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

What percentage of Americans who invest in stocks do you believe are good investors? Well under 1%. The game we are playing is transfer wealth from the active to the inactive. If you have that type of a temperament, it is orgasmic activity. If you are even a slightly above average investor, you can't help but get rich over a lifetime. What's the mistake that smart people are making? Many people die at 25 and are buried at 75. I saw Charlie make investments six days before he died. This is like life advice disguised as investing advice. Yeah. Just quick reaction bullish bearish on the S&P index right now. Bearish. Hey, how do you think about it as an investor? Invest in the pickaxe makers because the alphabets and metas of the world are playing a game they haven't played before. So I want to ask you the hardest question, which is. Bonus. Round three. Here we are. Elevated as always we're on the pitch. Well under 1%. But the good why is that? But the good news is so a large number of investors invest in index funds. And index funds give you a great return without doing any work. So you don't need to be a rocket scientist or understand businesses or any of that and you get a pretty good outcome. Are you counting them in the 1% or are you saying that's a separate question? No, I'm talking about the ones who are actually picking stocks. And so I'm just saying that you can take the approach of buying an index fund and you're going to be ahead of 90% of the crowd, which is awesome. I mean just think about doing some activity which takes no brain cells and getting ahead of being in the top 10%. But if you decide that you want to actually study businesses and then invest in them after studying them in that universe. So people doing that there'll be a very small sliver who would do well with that. Yeah. What's the mistake that smart people are making when it comes to us? It's not a mistake. It's the lack of patience. So most of the nuances that would lead to a great investment result have to do with temperament. They're not related to IQ or other things but they have to do with temperament. So it all comes back to watching pain and try. Right. So when we make an investment in a company, nothing may happen for three years or five years. You know, it's just the nature of the beast is that it may not do a whole lot for a while. And also sometimes you made it, in fact, many times you made an investment. It's a mistake. And you need to at some point reverse that mistake. So there is activity needed appropriately. But basically the less the activity, the better the outcomes. You gave me one of the commandments, one of the truths about investing, which is that shall enjoy watching paint dry. Yes. I as I called your daughter in research for the spot cast because I knew you were very into mental models and these frameworks of ways of thinking that produce benefits. I said, what's one that he loves? And he said, she said, the mistress is always hotter than the wife. So I didn't want to say that in front of my daughter, but unfortunately, that was the first one she mentioned. Yeah. So what we own is the wife. We live with her every day. And what we don't own is the mistress. Right. And the unknown has exciting attributes. And so one of the things we have to keep in mind is the wife is someone we know extremely well. And we may be discounting some great attribute she has. The mistress is someone we don't know very well. She just looks hot. Right. We don't know all the other nuances about her, you know, temperament and other things and whatever else. It's very tempting for an investor to say, I own this company, but I think this other company which I don't own is better. And I should make a swap. My friend Geyspear says that he's very reluctant to take any actions on his portfolio. And not being interested in taking action can give you a huge leg up. So sometimes we do need to take action, but in general, you have to really be convinced pretty unequivocally. Right. That the mistress is truly hotter. Right. Right. And not just an appearance of being hotter. That is a difficult nuance to actually master in real life. The idea of the wife first, the mistress is you have to have a very high bar for action. It's not that there is no action. Yeah. It's that the bar needs to be very high to have the conviction level. You need to become comfortable passing on everything below that bar. Yes. And I think in general, most of us would do well to raise our standards about all things in life. The people that we're around the investments that we make. Exactly. This is actually like life advice disguised as investing advice. Yeah. Right. My dad used to say that to have a great life, you need one good life and one good friend. And so less is more. Buffett says that if you hang out with people better than you, you get better. And if you hang out with people worse than you, you get worse. There's a gravitational pole either way. So the good news is we don't need many of these. But what we should be doing is we should be trying to make sure that our relationships are ones with people we have deep admiration for. People that can make us rise. Right. And I feel that, you know, I randomly stumbled onto investing. I'd never been in this field, et cetera. And I remember. So there's another mental model, which is very powerful model. All right. Let's take a quick break because they got a little freebie for you. So if you're listening to this episode and you like what Moniche is talking about, you might be like me. You're trying to take notes. You're trying to remember these principles that he's talking about because the dude is just a wealth of knowledge when it comes to investing. Well, the fine folks at HubSpot, listen to this episode. They took the transcript. They put down the nine principles that he talks about as well as the examples that he have. And they put it all in a PDF for you. So you don't need to take notes. They did it all for you. You could read that, learn from it. That's a much better way to get more value out of these episodes. It's in the show notes below. Just go download that and enjoy it. Charlie, you should talk to me about introduce randomness in your life. Introduce randomness in your life. And just to tell you the impact that had, which I didn't even understand this when it had the impact in 94. I'm at Heathrow Airport my wife and I'm looking for something to read on the flight back. And I pick up one of Peter Lynch's books, one up on Wall Street. And I'm never in restaurant stock, not really interested in investing. Don't even know much about it. I read the book and loved it. Okay, I'm an engineer running a IT company, right? I said, oh, I want to kind of read more of this, right? So there was another Peter Lynch book, Peter's reading the street. I read that and I love that too. And then there's no no more Peter Lynch books. But in those two books, in one of the two books, he talks about Buffett, right? And I never heard about Buffett. So then I said, let me find out about this guy. And I was very lucky. The first couple of biographies on him had just come out the year before. And then I read those. Then that led me to the Berkshire letters, the partnership letters. Huge world opened up, right? And then I started to invest using that approach. So I'd been doing the Buffett investing and all that and really kind of overdosed on it. And in 97, the thought came to me, should I go to the annual meeting? And I was saying, you know, the transcripts get published and all of that. And I don't know anyone and I have young kids and all that. So I was very much on the fence, whether to go to the annual meeting or not, right? And I decided in the end, let's go. Okay, let's see what the hoopla is all about. The annual meeting opened up another big world, right? And now some of my best friends are folks I met in Omaha. So reading the Peter Lynch book, introduced randomness. And one thing I came to realize, I tell people when they go into the annual meeting that when you're flying to Omaha on a Friday, the two people sitting next to you are both going to Omaha for the meeting as well. And they're both above average humans. So just start talking to them, right? Because it's not the average humans going there, right? Pre-filtered. And so when I look back now on my life, so much of it has come from the whole Buffett orbit, right? And the Buffett orbit, what I realized is when I got to Lachali Munger, and I started playing bridge with him, I got to know Charlie's friends. I used to have dinner with him, and I one by one, I met a bunch of his friends. Charlie's friends was some of the highest quality people I've ever met. They were much older, but I worked on building those friendships. And that was such an awesome thing. Right. And literally every time I talk to some of these guys and the way the conversation goes, it's a wow, hang out with people better than you introduce randomness. So this is what Munger calls the Larasvo-commental model. So when you start putting these things together and you start using them all at the same time, that's when one plus one becomes 11. Or if you put four models together, it's one plus one plus one, plus one is over 1,000. That's when you start getting what Charlie calls LulaPloos FX. And so then that's when you get a huge leg up on humanity. There are other people who may be a lot smarter, other people who may work a lot harder. Let's take Elon, for example. So I forget what he calls it the idiot factor or something, but he did index. Yeah, they did index, right? That's right. So what he says is they look at some part that they need and they'll say, oh, this part is $5,000. So Elon says to them, what are the materials that go into this part? Raw material. Raw materials. And what is the price of the raw materials on the London metals exchange, right? OK. And they'll calculate that and say it's $270. So they said, then they'll say, we're going to make it ourselves. And we're going to make it for $500. And so the thing is that none of his competitors think like that. None of them have this idiot index. Without that, there's no Tesla. There's no SpaceX. There's nothing. There's no boring company. And so it's one of those core foundational models, right? But the other thing about humans is that Boeing is aware of this model and all the car companies are aware of this model. It's not in their DNA. This is not how they think. They're not going to adopt it. So the other thing, another mental model to understand is humans are very poor at cloning. They all understand that Elon has kicked their ass. They also understand why he kicked their ass. They know everything. He's an open book. OK. You talk to people. They really published the book. And what you need to do is also known. But after knowing all of that, there is no movement towards that. Right? There's no movement. By the way, we wouldn't be here right now if not for cloning. So the story of this set right now is that my friend Chris, Chris Williams, and he did a podcast here. He sent us a video like, I'm doing this crazy shoot. LED wall 3D. I got this film crew here. Blah blah blah. He sent us a video of it. And I was like, wow, that looks cool. But my first reaction was, buddy, it's a podcast. What are we doing? Why do you-- does anyone really care if it's in IMAX 4K? Does that really make a difference? And that seems like a lot of effort and a lot of costs. I sort of wrote it off. So then it comes out. First time I click-- and then I see-- not even before I click the video, I see the thumbnail. I'm like, wow, that looks different. So I click. Because I'm a lizard brain human. And if something is different interesting, I click it before I even think. And then I'm looking at it, and I'm watching this thing. And it's interesting, and it's entertaining. And so immediately I recognized, oh, a mistake on my part. Like, I thought this was not important. Turns out, actually, this is important. So you had to