business that they refuse to believe that anything was going to be different. And my thesis three, four years ago was it’s completely different. So the thing is that if you look at an Amazon data center, and if it cost them 200 million or 100 million to put that up, about 30% of that is going to the memory guys. So it’s a tax on all the streaming, all the e-commerce, all the shopping, on everything, 30% tax. I’m sitting, collecting the tax.
[00:34:31] AVH: It’s a bit like Nvidia for the artificial intelligence blockchain game. No matter where the future goes, you need an Nvidia graphics card to run it, right?
[00:34:39] MP: Yeah. I think the thing is that now it’s in an industry with rapid change. So we’ll see the thesis is still playing out. We will see how it works. But I like the upside downside scenario.
[00:34:52] AVH: Now, I don’t want to use too much of your time, but I have a couple of burning questions. I’m going to probably go a bit random here now just because I want to really get those questions in. And one of this might – I don’t know if it seems random. But after I started researching, one of the first tweets I saw from you was that you said, “Investors need to be like Puddy from Seinfeld. They need to love watching paint dry.” And it was a skiff when Puddy was next to this woman on the plane, and she started reading. He just stares at the seat. Are you going to watch a movie? Are you got to take a nap? Are you going to read a book? He’s like, “No, no, no.” And she just goes completely nuts because he’s so calm.
[00:35:36] MP: And know, by the end of the flight, she’s broken up with him. That’s not in the clip you saw. But if you see the episode – So he’s sitting there doing nothing, right? He’s not bothering her. He’s not doing anything. She’s so bothered with him watching the back of the seat, that by the end of the flight, they’re broken up.
[00:35:56] AVH: Why do investors need to be like Puddy? What’s the mental thing of watching paint dry that helps you being a better investor?
[00:36:04] MP: The biggest mistake all of us make is being too active. One of the things I’ve learned a lot, the most I’ve learned from my friend, Guy Spier, is he’s the laziest guy I know. For me to get Guy to trade anything, buy anything, or sell anything, it’s like doing a root canal. It’s not happening. Okay? He is not interested in making changes to the portfolio. And that is a tremendous skill. And Guy spends a lot of time trying to get into businesses which he thinks have extreme durability. He thinks many of the businesses I go into don’t have that durability. And therefore, he doesn’t want to do these swaps.
So I think it’s a huge advantage. Because the problem is for most businesses, the timeframe over which change and the valuation starts reflecting what you think it should be, can be many years. It’s definitely completely out of sync with watching a screen. In the case of Fiat Chrysler, if I had done nothing after buying the stock 10 years ago, it’s a 12x in 10 years. But I didn’t get the 12x because my manager died on me, okay? A big part of my thesis was Sergio Marchionne. He passed away. I’m like left middle of the Atlantic without a paddle. Okay? What am I supposed to do here? I think that if you can just be very patient and let these things play out and get in bed with good businesses, good economics, let them play out, patience is the name of the game. So be like Puddy.
[00:37:46] AVH: Be like Puddy. And then another question that I have, is in your lecture at Boston College, you talked to the students, and then you said, “Arvind has some amazing investors that he’s going to bring on.” But you never said in the lecture itself. I was like sitting on the edge. I was like, “Mohnish, tell me who do I have to have next on the podcast?” Who are other investors that you say that are making a name currently themselves?
[00:38:14] MP: I think Dataroma is a good place to look. It’s a good website. It gives you a good list of investors. I think that there are a bunch of names. I think if you’re just on Twitter and follow certain feeds and such, I think it’s the usual suspects. Josh Tarasoff is a good guy. RV Capital is I think in Switzerland. Rob Binelli, I think his name is. So there are a bunch of people like that who are pretty good to talk to.
[00:38:44] AVH: I have two more questions, and then I’ll let you go on about your day. One is, again, very random, but I love you say that quote. And I’m going to mispronounce it. I apologize. Upanishads, “You are what your deepest desire is.”
[00:38:58] MP: Yeah, yeah, yeah. Let me see if I can remember it. Yeah, I think it is like, “As is your wish, so is your will. As is your will, so is your deed. As is your deed, so is your destiny.” And then the punch line bringing it all together is your deepest desire is your destiny. So the Upanishads were written about, 2500, 3000 years ago. They really more philosophical books than religious books. I see a lot of wisdom in them. I truly believe that. And I think if you follow great entrepreneurs, if you look at someone like Warren Buffett at 24, he was telling his wife, “I want to become the wealthiest person.” And she was saying, “Yeah, whatever.” And Bill Gates wanted to build a desktop on every desk, right? And so I think that if you have a wish and a will, and you truly put everything into it, it is going to happen.
[00:39:52] AVH: Thank you for sharing this. I know it really doesn’t fit into the whole value investing sphere, but I thought it’s just such a good quote. And how did you find your deepest desire? Do you have any pointers on how should people go about this? Is it for you journaling? Or is it just you kind of have to figure it out?