travel a little bit in the sense that your first reaction was staying your comfort zone. Right. Right. But the second leap you made, which is after seeing it, you acted. So from admiring it to acting it is a huge leap. It's like 90% of humans will not do that. So Sam Walton, not that smart guy. OK. Very far-- Walmart. Very hardworking, all American. But not that smart. OK. And no original ideas. OK. Every single thing at Walmart came from somewhere else. OK. Everything was copied. He goes to meet a soul price, who's the founder of Price Club, which is the predecessor Costco. And he meets soul price, and he looks at Price Club. And he says, no brainer. He sets up Sam's Club. OK. And Price eventually sells to Costco. And so now we have Costco and Sam's. And Sam Walton would tell you, in 10 lifetimes, he could never come up with a concept of a Sam's Club. Right. He could not come up with a concept of a Walmart. Walmart came from came art. Sam Walton said, there is no human who has come before me, who has stepped into more retail stores of my competitors than I have. And no human after me will ever beat that record. OK. So anytime he traveled anywhere, he was going on vacation to his family and saw he's passing some retail store. He stopped his family, stopped the car, tell them, hang on here, go do his 15, 20 minute tour of the place and come back and make notes of what he saw. One time he takes a bunch of his managers into one of the neighboring competitive stores. And they come out of the store and one of the managers says to him, Sam, that was such a poorly run operation because they could just see just a mess compared to a Walmart was. And then Sam says to him, yes, but did you see the candle display? The candle display was fantastic. It's fantastic. The one golden nugget. So Sam said, you can learn from anyone. You can learn from the biggest idiot operator. Sam would go early morning at like 530 in the morning to the Walmart distribution center with donuts. OK. And he'd sit down with the drivers because the drivers were going to the stores every day. And he'd tell them, what do you see when you go in? And then there's the drivers of the level such and such. So I saw the garbage. There was stuff thrown out that shouldn't be thrown out. Sam. And Sam's being more so of this right. And then he'd go and fix all those. So what I'm saying is that everything at Walmart came from somewhere else. The reason cloning works so well is no one's willing to do it. Look at Tesla's market cap and look at the market cap of the next car company. I believe it's more than the next 15 car company. All of them combined. You could take the whole industry combined. You know, they won't get there. And on SpaceX. So if you look at Blue Origin and you look at SpaceX, they have completely different approaches to how they do things. SpaceX wants to blow up rockets. Their focus is to blow up rockets. Blue Origin focuses on not blowing up rockets. And he's miles ahead. And in fact, he's clobbered the industry. You know, the whole landing, landing these things backwards and, you know, reusing them and all of them. People laughed at him at that. And he got it done. I'll give you a story of two of your models combined, as you said. So introduced randomness. There was a period of time after I sold my first company. I was thinking about what to do next. I kept shuffling through ideas. Couldn't figure out which one to do. And I realized I'm sitting here in San Francisco and I'm meeting the same people talking about the same things going to the same tech events over and over and over again. And I had this gut instinct of I need to introduce more randomness to my life. So I hear about this event called FarmCon. A farmer's conference in Kansas City. Sign me up. I'm going. So I go. And I look out of like a literally fish out of water. Dresses. I'm dressing wrong. I don't know anything about farming. I even get there and I'm like, I don't know what the hell I got myself into. I took Ben with me and we're sitting there. They're talking about soybean futures. I don't even know what soybeans are. And so I were completely out of water. But it was a great way to just shake up the snow globe a little bit. Introduce randomness and serendipity. When we're there, we meet this guy and his name is Kevin Van Trump. And he was the guy who owned this conference. How did you get all these people? How did you get so many farmers to come? There's 4,000 farmers here and they all love you. How do they even know you? And he said, well, I've been writing this newsletter for 20 years for farmers. Half of the thing is just memes, just funny jokes. Because the farmers just want to laugh in the morning and then half of it is his letter about like what's going on in the markets today for farmers. And so we're sitting there and we essentially leave one of the conference rooms and we decide to clone because I met with you for the podcast. And you had this great analogy of who's the dumbest guy in the world. And we decided that the dumbest guy in the world is the guy with the gas station across the street from the more successful gas station. And it's like, you could be unsuccessful. But if you're staring at the gas station across the street and he's winning and he's doing everything right and you're just not doing those things, that's on you. And so I'm sitting here and watching Kevin Van Trump and he's got his newsletter for farmers. And at this time, crypto had just started becoming very interesting. I said, you know, Ben, what if we created a newsletter for crypto, just like this guy's done for farming, we'll do it for people who want to keep up with the crypto news. It'll be half memes, that'll be half news. And let's do this. It was quite the first edition tonight. So we wrote the first edition while we were there and we named it something that was themed after the conference. It was called the Milk Road. Like a dairy name. And in one year, we built the largest crypto newsletter in the world. Oh, great. And we sold it for millions of dollars and never hired an employee. We had one employee. It's like the best business I ever did at the time, just in simplicity. Yeah. And it was all because we strung together two of these models, just introducing randomness and then cloning on top of that. I think that humans complicate things a lot, but I think that if you. All right, let's take a quick break and I got a question for you. When a buyer asks AI for a solution like yours, does your business come up? Most companies have no idea. And by the time they found out, they've already lost the deal to another company that did. HubSpot has AEO, which helps you show up in the moments when the right buyers are looking for a company like yours. Before the first click, before they fill in the form, that is the moment HubSpot AEO is built for it. Check out HubSpot. The Agentec customer platform for growing businesses. McDonald's had this whole big department on figuring out where to put the next McDonald's, right? Location is very important. Burger King had two guys, they just looked at where's the McDonald's going. Right. And they would look at where McDonald's are going and they put it across the street. Right. And that was their model. Phenomenal, because all the work's already done. Right. You know, cloning gives you a huge advantage. Now another bedrock model. I think no mental models work without this model, which is take a simple idea and take it seriously. Right. This is to me, none of the other models cloning or not using Excel or anything else works unless you buy into this first model. So you have to go all in, right? I made my first trip to Turkey purely on a limb, kind of like you going to the farmers conference. Just because it was screening cheap, I just want to take a look at this market, which is screening so cheap. And that was in 2018. What I learned is that the average Turkish company, public company cycles through its float every 17 days, which means like, let's say, a founder owns 40% of the company, the other 60%. The shareholder base will just turn out literally about 4% of the shares are trading every day. Okay. And every 17 days, you got new set of shareholders. Okay. If it has a quote that the stock market is a mechanism to transfer wealth from the active to the inactive. Okay. This is hyperactive. Okay. Now, if you look at something like Berkshire Hathaway and you look at how frequently it's shareholder base changes, it might be the slowest in the world. It might be like 10 years or something or more for the float, right? And here you have 17 days. Okay. And then I even looked at places like India, right? So I actually compared Turkey and India and what I realized is in Turkey, almost all the investors are gamblers and speculators. They want to buy a 10 o'clock. They want to sell a three o'clock and they want to make 10%. That's their model. Okay. Whereas in India, what I found is that out of 5,000 public companies, there's maybe 150 companies that good governance that are investable. And a lot of research has been done on those by a lot of smart people in India and they've pounded into those companies and they traded stratospheric valuations. Very expensive. I would look at a Coke bottler in India and I'd look at a Pepsi bottler in India and I'd look at a Coke bottler in Turkey and the valuation differential for massive. In business and I'd look at an airport operator and Turkey, airport operator in India, huge valuation differences. Again, because here everyone was looking for long term and all of that. So you're picking like poker tables to sit down. So when you take the first model, take a simple idea and take it seriously, I said India zero. We're not interested. Okay. Even though I'm Indian. Turkey, I'm going all in. And so what I decided is to be an inch wide and a mile deep. And so I said, I understand the nuance of the Turkish market. I want to study everything in here. I want to be the person who's, this is my mood is mad. Right. Go through every single thing. Right. And what I found is whether it's a useless company in Turkey or a great company in Turkey, they're all cheap. So this is great. They'll focus on great, right? And no one's interested. You got all these people like buying and selling shares. And so we were able to make some investments, which we couldn't have made anywhere else in the world at valuations. We couldn't have made, you know, just the simple thing of the take the first model and it gives you an edge. So I think the, the mental model just carries so much weight that it makes your journey very light. Right. Because they just carry the, they do the heavy lifting. And all you have to do is not violate them. So I want to ask you about violating them because sometimes I could see a world where they clash or that the definitions get fuzzy. So for example, one idea is invest in your circle of competence. But like with Turkey, it wasn't your circle of competence. You sort of made it your circle of competence. So in that sense, like, how do you think about that? Like, because it sounds like some of the best bets for you and others have been where you decide to go get smart about a space, but you were a complete beginner in that space, maybe six months prior. Well, so like, for example, before I went to Turkey, I had already studied Coke and Pepsi Bartlers. I studied the Coke and Pepsi business quite a bit just because Buffett had made the investment and the Coke concentrate, set up businesses, phenomenal. It's a software company, you know, it's just 80% margins of great business. And the the bottleers, not as good business Coke, but they are oligopolies and most of them do really well as well. I mean, they have more capex and all that, but it's a good business. So when I'm looking at a Coke or Pepsi bottle or anywhere in the world, one of the things to keep in mind is they had to be approved to become a Coke or Pepsi bottle and Coke and Pepsi are very anal about who they're going to allow, especially at this stage because they've got global brands and all that. So to me, it was relatively easy that so when I went into, for example, the Coke Bartler in Turkey, it wasn't surprising to me that the management team was super high quality. The management team was multinational. They weren't Turks like the CFOs from Ukraine, right? And he had worked in Delhi before that and all of that. So you could just see that this was a global team running this business and all of that. So similar to the airport operator, I looked at other airport operators. So I started by using guardrails, right? And I focused on the simplest businesses, which were ones that were the easiest to understand. And one of the things about investing to also understand, the businesses that you spend the least amount of time studying, tend to be the ones that make you the most money because they tend to be the simplest, they're obvious and all of that. But yes, you have to couple the circular competence with the introduction of randomness. And so those two are not in conflict with each other. The introduction of randomness is how you grow. And that's how you may actually, the circle is going to expand over time, naturally going to expand, but you don't need to focus on expanding it. In your book, you have some great stories. The one I remember is the American Express, the salad oil crisis. The salad oil crisis. I didn't know about this. This is a little bit before my time. Tell this story. It's an amazing story. American Express at that time had, they've always had a number of different businesses that we don't think about. One of their businesses was asset-based lending business. And there was kind of a crooked guy. He basically got them to finance his inventory of salad oil. He said, "I've got his warehouses filled with salad oil." This is not a finance stuff. A literal salad oil. Yeah, salad oil, right? In barrels. Yeah. And so they'd financed it and there wasn't any salad oil. It was seawater. Okay. So. Somebody figured this out. This was the versus seawater in the business. Well, later it came out because basically when they went to collect, you know, the guy's already taken the money, he's a crook, he's gone. And when they went and got the asset and looked at it, they found that they were nothing. Like they basically had been duped. And it was a very significant loss for AMEX, where a big dent on the balance sheet. So obviously when they reported it, the stock collapsed. And Warren felt that the big value of AMEX was in its brand. His question was, is confidence shaken in the credit cards? So for example, if I'm a restaurant owner and I accept the AMEX card, in effect, AMEX owes me money, right? So what he did is he went to a number of different restaurants in Omaha and just stood by the cash register. And just wanted to see whether the restaurants had any concern about accepting the AMEX card. And he saw zero, zero concern of any kind. So he felt that the mode of AMEX was unaffected and the trust and confidence in the brand was unaffected. And the stock on the other hand collapsed, right? So he actually put 40% of his fund into AMEX. 40. 40% of the single stock. It may have been about 40 million, 30, 40 million of capital. So maybe like 10, 15 million or something went in. The crisis abated. AMEX started to kind of get their balance sheet kind of straightened out and all of that. And of course, the stock eventually, because these businesses were fantastic. And their credit card business at that time was growing gangbusters. It was just on a rocket ship. Eventually the stock. You know, the interesting thing is he met Walt Disney once just before Disney died. And then he felt funny. He went to see Snow White. He said, I went to see Snow White with my briefcase because everyone else is there with the kids. I went to actually study the business. Okay. Study what Snow White's all about. I think he owned like 5% of Disney and of course for him at that time there was no buy and hold. It was just you know look for the next cheap thing. So he had a significant ownership in Amax, significant ownership in Disney. He sold all of these at a good profit. But he could have just carried them on. If he had kept them for 20, 30 years, they would have been extremely well. I'm trying to piece together this puzzle of what are some of the traits or some of the behaviors that can lead to great investing. When I think of investor, I think of finance, strategy, numbers, Excel, spreadsheets, that's where my brain goes. That's the mental model, the picture I had in my brain. When you're describing it's like he goes to the movie theater to observe. He stands outside the restaurant. He asks the guy a question and these are not spreadsheet. This is like journalism. It's research. It's firsthand research. It's maybe gut. I guess for you do you do the same. Teach me about that. One of my 10 commandments of mental models is thou shall not use Excel. And another model is that if you cannot explain your investing thesis to a 10-year-old in about four sentences so the 10-year-old can understand it, it's a pass. Basically at the end of the day, every investment has to be very simple. It starts off being this complex thing but when you've understood it, it needs to get down to those four sentences. That to me is one of the most interesting parts of investing. I think the way it works is that we have 50,000 stocks around the world. If you're just investing in public markets, the data set is too large. No one is ever going to know 50,000 companies. A large number of those businesses, something like 90 or 95% or 98% of them, should go into the two-hard pile. So Buffett has a box on his desk which has too hard written on it. And I think one time when I visited his office, I told him Warren, the two-hard box is empty. And he always said 98% goes into two-hard box. And he immediately took a bunch of papers and put it there. He said, "It's full. It's all full." In his case, he made the metaphor real with the two-hard pile. So most businesses that we would encounter or look at, usually there'd be two problems with it. One is it's either outside my circular competence or it's too hard. And this is an exercise in honesty, inner-school cart and all of that, where you have to be honest with yourself and not be delusional that you know everything or what everything. So exercise in humility. Peter Lynch used to say that when you're looking at businesses to invest in, he said, "Make a list of everything you use." Right? "What choose do you wear?" Right. "What clothes do you wear?" You know, "What brands where do you go to eat?" So make a list of everything that you consume and study those companies because many of those companies are publicly traded because it's very difficult for a company to get even a dollar from you. All of us is human. They're very discerning about how we want to spend our money and we make our choices. And those choices are very specific. So if you are already a consumer of the product, you understand the product. That gives you a basis to try to understand the business because you are a consumer of the product and then you can kind of go from there. We are in a business which Buffett says has no called strikes. So if you're a baseball player, three strikes are out, which means if the ball is within the strike zone, you have to swing at it. Even if it's like not in the sweet spot, you have to swing at it. In investing, we can let 10,000 balls go. So it's only when we get the farest pitch in the center of our sweet spot. Do we need to act? And if those conditions are not satisfied, just let it go. What you mentioned is entrepreneurs are all about action. Investors are also all about action. The action is below the surface. So basically, a person like Warren is spending all his time studying businesses. Now, usually not much comes out of it. Because we only see the whale when its surfaces with the whale is swimming all the time. And the activity that investors need to enjoy, if they're going to be good at this field, is just turning the pages one after the other after the other. So there used to be a race track in Nebraska called Aksarban, which is Nebraska spelled backwards. Okay. When I first go for the book show meeting in the 90s, early 2000s, the meeting used to be at the Aksarban race track about 10,000 people. But Buffett used to go to that race track when he was 11 or 12 years old. And what he used to do was he used to gather all the tickets that were lying on the floor or the trash cans that people had thrown away. And he'd go home and study each ticket one by one. And some drunk may have thrown away a winning ticket, right? They may not have looked at it carefully. Some things in horse racing are difficult. You know, win place show. It could be a place or a show and could have still won. And that's sort of thing. So he'd gather up the few tickets that he's fined after sifting through this whole mess that actually winning tickets because he was 12. He couldn't go to the window to claim them because you had to be over 18. He'd give it to his aunt, Aunt Alice. His aunt Alice would go to the race track and collect on those tickets and then give him the cash. And when he wasn't in his early 20s, he went through the Moody's manuals. And on eBay, I bought one of these Moody's manuals because they don't publish them anymore. But they're on very thin paper, very small text. And they have some financials about three or four companies on one page. He went through all of them in the early 50s two or three times, turning one page at a time. And what he was looking for is he was looking for anomalies. And a G Jane made a comment this time at the Berkshire meeting. He says that you know, when we hire these people in the insurance business, the instructions I give them is whenever someone comes to you for any deal, always say no. Say no to every single thing presented to you. And then he says, you'll see a deal that hits you in the head like a two by four. And you can't believe the deal. That's when you bring it to me. And then we look at it. And investing is the same way. So when he was going through these Moody's manuals, he's looking to get hit in the head by the two with a two by four. And he found his company, for example, Western Insurance. The stock is at $15. They made $25 last year. And they $40 of cash on the balance sheet. That's hitting you in the head with a two by four. Right. So he pulls that out, invests in it, you know, looks at it, goes and understands more of the company and all of that. And then the next thousand companies, nothing. Then he again finds something recently last four or five years, he made the bet in the Japanese trading companies, five Japanese trading companies. Those came out of something like the Moody's manual called the Japan company handbook, which is a English publication, updated once a quarter, two public Japanese companies on every page is a thick book. Right. He's been going through the Japan company handbook for at least 20 years. Okay. This is the first time after 20 years of going through it that he made these these bets, but a huge home run because again, hit with a two by four. So these Japanese trading companies, in this case, what he did was all of them had a dividend of eight or nine percent. He borrowed the entire five billion that he put into these companies in Japanese yen. So it's 100% levered at half a percent a year. The companies are paying eight or nine percent a year. So he's getting seven and a half percent cash. Right. Just for holding these investments. Then in the next three, four years, they doubled in their dividends. So now it's 16% and the stock doubled. So the five billion became 10 billion and the 10 billion is paying 800 million a year. Okay. And it was almost fully risk-free. Right. Right. So basically, that is the nature of investing is that the game we are playing is there is continuous activity of a different kind than the way an entrepreneur, but it is orgasmic activity. Okay. If you have that type of a temperament, right? If