[00:40:13] MP: Yeah. So I think I was wandering aimlessly in the wilderness till I was about 35 years old. And at the age of 35, quite by accident, 34 actually, I had these two industrial psychologists who basically did a 360 analysis of me. We were doing a retreat. So this was part of that retreat. We were doing – Part of the group was called YPO. And they gave me what I call my owner’s manual. And this 20-page document they gave me, which I tried to reread every year, explained to me who I was. And till then, I didn’t know who I was.
So what happens is, when we grow up, the world expects us to do certain things certain ways. And they expect you to do and follow certain paths. And you just go down that path, because you don’t know any better. But each of us is wired differently. And each of us has traits, and desires, and passions that are different from the next person. What they were able to do in the owner’s manual is tell me who I was in terms of the types of things I like to do. And the types of activities I was likely to not only like to do, but be really good at.
So for example, one of the things they pointed out to me, they said, “Mohnish, you are a game player.” And they said, “But you are not just any game player. You’re a game player who likes certain types of games.” So they said, “The type of games you like, number one, the outcome, the result has to depend on you alone. So you are not a guy who would be really thrilled to be on the soccer team. Because the end result of the game depends on the other 10 guys too. Not just you. So you don’t have control over the outcome. So soccer is out for you. Cricket is out for you, and so on. Singles tennis might work.”
So they said, “First of all, you’re a game player who likes to play games where you control the outcome. So you’re not a team sport game player.” The second is, he says, “You like to play games, where you have an inkling that you have an edge. So if it’s a single player game, and you know that you have some edge, it really excites you. And when you play those games where you have that edge, you will completely kill it.”
So at that time, when they were telling me all this, I was running this 170-person company, where I had a bunch of vice presidents. And it’s a company I had founded. But I hated going to work. My job had turned into HR management, and just managing politics with a bunch of yo-yos. So they looked at that and said, “This is so far away from who you are, because you are the single person player in this 170-person team, which is hosed in so many different ways. So they told me, “Sell it, or find someone else to run it as quickly as possible.” And they didn’t even tell me that I was miserable. I love that company when it was one person. And I hated it with over 170 people.
So the first thing I did when I finished that whole exercise with them is I started a search for a CEO. And six months after that happened, I was gone. But then at that time, I was just thinking of starting Pabrai Funds. And I explained to them about Pabrai Funds. And they looked at it and said, “It’s perfect. This is perfect for you. Single player game. Everything’s fine.” And one of them became one of my first investors. So I told him, “Listen, I have no track record. I don’t want to lose your money, man. Don’t give me your money,” right?
They said, “Mohnish, I cracked your head open. I saw everything in there. I am not going to lose my money.” And he’s got a 16x on it so far. He was right. I think the important thing is – So Myers Briggs is like a poor man’s version of that. So there’s this industrial psychologist. His name is Jack Skeen. He was one of the two guys, Dr. Jack Skene, who did this for me. I would say if you just nudge me after this, I’ll give you his contact info. And he’s got limited bandwidth. I don’t know how many viewers you have or subscribers. But he can handle a few. And he’s done this for a bunch of people who I’ve sent to him, and it’s been great for them.
[00:44:40] AVH: I will definitely do this. I was just thinking, I need to do this retreat. I have four more years to figure it out. And then if it gets me to where you are today, if I’ve managed this in four years, I’m going to be really happy with my life. So thank you, Mohnish. This is one of my main takeaways for today. I love that I took this little detour into this just to get this answer. I loved left everything else, of course about our conversation. Thank you, Mohnish, for everything you put out there. It’s been amazing for me to see. I love what you do. I’m so happy that I found William Green’s book just got me to this point today. And if it’s going to get me to the retreat, and then at 35 Find my deepest desire, this has been one of the most productive hours of my life so far. So Mohnish, thank you so much.
[00:45:30] MP: Andy, I really enjoyed the conversation. The hour went by really fast.
[00:45:34] AVH: Yes.
[00:45:35] MP: And I’m looking forward to actually listening to it once you put it out. That’d be great.
[00:45:39] AVH: Yes, of course, I will send you everything. And hopefully we can do a round two. I have a list of about 60 questions left that I hadn’t gone through to ask.
[00:45:50] AVH: It’d be a pleasure to do it again with you.
[00:45:51] MP: Awesome. Mohnish, thank you so much.
[00:45:54] MP: Okay. Thank you, Andy.
[00:45:56] AVH: Hello. This is your host, Andy, again. I hope you enjoyed listening to this episode as much as I enjoyed recording it. Just a quick reminder, we now reopened our newsletter. So head over to www.thewallstreetlab.com/newsletter, sign up. And if you liked the episode, and if you like The Wall Street lab and you want to support us, share our podcast with whoever is interested. And don’t forget to please give us a five-star rating on Apple Podcasts or wherever you get your podcasts from. And if you have any comments, any feedback, please do reach out to me. I love hearing your feedback and getting your emails.
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