you really enjoy looking for needles and haystacks, right? Then the payoffs are huge. At the Berkshire meeting, Buffett had this line that I loved. He said, the stock market is like a church with a casino attached to it. And he said, seems like a lot of that casino is getting crowded. It seems like a lot of people are visiting that casino nowadays. And I'm curious what you think about that. And especially in the context of you've got prediction markets and Robin Hood and options and two-day options and leverage. And there's so many ways to play the casino. And I think all of that from my point of view makes it better for me. The wealth transfer. Exactly. I mean, the thing is the more hyperactive people get, the better it is for me. And I mean, it is unfortunate because the stock market serves a very important function of allowing gifted leaders and entrepreneurs to get the capital to pursue their dreams. I mean, that's really the reason why we have capital markets, right? Is basically to funnel capital to the best uses, best users of the capital. And of course, the side effect of that is that you have all the casino activity that comes with the church. And the interesting thing is that after the, there was a big bubble in the, in the UK, the South Sea bubble, where there was a big speculation orgy and prices went crazy and then eventually a lot of people lost money, the British government's response to that was to ban public markets for 200 years. So interestingly, like even when they were no public markets, a number of great businesses got created in the UK and capital still found its way to them. So it doesn't always, always need to be through an auction driven market. But the main purpose of the New York shock exchange and the Hong Kong shock exchange and so on is to funnel and allow the capital to go into the Tesla of the world, go into the space sector of the world and allow those businesses to improve the lot of humanity, right? And of course, the side effect of that is there's all the casino activity going on. And as we've seen the Robin Hood and so on. And so it's a negative for humanity. And the more that becomes prevalent, that's more negative it is. But when I look at it from an individual point of view, like for my own self-centered, self-interested point of view, the more the merrier, you know, that's just going to be more helpful to someone like me. I don't know if this is fully accurate. This is New York Times said this on polymarket.1% of the users have 60% of the profits right now. And so they said some number like 2000 traders had made like half a billion dollars this year. And just 2000. Yeah. So it was an immense wealth transfer from the casual gambler to what's likely an insider just sitting there who has more knowledge or a bit of a sharp who's being more selective. Well, the simple thing is so if you look at something like horse racing, the track takes 21% of every dollar because you know, physically paying for horses to run is expensive. Whereas let's say if I go play Blackjack at a great game in Vegas, the house has a 0.2% or 0.3% or 0.4% edge. So every time a gambler bets 49.5% or more is coming back to them, right? It's a 49.5% odds that they will win that bet. It's a pretty decent whereas in horse racing, you already lost the 20% is gone already. But the thing is that there are people who make a livelihood only betting on horses. And the way they make the money is the same as what's happening in polymarkets, which is they watch all the horses and all the races and they pick the one where the odds make no sense. Right. So they know the horses and other races and because the odds are set based on how much is being bet, right? Just like the stock market or the way betting against the other bettors. Yeah, betting against the other bettors, right? And that's what's happening in polymarkets as well. Right. I was looking through all the stories you've done. And one of the craziest ones is that you paid $650,000 to have lunch with Warren Buffett. Was it worth it? So what happened is in 2007, my network hit I think 84 million. And most of it was because of the intellectual property of Warren Buffett, which I had paid nothing for. Right. Right. And I felt like I wanted to thank him and just look him in the eye and just say how grateful I was. Now when Buffett does these lunches, his agenda is that whatever someone paid, they should feel like they got a bargain. And so from his point of view, he just wants to make sure that there's tremendous value delivered, right? So before we met for the lunch, there was a one year gap between the time I won and we actually sat down for lunch. So his assistant had asked for bios of everyone who was attending and he studied all of those. So when he got there, he basically told us my entire afternoon is free. So whenever you guys get sick and tired of me, just let me know and I'll leave. What was the one thing you took away now? 20 years later? Yeah. I made some notes after the lunch and I think we had a total between everyone about over 50 questions that we asked him. And of course, you know, Warren has his great skill of taking lemon questions and converting them to lemonade. So sometimes I asked him questions, which were just innocuous questions, just an update. Like I asked him, for example, what happened to Rick Goran? Who Rick is? So Warren and Charlie, Charlie Bunger were partners for decades, several decades. Originally, there were three of them. There was Warren, Charlie and Rick Goran. And in the 60s, they did a bunch of stuff together, early 70s and then Rick Goran disappeared off the radar. I mean, we never heard from him. So I just weren't know what happened to Rick, you know, so I asked Warren and he converted that question. He said, Charlie and I always knew we were going to be rich, but we were not in a hurry. And Rick was in a hurry. So then he talked about how Rick was always levered. He always had margin loans. And when the downturn of 73 and 74 games, 73, 74 were the very severe stock market correction, were the crash and slow motion. Basically, the market went down more than 50% over that two-year period. Rick got a number of margin calls and Warren said that he bought Rick's bookshar shares from him for 40 bucks a share. I mean, those shares are over 700,000 now, right? And he then said, if you are even a slightly above average investor and spend less than your earn and do not use leverage, you can't help but get rich over a lifetime, right? So he wanted to communicate the message about the ills and follies of leverage. But I felt there were so many lessons. There was another important thing he talked about. He said that there are two ways you can live your life. You can live your life with an outer scorecard, which is what people think of you and react to that. Or you can live your life with an inner scorecard, which is you measure yourself with internal metrics, not with external metrics. And he said that would you prefer to be the greatest lover in the world, but known as the worst or the worst lover in the world, but known as the greatest? So he said, if you know how to answer that question, you got it made. So I think this inner and outer scorecard is really, to me, it's a really fundamental model. You have to be true to yourself. Right. Because we can be swayed easily, swayed by external inputs, external stimuli, so to keep it centered is awesome. I've thought about that one a lot. I think I read in his biography. I think he called that the most important lesson his father taught him was to live life with the inner scorecard. How does one do that? You go from going from the outer scorecard to inner. You've got critics who are very harsh, right? Who want to pull you down and taking you below where you know reality is. So one of the things I frequently run into is I've met people who criticize Gandhi a lot, criticize Buffett a lot, criticize some folks that I think have lived remarkable lives, and they nitpick it. Right. Oh, what about this? What about that? And so the way I look at it is I say, okay, if they can criticize Gandhi, then I'm fair game. Okay. So, you know, just understand that the Gandhi's of the world being criticized. And so you're shocked when you're true. You're true. Anytime you have any kind of a public presence or anything else, you are going to get all of the above. And the structure has something like almost what 400 billion in cash. Yeah. 380. Yeah. What are they doing? What are they waiting for? Well, I mean, I think that this has been the history of Berkshire where the cash will build up and then they'll find opportunities and they'll put it to work. They're not suffering right now because treasury is playing pretty well. So they're making decent money. But the second is that we get dislocations and we don't know when these dislocations come. We had dislocations during COVID. We had dislocations in the financial crisis. If I were to make a guess, I would say that five years from now, the cash may be half or less. of what it is today. Berkshire used to be run by a great capital allocator. Now it is run by a great operator and a pretty good capital allocator. Berkshire's gonna get phone calls and Warren used to say that when they call you on a Saturday, that's when you know you're gonna make a great deal. He said the Saturday calls are the best. - Because it's the most desperate call. - Because usually they need-- - They sure are at its worst. - The deal done before Tokyo opens on Sunday night, US time. So when there is a crisis and Berkshire is a little better known now than it used to be, Greg will get the call. And you know the investing game is interesting because you need extreme patience with extreme decisiveness. Charlie used to say it's like standing by a stream with a spear looking for salmon going by. And he says, you know, you might be there for a while, but then suddenly a juicy salmon comes in. And when a juicy salmon is passing by, you have to act fast. You can't start contemplating your navel at that point. Right, so you have to be very patient where you have the spear and you don't know that happens in the next five minutes or the next five hours or the next 12 hours, but you're ready. - Right. In your whole investing career, what one investment has been the best for you? - So I had two more than 100-bagger investments which went up more than 100x before I started the funds. So I started investing on my own in '94, '95, and then by the time I got to 2000, I had two businesses. The one went up 140x and the other went up about 100x. And in one case, I had invested about 10 million, no, 10,000. I had a million dollars in about, in '94. So I invested just 10,000 one business. It became 1.4 million. But there was another business I invested in which became more than 10 million. And so these two were the outliers. So the original million became like 14 million or something. But it was driven by these two investments. More recently, the company in Turkey that we bought at 3% liquidation value, it's just about hitting 100x now. - Which one is that? - That's Reza's. - Reza, that's the warehouse? - Yeah, the warehouse operator. - Okay. - I mean, so what happened there is that we were buying a company, I think when we first started buying over the 15, 16 million dollar market cap, liquidation value with about 800 million. - And what was the big misunderstanding? Like, you've told me these words before, I look for what's hated and unloved, or where people have confused risk with uncertainty, or was it something else in the Turkish market? Why was it trading? When you say 3% of liquidation value, that means the price of the business, there's 30x that in just the assets that it owns if it had to liquidate everything. So, 33% or whatever. Turkey was, and even still is, in such a weird state, that it's hard to believe. So, for example, at that time, the company was trading at what should have happened with a company like that, was that the owners should have taken it private. - Right. - And the owners of the business did not have a good understanding of buybacks and taking it private. They have very good operators, and they went to the public markets to raise capital so they could grow. They got the capital, they were growing, they never cared about the stock price. They've actually never, even now, even today, they don't really calculate their kind of wealth by the stock price. They calculated based on what they think the business was. They don't really care about the stock price. - Which is actually a good way to do a scorecard. - Yeah, great way to run, but actually you really want the business to trade near the stock price, near the value so that anyone entering or exiting is getting a fair deal. That's what Buffett tries to do. He wants to make sure that Berkshire's value is always around what it's worth. But there were other businesses that got me the first company I visited in Turkey was trading at a PE of 0.1. - Not heard of that. - Not one, 0.1, which means that the market cap was equal to one month's earnings. Okay. And I remember my friend had sent me a list of the businesses we were going to visit. And I did no work on these companies. I said, I'm going to do work on them after I visit them because I don't want to waste time if I don't like them or whatever else. So as we were driving to the company, I start asking him questions. So I'm just somewhat intelligent at the meeting. So I said, okay, so what's going on here? He said, well, Monash, it's a PE of 0.1. I said, 0.1 and it's one of the largest banks in Turkey. I said, what's going on? He said, are they violated some UN sanctions? They were doing some wire transfers with Iran that we're not supposed to do. And what happened with that company was that the CFO of the business, who didn't have anything to do with this craziness, went to the US to vacation with his family at Disney World. And when he landed in New York, the Southern District of New York folks picked him up at the airport and put him in Rikers prison in violation of the sanctions. And they told him the rest of the family can continue on to enjoy Disney Land. (laughing) So when that news hit the street, I mean, that's like, you know, you know, you wouldn't be cut off on the Swift system. The US input sanctions on you, I mean, you could just, you know, kneecap the bank. And Erdogan at that time was calling Trump in his first term saying, can you please release the guy? - Yeah. - And he didn't do anything. And Trump said it's New York State. And so all of this was playing out while I'm going to see the company. And actually the business was a well-run bank. And I told my friend, it's too much hair even for me. I'm not going there. Okay, so Turkey, then and even now, has some crazily priced assets, which is why I decided take a simple idea, take a serious day, I said, okay, this is the situation where half the winners of the Xab and Reistrak have thrown away, William, winning tickets, right? Instead of one in 1,500, it's 50 out of 100, a throwaway winning tickets. So basically it's going back to the mental model. You take a simple idea, you take it seriously. You know, I remember when this company was 15 million, Turkish stocks allowed to go up 10% a day. They were limited in a day company. So I was concerned how much stock I can buy. So I told the broker, by every share available, don't worry about the volumes, take out all the asks, you know, the stocks at 15, someone's winning the sell at 16 or 17, whatever. I said, all the ask up to 10%, just take them all out. If anything more shows up, take it out. I said, just take everything you can get, right? So the guy calls me, the broker calls me and says, I have 5% of the company being offered by Templeton Funds, the US Fund in Turkey. Templeton runs offering 5% of the company for a million dollars. Okay? So 20 million market cap, basically, 1 million. I said, why are you calling me, take it, right? And so now this is not a Turkish investor. These are not people who are day to a day. Somebody in New York made a decision, I'm out of Turkey. And the reason they were going out of Turkey is the currency was very unstable and inflation was rampant. And they were right about that. So two things that were bothering investors a lot, which can be very detrimental to making an investment is an unstable currency and high inflation. And other mental models came in to help me. So one of the things that I think I discussed with Charlie is let's say there's a thermonuclear event, global thermonuclear event. 99% of humans are dead. So we've gone to 70 million humans left out of 708 billion. And everything's destroyed. The 70 million humans that are left, someone is going to start producing coke concentrate. And someone is going to resurrect a coke bottling plant because they're 70 million humans. And there's no currencies anymore. But humans will be willing to trade 15 minutes labor for a coke. So a company like Coke is not dependent on inflation. It's not dependent on exchange rates. It's not dependent on anything. There is a benefit it gives. So it doesn't matter whether you're trading co-cans in seashells or dollars or Lira or whatever. There is an exchange that would take place. So I said to myself when I was looking at this warehouse company, I said, what is a warehouse? It's land, paint, cement, and steel. All four are inflation indexed. If the currency goes crazy, all of these prices are going to go up. So I don't care about the currency. And then the exchange rate also didn't matter because these are prime assets in a prime city. People need those assets just like they need to have a Coke. So I only looked at investments in Turkey which were naturally immune to the whole inflation or whatever was also going on. And what happened in Turkey is when we were buying this company, it was five lira to the dollar. Okay, that was exchange rate. Seven years later, it's 45 lira to the dollar. Okay, the lira has collapsed by 90%. In dollars, I'm up 90x. (laughing) Okay, in dollars, in lira, I'm up infinity. (laughing) Okay, I don't care about that. I'm just looking at the dollar. And the reason we went up in dollars 90x is exactly, so there was another mental model where I said, (upbeat music) All right, big news. We just hit 300,000 subscribers on Spotify. Thank you to Everett who's subscribed. If you're not, go there and watch. On Spotify, it's the best place to watch a podcast. There are many businesses in Turkey that will get hurt by inflation. We're not interested in those. So there was another company they called TAV Airport. All their revenue is in euros. Everything is in euros. Okay, they're listed in the Istanbul Trotch Exchange with all the gamblers. Okay, now airport operators, these are phenomenal businesses. And normally you look at an airport operator, you look at one in India, the trailing fee will sell at is 70 times, 50 times. It's like a natural monopoly, right? Natural monopoly, very desirable. Everyone wants in. And so it's just overinflated and all of that. In Turkey, it's sitting at like four times, three times. It's sitting at nothing, basically. So, and in this case, in the case of TAV Airport, the current, she's not relevant. They're not even, then in fact, what is happening is their revenue was in Lira in euros, and their cost sign Lira. So in fact, what's happening is the employees are getting poorer every year. And so basically it was just using a few models, take a simple idea, take a seriously, active versus passive, understanding that thermonuclear event people want Coke. And let's look at assets where the currency is not relevant. Right? And when I was able to look at those four things, there was no one else on the planet applying those four models at that same time in that market. Right. That's it. How difficult was that? So I want to ask you the hardest question, I think. I think the hardest question, let me tell you how I arrive here. I love the idea of studying businesses, 'cause I love business and I love studying, put them together, I'm happy. I enjoy it. I think it's a great intellectual sport, and I do it. I pick some stocks and I have some index and I combine the two. At the same time, it seems like most people lose money doing this. Even smart people lose money doing this. And for example, I had Kathy Wood on the podcast. I said, Kathy, she's super popular. I think she's really smart. I even agree with her about many of her theories and thesis about where the world is going. At the same time, I told her I was like, look, if I look at the last one year, two years, five years, you haven't beat the S&P, but you're taking huge fees on your money the way her model works is that. And I said, look, I think you're an honest person. Like, I asked her the question. I said, would you invest in someone with your track record? And she said, you know, she had a great answer. Like, actually, I really appreciate you giving me the chance to answer that. And so she gave me a good answer. But I'm curious, you know, same thing. How hard is it to beat the market, really? And how do you feel, 'cause in some years you do, in some you don't, I don't know exactly because you're funds and you have the ETFs. It's hard to even piece together fully. Yeah. But I guess give me two answers. One is, what is your track record? You manage something like a billion dollars. So what is your track record compared to just blindly put in the index? And secondly, how do you feel about that, you know, as a sort of smart, honest person who's studying this game and trying their best to do the best they can? Yeah, so the track record, it depends on the fund because we've got different funds and so on. But if you look at our oldest fund, which is now, what it's 20, more than 27 years old, every dollar is turned into about $30. So dollars become about $30 in the oldest fund. And I think the S&P is every dollar is less than seven, approximately, $607. That fund has done well. If I take the newest one, which is our ETF, for example, which is, got about two and a half years of history. If I look at the entire two and a half years, we are behind the S&P because I think the S&P is done like 19% since, on average, per year, in the last two and a half years, and we've done like 15, 16%. But this year we are ahead. So if you look at three months we are ahead, six months, one year, and even 18 months we are ahead. And I think in the last one year, for example, we are beating the S&P by more than 20 points. Pretty significant. So in this, in the ETF case, I think it took us some time to get properly invested because I only can find like a couple of things in a year. And I would say that I would expect that in the fullness of time, if we look at after five or 10 years, we should be ahead of the S&P. Also the S&P has, it's a handicap situation for the S&P because it's all valued. It's sitting elevated in valuations and such. And so at some point, the stock market becomes a weighing machine. And so I think that in general, the index, broad index of the S&P may not do that well for the next decade. Just because there didn't so much growth into the future in the last decade. So I think we'll be fine. Yeah. I guess do you feel like the question I think I'm trying to ask is more like, how hard is it to beat the index? Well, so yeah. So if you look at the entire US stock market over the last 90 years, 4% of companies have basically delivered the market return. So the return we're getting in the market has come from 4% of businesses. The other 96% have just shredded water. And if you look at Warren Buffett, for example, and he said this himself, that 12 investments he made over 60 years is what has created Berkshire Hathaway. He has made more than 300 or 400 investments. So again, his success is 3 to 4%. And this is the reason why indices do well because the index is too dumb to know that it owns Nvidia and it's too dumb to sell it. Okay. It's too dumb to know that it owns TSMC and it's too dumb to sell it. Whereas an individual investor or a portfolio manager will look at and say, oh, it's overvalued or this and that or whatever else or the mistress looks harder or whatever else and make that change. So this is the reason why index investing does well because it includes that 4%. So you don't need to think about it. You have captured the 4% and you will get a market return, which is very good. When I look at what I'm doing, I don't think I would have the wealth I have had and I don't think my investors would have had what they have done if we had indexed. We've done better than the index. The way I look at it is that every year that goes by, I'm getting to be a better investor. So I think that if I were playing a game like basketball, I would start declining, right? And one can do my 30s and 40s, I'm gone basically. But investing is a game where you can keep getting better. And you keep seeing more patterns, you expand your circle, you get better at looking at different things. So experience is a huge plus and all of this accumulates and also you get to ride the winners, if you will. So the important thing in investing is not the mistakes you make. It's not selling the winners. The 4% bets of Berkshire that worked. The other 96%, whatever Buffett did with them did not matter. It didn't matter whether he sold them, bought them, liquidated them, whatever else. That didn't really move the needle. What mattered was not selling Coke, not selling Apple. Having Greg Able run mid-American energy, having a G chain run the insurance and not firing a G they're not getting rid of him. Those were the important things. This is your circle of the wagons concept. The thing is that we have to understand that capitalism is brutal. And almost every business will eventually go to zero because of the comparative destruction forces. But there's a sliver of businesses that what happens is that a brand gets built or tastes happen. Like a business like McDonald's, it starts off with no moat. But now it has a brand. There'll be a sign of the highway saying McDonald's ate miles ahead. You see that sign and say, that's where I'm going. And even if Sean's Berkshire has one mile away. Exactly. That's the most. That's the moat. And so it's actually accidental for the most part how and when moats get built. But once a mode gets built, some of these modes become enduring for a very long time. Like if you look at something like FICO, for example, the FICO scores. I mean, that business just prints cash, right? But it started off with no more than as more and more people start using that score. And now there's some movement where people are talking about other things, but people don't want to move away from FICO. It's too entrenched, right? And so we as investors have the advantage of buying into existing modes, right? And so if I look at, for example, the largest bet we have, which is the Turkish warehouse operator, they have prime warehouses extremely well built in prime parts of Istanbul. Okay? And that's a very important city. It's a big city. It needs it. It's fundamental. I don't think that's going away. In fact, the demand for warehouses increases in an e-commerce world, right? Because you need, in fact, what they were building, a quarter million square foot warehouses are now becoming million square foot warehouses because all the nuances happening with e-commerce. So we want to look at businesses where the modes have staying power for a long time. And an airport operator, a Coke botter, you know, going to go online, right? So we want to look at these enduring modes. Eventually, we want to own part of the enduring modes. I want to actually put some new things. So what was very interesting to look at the kind of investments of maybe early days, Buffett and just things that are around for 100 years. But then there's new things that might be around for 100 years from now or might not. I'm curious your opinion on these. I'm going to throw four kind of topics at you that you're in rapid fire. Give me just where you're at mentally on these different things. So first is AI. I don't think you could be an investor in the world and not have AI thoughts, whether you think it's going to disrupt certain businesses or create new industries or really be huge tailwinds or headwinds. Invest in the pickaxe makers. So I think that the Alphabet and Metas of the world are playing a game they haven't played before, which is having businesses very high cap X. May work, may want to work. I don't know. But what I do know is they have to pass through some toll bridges. They all have to pass through TSMC. They have to pass through ASML. They probably have to pass through micron. So I have no bets in any of these areas because it either goes in the two-hard pile or it goes in outside circular competence or it's too expensive. So if I'm not making a bet, it doesn't matter whether I'm right or wrong. So what I'm saying is that there's no way I'm going to sell the Turkish warehouses to buy TSMC because that trade makes no sense to me. The mistress looks much uglier than the wife. Yeah. And there's no bonus points for typical evaluation. Yeah. When I came to your house once, you were telling me about your investments in coal and you've talked about how you look for things that are hated and unloved. Yeah. It's a clue for you to go spend some time because you think that there might be opportunity there. I feel like the right now in my world, the hated and unloved bucket is SaaS companies, vertical SaaS companies. And I saw you invested in constellation. So I'm curious. And I've been thinking about those two. There's a lot of great businesses are on sale right now. So that was an answer. There was an area where things fell within circular competence. And it made sense. So the idea that Betsy and HR is going to fire up some AI software, whatever, and develop her own software and get rid of workday or whatever else they're using in HR is just a pipe dream. So I think what is not understood well by the market is that software is not coding. Okay. Coding is automated and will get even faster and whatever, but it may be at most one fifth of the buy. And so just because you can get something coded quickly, doesn't mean that Adobe is going out of business or you don't need Photoshop and you don't need all the products that they have. And so I actually feel the market has got it wrong. So in my view, the advantage will go to the incumbents. So and Adobe will be able to reduce his costs because I mean, Microsoft's laying off people, they all laying off people, right? Because they don't need so many because they can they can automate it. So all of these incumbents are going to reduce their cost. Now they may also end up reducing price. But I don't really see, they may not even need to reduce price. Okay. Depending on the, you know, how much the motive, I don't see their cash flows going down. And so if you drop the price in half and the cash flows not going down, you know, where do I sign? And and I specifically only invested in the Mark Leonard universe of businesses because he has a unique mouth. So the reason why I invested in mouth is Mark Leonard is no one else has ever cloned constellation. And no one else ever will be able to clone constellation. Explain who he is because he's this mysterious guy. There's no like, there's like two photos of this guy on the internet. Mark is a highly, highly unusual leader. Okay. There's no other person like Mark. Let's put it that way. What he's built at constellation is very unique. So there are probably 70 to 100,000 vertical market software companies, private companies in the US. They have a team, a biz dev team that touches all these companies twice a year with a phone call and twice a year with an email. Okay. And in fact, the funny thing is I was in Omaha at the Berkshire meeting and a guy comes up to me and says, "Money, I'm a huge fan of yours. I'm in the constellation M&A team." I said, "Don't go anywhere. Need to talk to you, right?" So tell me what's going on. And you know, I try to get a conversation going because, you know, constellation is such a black box. But anyway, they have this large M&A team. They buy a company like every three days or something. Yeah, they bought like 200 companies last year, for example, right? And they bought more than 1,000 companies and they don't use bankers, right? And so they're doing direct deals. And now I think paying, they might be paying five times cash flow or something or maybe six times cash flow. But then almost immediately within a year or two, the effective price becomes like three or four times cash flow because they bump up the revenue with a little bit. They bump up the license fees about 20% whatever. And then they've got all these best practices that they built up. Now they don't tell the companies to do this and that, but they say, "Look, you're in this business. Here's 80 other companies we have like this and this is what we've learned. So this is what we suggest." And you do your thing and whatever you want. So they actually extract more efficiency out of that engine. So on an organic basis, they were not buying anything. They'd be growing about 3% a year. So these companies are buying and not dying on average. They're still growing. So if you think of a, if you think about buying a business that's growing 3% a year and you know, interest rates are where they are, you would be fine paying 15 times cash flow. That would probably be a problem where the deal should be done. Somewhere between what's the map there? I don't understand. The map there is that a business is doing 10 million in sales and let's say they're putting one million to the bottom line. Okay. And that one million is going up 3% a year. Now let's say you were buying that company for 10 million. Okay. Your alternative is put it in treasuries. You put it in treasuries. You're going to get 400,000 a year. Okay. You put it here. You're getting a million a year. And the million is growing. But it has more risk than treasuries. So you won't pay exactly what a treasury is playing. So that's the math is, you know, the risk-free rate effectively makes it that if you knew a business was growing at 3% a year, you would be willing to pay in a low interest rate environment 10, 15 times cash flow, whatever. And so they're effectively buying it for three or four times because they get the efficient side. So now you're taking the cash flow, the business is generating and you're reinvesting it at a 25% rate. Right. I mean, that's, and then you're continuously doing that. Right. So nobody else has the patience to put in the engine to touch the 70,000 twice a year. And also the more difficult part is integrating them. Right. So the culture to say, let's do this in that in many ways, constellation is superior to Berkshire Hathaway. Berkshire Hathaway buys businesses of all kinds. These guys buy only one kind of business, right. And they're buying one kind of business and they're buying it in a delegated manner now because the people doing the deals are not even at headquarters. They don't even need an approval for it. They've been told any business up to 20 million, you can just do a deal. And as those teams have kept doing that and have a track record, the bump up how much they will need to so it's actually a delegated model now at this point. So for my point of view, you've basically got a mouse trap that's growing cash flows at 20, 25% a year. What should you pay for a mouse trap that's growing cash flows 25% a year? You'd be paying 40 times. If you knew that was going to continue forever, you'd easily play 40, 50 times. It went down to teens multiple. And it came down to a point where even some like Monech, the cheap scale like Monech got interested. And the thing is so I think that the DNA he has is very, very special. And this universe of companies that he's going after is too small for private equity, right? Private equity hates doing these etypity deals, right? And the second is they don't want to buy and hold them. So he's buy and hold. These guys want to flip. So the frictional costs of buying a tiny company and then trying to find another buyer and all that, there's too much nonsense involved. So quite frankly, the only competition they would have would be if someone decided I want to do everything exactly the same. And the market could tolerate three consolations. It's large enough for three or four consolations. But they are none. There's only one. Right. So that's why we are in. And now the thing is that we don't need, you have to understand the 4% rule of Buffett, right? Only 4% of its bets work. So if you look at my bets like, you know, airports, coal, warehouses, consolation, if all of them work. Now, if you ask me, would each one, I'll give you a case wide works. All of them not going to work because there's no way, if I were doing, if all of them work, we're doing 100% a year. Okay, that's not going to happen. But if half of them work, we have a home run, right? Even a 40% work, we have a home run. So this is the very forgiving business. And so that's where this is, which is, I don't know which half works. I wish I knew. Yeah, if you knew. Yeah, I don't know which half of. So like, I know that our coal bets, for example, there are things that can cause that bet to fail. They are low probability, but they could happen. Right. So maybe those things happen, maybe they don't happen. I don't know. Right. Constellation, maybe Cloners arrive. I don't know. Maybe the DNA of the country deteriorates after Mark has gone. I don't know. Right. So there are these unknowns, but it's a favorable bet. It's not 100% bet. It's a favorable bet. And as long as we keep making these favorable bets, we're okay. So Howard Marx came on the podcast. Oh, great. He was, he laid out a, why the S&P might be a bad bet for the next 10 years. And his take was basically, if you look at the current PE ratio of the S&P, it was like 23 or something like that, that the forward 10 year return had vacillated between negative two and two percent anytime that had happened. Yeah. So I'm just want to give you kind of like a just quick reaction, bullish bearish on on the S&P index right now, if you want to be an investor. Bearish bearish. Same reason. Yeah. I don't, I Howard is very, very smart. I don't disagree with that. Yeah. GLP once. So it's amazing. We have, we have the best things in sliced bread. Exactly. And it puts sliced bread out of business. I read a stat that the GLP one drugs, ozampic and the others, they're currently generated double the revenue of the AI of the AI companies. So it's like 79 billion a year versus, you know, 40 billion. And we are embryonic right now. And we're early stages. And also, I think the, the science is going to get a lot better. Yeah. So like give me your, how you're thinking about that right now, whether from investor point of view, or just, well, I think, I think from an investor point of view, to me, it goes to hard pile. And reason it goes to hard pile is industries would rapid change at the enemy of the investor, according to Warren. So we go, we was king, then Muncharo became king. And then now they're talking about some of these tabless, tabless are going to have a hard time because they have to go through the liver and all that. But basically, to me, I, I think that this trajectory is going to continue. But given the valuations and given where this headed, it's their too many. Right. Call it simpler. A few years ago, when I was at your house, I asked you about Bitcoin. And you similarly were like somewhat bearish on it. But you said, you know, ultimately too hard pile for it. Yeah, it's also too hard pile outside. Has anything changed in your opinion? Because the more time goes by in a way, like all money is a confidence game, as you know, right? Every currency, every gold bar is a confidence that this will, this will last. I'm curious if anything had changed over time for you with Bitcoin. I prefer gold to Bitcoin. It's not used by a bunch of scammers and, you know, ransom seekers and whatever else. So to me, the whole thing is in the too hard pile. But I would just say that given that we already have gold, why do we need Bitcoin? Okay. I want to bet you that I feel for our podcast. Yeah. There's a couple of life models. I wanted to ask you about because I asked you many of the investing truths. Yeah. But then some of yours, I feel like maybe you're related to investing, but probably not. One was don't die at 25 and get buried at 75. Yes. What do you mean? So that's a quote by Ben Franklin. As you know, I have no original ideas. So Ben Franklin said that many people die at 25 and are buried at 75. And basically what that's saying is that you've stopped growing and you've stopped kind of doing things and you're kind of just coasting. You know, I had discussed a stock with Charlie in my last meeting with him and he was buying that stock six days before he died. Okay. He was 99.9 years old. He didn't know he was going to die in six days. But when you have a 99.9 year age, you know life efficiency is not 20 years or 10 years. Okay. But he was I saw Charlie make investments and bets and decisions ignoring his mortality. Like he was 25. He was making the bets as if he was he was 25. And so I think that living till the very end, truly living is really important. So we we want to be pursuing our passions. We want to be getting our music out. We want to be doing the things that we want to do for this very finite time we have here. What does it mean? Get your music out. I saw that on your your list, but I didn't know what it meant. Well, all of us have music in us. And it's different, you know, for the musicians, it is actual music that they but but the thing is we have to understand who we are and understanding who we are is not easy, but we have to understand who we are. And we have to understand what would be something we want to bring to this world that makes the world better and makes us feel a sense of accomplishment for doing that. So we we all have special talents and there's no person who's got nothing if you will. They everyone has something special. We have to get that out because that's going to be a fulfilled life. September 28th, 2075. Apparently that's the date I'm going to die. One of your pieces of advice is and I quote, ask God Google when you are going to die and act accordingly. Last night at Google's when I would die, I gave it all my info. I told it. I'm a non-smoker. This year's old. I've done this, etc, etc. And it gave me a hey, here's a range. Yeah. And here's the most likely date September 28th, 2075. Awesome. All right. Now what do I do? You freaked me out. Now what do I do? So contrary to Seneca, life is short. And Gandhi as a quote, he says, live as if you were to die tomorrow, learn as if you were to live forever. And even Steve Jobs said that if he spent two, three, four days doing not what he really wanted to do or love doing, he would make a change. So I think that 2075 seems a really really long ways away, like 49 years or whatever. But it's not that far away. And I think that there's a Buddhist saying about living in the moment. And living in the moment is fantastic. So I think that treating every day as if it's your last and living it to the fullest for the full 49 years, that's what you want to be doing. So I think, you know, people say, oh, I'm going to graduate and I'm going to work three years at McKinsey, then I'm going to get some experience. Then I'm going to start my business. You know, Buffy would say to that, that's like saving sex for old age, not a good idea. Okay. So don't make a lot of long term plans. We have to enjoy today. Don't wait to live. We have to enjoy every day. So I think getting the music out, doing what we love to do, working with people, we like admire and trust, and pursuing our passions, we have to do that all the time. Right. Those are sort of like the eat clean exercise, get good sleep. What those are to health. Yeah. I feel like what you're describing is to like living life well. Absolutely. Yeah. You know, one of the things that I think is your part of your music you get out is that not only do you study investing and study companies to invest in, but you study the investors. And my favorite learnings from you have actually been the stories that the insights you have, having studied all the great investors. I want to ask you about a couple of names. I didn't ask you about in the previous ones. The first is Ed Thorpe. Right. Tell me about Ed Thorpe. What do we learn from Ed Thorpe? The first time I met Ed Thorpe. I was naked. So just to give you the long form answer. So Ed Thorpe, MIT trained PhD mathematician, very smart. He actually worked with Claude Shannon, and if you just study Shannon, this podcast on him and all that, but Shannon is probably one of the smartest humans around ever lived. But Ed Thorpe basically used MIT's mainframe computer to figure out how to optimally play Blackjack. And he came up with what we now call basic strategy. And at that time in the early 60s, when he did this, casinos in Vegas and Reno, etc. played single deck Blackjack to the end of the deck. And Blackjack is a game where every time a card is played, the odds change. And so if a deck gets filled with more races and tens or whatever else, then you're basically as a player, it's in your favor. And smaller cards, it's against you. So he's counting cards is easy to do. And when the deck got loaded, he increases back, bad and not loaded, he reduces bed. And he cleaned the casinos out. And at that time, the casino, the mob run. And so they basically showed him a baseball bat and said, don't ever come back. Okay. And so they even know what he was doing. Or they just said, they don't need to know. They knew that they were losing money. They didn't know why they were losing money. And that's all they cared about that they were losing money. And so he went back and he says, you know, very meek, timid guy. He said, wow, this is like, like they might actually like, you know, kill me or something. So he said, I'm not going back. But to get back at them, he wrote a book called Beeth Dealer, which sold millions of copies, which basically says, here's how we beat the casinos. And the casinos freaked out because they said, now we got like 10,000 head tops are coming at us. And so Blackjack became a game from then till now, which whether the rules have continuously changed, where they started not playing to the end of the shoe, they introduced multiple, multiple decks and all these different, and all the different, you know, rule changes and everything else to keep up with all of that. And it's been kind of, and you know, the movie 21, where the MIT kids went in with all of that. So anyway, he did well. He wrote Beeth Dealer. And then he realized there was a better casino than Vegas, which was a New York Stock Exchange. And there's something known as the Black Sholes formula, which is the way how options are priced. So the guys who came up with their Black Sholes and another guy, they got the Nobel Prize for that. Basically, it tells you, if you've got a stock with whatever volatility, how to price the options, the call options, whatever else, else on that. Ed Thorpe cracked how options were priced before Black Sholes, but decided instead of getting a Nobel Prize, he was going to make money of it. Okay. So he's he he set up a entity called Princeton Newport Partners and they killed it like 25, 30% a year and no down years and any of that. And did that for a while, became very wealthy. He moved to Newport Beach, became a professor at UCI and then someone introduced him, just think about this is like a kind of force comes to, someone introduces him to Ken Griffin, you know, Citadel Spounder, while he's at Harvard, you know, trading out of the dorm room, Ken asked because Ed was not using his all his algorithms and everything else he'd retired, Ken asked if he would give it to him. Ed talked to Ken realized he's very unusual and said, you can have it all and I want to invest with you. And so he becomes one of the early investors in Citadel. So that engine just keeps going. Oh my God. And then also he meets Buffett for bridge, I think in the 70s and realize this is the guy and he puts a bunch of money with him. So you know, he's invested Ken Griffin would warn Buffett with himself Princeton Newport Partners and the casino all the above, right? Legend. Now I'm in I'm in Irvine, California. I'm at this club where I go play racquetball and I'm getting ready for my racquetball game. So as I'm getting ready, I'm naked and this guy is older guy is looking at me and they're the wall she journal next to my and he says to me, what do you do? I said, oh, I'm a run a hedge fund, right? And he's such talking to me and I forget that I'm naked. Okay. And then he says, I'm at Torp and I get so excited as oh my God, I'd talk and I go up to him and then I realized, bonus, you're naked. You know, this is not appropriate. So I said, Ed, can we just meet for lunch? You know, I said, I promise you I won't show up this way. Okay. And he said, absolutely, right? And so then I met him for lunch and got to know him. In fact, I just got a Christmas card for him and he wrote me a nice note. But Ed is fantastic. I think that's a great guy. And you know, he's I think 90 great health and you should get him on the podcast. He also beat Roulette too. Did he not? Oh, yeah. He had a he had a device by which they could I forget that there's something where they wore a shoe or something. Yeah, yeah. There's something they wore which would kind of tell them what is going on to the. Yeah, that is an unbelievable story. You mentioned Ken Griffin. I've heard some of the kind of Ken Griffin lore. What do you know about him? And what kind of made him special and why? Maybe Ed initially spotted that this guy might be a little bit different. So I met Ken around 2000. So I was running the IT company and someone I knew said that they were looking for consultants and my wife went in as a consultant to Citadel. Okay. So she's actually at Citadel. Ken is like, there might be like 10 people at Citadel that time. And she'd come home every evening with a whole bunch of Ken stories. Like she's like, she told me this guy is very unusual and the place is very unusual. Everything's very unusual. So he had hired some Wizbang Russian mathematician, PhD, postdoc, whatever who's working with the algorithms. And everyone at Citadel would come to this Russian guy with their problems. And Ken didn't want anyone coming to him. He just wanted him to crank without anyone bothering him. So my wife told me that there's a temp that was hired and Ken told a temp that here's your desk, here's you, here's the mathematician. No one crosses. So the temp says, oh, what do I do? Nothing. Your whole job is to make sure no one crosses, no one talks to her. So she's just looking at this temp and the temp herself is in shock. Someone's being made like, you know, file my nails. So yeah, Ken is a very intense guy. But I think he's very smart. I think he found all the different nooks and crannies built a tremendous business. And so I have a lot of respect for him. Awesome. Did a great job. I feel like Ken Griffin intensity stories is something that I can binge on. I've heard, you know, when Enron was going out of business, did you hear the story? Yeah, they all went in and then you bought all the gold. All the smart guys out. Yeah, like a rescue mission. I just read the other day that they had made an offer to some guy at Harvard, whatever was a new grad and can ask him, so let's say you made 10 million a year. What would you do? He said, oh, I'd quit. I'd go blind. The tallest peaks. This and that, whatever. So Ken says to him, please reject our job offer. You know, we've already made the job for you. We can't rescind it, but please don't accept it because we really don't want someone like you. Right. We don't want someone at 10 million who dies at 25. Right. You know, you've done podcasts like these before with me and then others. I think our podcast together, more than 5 million people have listened. However, the sad part of that is I bet if I talk to those 5 million and I say, what'd you really take away? What did you, what'd you remember? What was the thing that you took? I'm not sure how many would have something that clicks. And so I want to make it easy for them this time. What's the thing that they can't miss out of this one? Because I don't want people to just listen, be entertained and go back to doing things exactly how the way they were. Lead and aligned life. So who we are is hard-coded at the age of five. So between our genetics and what happens till in the first five years, how old are your kids? I have a six year old, five year old and a two year old. Okay. So you've got some work you can do for the two year old, but the six and five year old, the cake is already baked. Okay. And especially after they're about 12, after they're 12, the only thing you can do for them is control who their peers are. What happens with us humans is we show up in this world without an owner's value. Okay. We don't know what our calling is. The calling is predetermined at the age of five. If we don't follow that calling, this is our inner inner map. And this is how we are externally. We are misaligned. And to have a great life, it needs to be like this. Now to get from here to here means you have to understand who you are. And there are clues to understanding who you are. So what you have to do is whenever you do any activity, you have to ask yourself, how much did I like that? When you meet someone, how much did I like meeting that person? And so you have to try to get to a point where the glove fits. So you may be a lawyer, but you are meant to be an artist or you may be a musician, but you're meant to be a running back. Okay. So I mean, I found it out by going through these industrial psychologists who we did all this work with and all that. And I was able to get to what my calling is when I was 34 or 35 years old. Till then I was wandering the wilderness. completely lost, right? And then life became a lot better. Getting to an aligned life is the most important thing. It's not being a great investor or you know finding great investments or any of that. I think the thing is you have to get your music out and you have to understand what that music is and you have to live an aligned life. And it's worth the pursuit however painful it may be to understand that as early as you can in life. The shortcut is you could go through psychological tests with a psychiatrist. What were you asked them for? What are you asking them to do? Is there a name for this? You're going to tell them that I want to understand who I am and what is my calling in life? What am I supposed to be doing? Now you could go to my guy. You can go to him. Yeah, who's your guy? His name is Jack Schien. I've met Jack. Okay. Yeah, all right. Yeah, he does that kind of full life 360 sort of analysis. Yeah, so you can go to Jack and Jack can only do like 20 years or something. Okay, so he can do it at scale, but he may know others. And so that's a pretty foolproof way to get there. Other than that, I think you have to feel away. If you don't not really do that, then you have to look at what you like, what you don't like. You have to look at whether doing something energizes you or doesn't energize you, that sort of thing. And so you have to find what you love doing. And if you only do what you love doing, you'll do it very well. And what do you think most people don't do that? It's because the world tells us what we are supposed to do. And we think that what the world tells us what we're supposed to do is what we actually supposed to do. For example, the human brain is set up optimally to start specializing after the age of 11. And from the age 11 to 20 is a window to specialize. That is the exact window when the education system makes you a jack of all traits. So like Michelangelo, he was doing his sculptures and paintings and all that, 10 to 11, Buffett picking stocks, Gates coding at 11 or 12. So you have to try to within the context of a world that wants to be a jack of all traits, start getting to what is your calling, like the way Buffett and Gates did it. They were in a world of jack of all traits. But within that world, Gates spent an inordinate amount of time doing coding. He would slip out of his parents home at night and code all night and come back and sleep and whatever. And so he got 10,000,000 hours of coding experience by the time he was in his early 20s. And nobody could touch him after that. So yes, we have to at that age, that's your job as a parent. Make sure the kids at 11 or 12, you're trying to figure out what they're good at and trying to increase the time that they get for that. Well, I don't know what my calling is just yet. Actually, if I look back at that age, I was doing something very similar to this. The two things I really love to do back at the time was I love to play any kind of game where there was a score. I was playing online poker at a very young age of things that related to business and money. And then the other was I was doing improv all the time. I loved it. It was a podcast, but an improv session. I just did this for whatever three hours and it was no problem, right? And could have known that signal at a younger age. I think you're if you're not there, you're damn close. Yeah. I want to leave you with one thing. I have a gift for you in this envelope. Once you take a look, we asked somebody who knows you well to write a letter and it's your friend Guy Spear. Oh, wow. And Guy wrote this letter for you. He knew you're here today. All right. So let me just start reading it because I really like to read it later at leisure, but that's so that's awesome. So the title is what I did not learn at HBS. Monish Pobry taught me everything I needed to succeed in business. Dear Monish, this is fun. Dear Monish, I met you some years after my MBA, but the truth was despite the degree, I knew next to nothing about business. My real education didn't begin until we met for dinner at the restaurant at the Delamar hotel in Grandisch, Connecticut. I remember that evening vividly. I came away from that one dinner with more ideas than I had in two years at Harvard. Books I'd never heard of and ideas that never thought of you introduced me to power was a force by David Hawkins and to gandhi's autobiography, the story of my experiments with truth. We discussed Robert C. Aldini's influence, the psychology of persuasion, but what struck me was that you had not merely read about these ideas, you had put them into practice in your own life in a way that I did not even know was possible. Sitting opposite you, I realized that I was a conventional thinker. You on the other hand had a very unusual mind. Someone who knew how to get things done in the real world and translate ideas into action. I myself was very misaligned at the time. I'm deeply grateful that you were willing to become my friend that allowed me over time to entangle some of the misaligned elements in my personality. Alignment. You couldn't give me a better gift. This is very special. Thank you so much. I want to thank Guy for doing it. We called him last minute. I said, you know, who knows him better? Excellent. Manish, thanks for doing this. Okay, awesome. Let's take a quick break. I want to tell you about a podcast that you could check out. It is called The Science of Scaling by Mark Rebares. He was the founding CEO of HubSpot. He's a guest lecture at Harvard Business School, the guy Smart. He sits down every week with different sales leaders from cool companies like Klavio, Invanta, and OpenAI. He's asking about their strategies, their tactics, and how they're growing their companies as head of sales or chief revenue officer. If you're looking to scale a company up, if you're a CRO or head of sales, just looking to level up in your career, I think a podcast like this could be great for you. Listen to The Science of Scaling wherever you get your podcasts.