Chai, Vada Pav & Markets with value investors Mohnish Pabrai & Guy Spier

well hello welcome to this very special chat we are calling chai and vara pow with guys pure and Mohnish Pabrai as the name suggests the two noted very well-known value investors are right here in Mumbai guy as well as Mohnish and we thought why not discuss desi markets over they see street food not even guy thanks very much for taking out the time this is busy street food and it's I think the best way to discuss the markets as well well first of all can we thank you so much for the kondakova my favorite so it's it's great to be with you and and yes certainly great - great to be with you viewers as well yeah guy I believe you've got the investment licence now to officially open account in India finally finally yeah it took about almost two years and I was pulling hairs out and I was so grateful yeah but in a certain way I feel very lucky because the the licence came just at a time when some things got a little cheaper so sometimes being forced to wait is a good thing so firstly and this has to be my opening question hamaji looking to invest in India so that's an interesting question so I you know mohnish has publicly said that I think you said that he has nothing in the u.s. right now and I happen to love the u.s. even though I don't live there I've told my investors that I will go up to 10% for now and then I would report back to them and so I will edge my way in quite a bit more slowly than some other people that we know and what have you bought so far I bought one stock but I'm looking to buy a number of others you know 20 years ago or so I bought one stock and I sold it way too soon I bought chris'll and I've Airy severely regretted it and every time I come back here I mean that when I came here the first time it was really hard to get around and was really hard to understand the place I feel like it's becoming easier and easier and that's not because I'm becoming more intelligent it's the India's becoming simplified simpler and simpler and so yeah but I think that the industries that I'll go into I mean there's still a lot of noise that I don't think I will ever be able to understand and well but I think that there are some people some American investors were already here mohnish is one we were talking about Fairfax India is another one I can look to see what they're doing and it's becoming more and more non-indian friendly if you like so I'm very very pleased to be here yeah I mean it's the Dacey sentiment which is welcoming investors from across the world this is some great Dacia Street food I know ma Nisha's favorite is poha which is my favorite too but you should try out the BC version of the hamburger as it gets when it comes to Indian Street food I'm just wondering ton B are you trying to make a point by giving me some spicy food spicy as well I like spice in my food I would prefer the markets to be plain sailing but you know it's not always that way but do you think that at the current juncture the market to played with enough spice and now perhaps will get into a bit of a stable zone so to speak I mean it's been fairly volatile right especially what's happened with the mid-caps in the small caps where you have some exposure so I think I think the thing is that you know there were three core edicts that when Graham talked about that became the core of what Buffett focused on and one of those core edicts was that the market is here to serve us not to instruct us and it's really important to keep that mind so basically we should not be looking at market levels to to basically figure out why it's doing this or why it's doing that the key is to focus on individual businesses and ignore the noise and so when those businesses are available well below what we think they're worth we should be buying and when markets get euphoric and those businesses are priced above what we think they're worth we should be selling and pretty much I think that trying to do anything more than that I think is is a mistake warrant never done that and I think that's the way to go so I think when when we have volatility like we have recent or when we have declines like we have recently for net buyers of stocks which I think most of the country is net buyers because a young country it's a good thing yeah if markets were to go down let's say another 25 percent actually what guy and I would be happy because it would give us things to buy that we can't buy today I can understand why guy would be happy because you know he's getting into the markets but and I'm taking the liberty of asking you this as patiently as I can because I've known you for a while you know the way the mid caps and the small caps have fallen over the last days right so somebody who's been invested who has a skin in the game a lot of fingers are pointing towards oh but your portfolio's suffered a major setback and so what would you tell those skeptics who who are you know questioning the very style of value investing at a time when you're seeing you know the overall value of your portfolio erode I think value investing is timeless I don't think it is a fad or anything I think it it will be be here 50 years from now and it was here 50 years in the past so I think the the value of individual stocks going up and down so for example they've been I think three or four times when Berkshire Hathaway has dropped more than 50% right and so and you know the bluest of the blue chips if you will and so we we should not be reacting I mean just to give you an example there's a company in my portfolio rain industries right so three three years ago three and a half years ago when I was buying the company it was creating between let's say 35 and 45 dollars for 45 rupees a share and did nothing for a couple of years actually went down and we just we just sat there doing nothing and then in the last let's say 18 months it went from 50 to nearly 500 right it went up you know quite dramatically and then from you know on the high 400 its it went down down to 150 and none of that is very relevant right so it has impacts on how the portfolio value but for me what matters is what is the value of the business and what where is the business going long-term and on those two fronts I think the news is generally good so so you know we own about 10 percent of rain we used to own 10% of rain three months ago and six months ago and nine months ago and we still all that and that's the way it is you know I would just for the viewers sake so mohnish has a very particular wiring that I don't think it's fair you don't have in order to be a successful investor and you don't have to have monitors wiring I don't have monitors wiring so I've genuinely I've observed him with enormous swings in his portfolio which would have me feeling maybe a bit little bit more like your viewers and it really doesn't affect Mohnish and the answer is perhaps let's say for me is make sure that I don't put myself in a situation where it's going to affect me as much so one is to have a reduced concentration and things that might move around a lot but the other thing that I do is is that I deliberately and self-consciously do not check the stock price for days even weeks at a time because somebody the CFO is doing the review and what I found is that when something important happens I'll find out anyway so I suspect that and many people who come into a market or who had start investing are checking just too frequently and I know it sounds unusual but especially if it's your own money once a year is just fine and I found and I ran the experiment you know what happens if I check the stock price less frequently it does not affect performance at all and you know you know and you know to me the thing is a large portion of the investing public in India is in their 20s and 30s maybe early 40s and so they have decades before they would retire and and want to dip into the savings and so on so the best thing that they can do is just two very simple things one is in western well diversified index fund yeah and the second is spend less than you are so just keep putting something away every month ignore the market levels they'll go up and down but you know if you're thirty something and you do this for 30 years or 40 years you're gonna wake up and be enormously wealthy without really having ever made a lot of money in any given year okay right and so the thing is that's what we want to do we want to play the long game and we don't want to be reacting to all the markets down to the markets up or whatever else what is this called this is so what you do what the investors do is forget the stock market which my wife is very envious of me right now forget about what's going on in the market because the food is good a bird's-eye view of them you know how you are kind of sized up this situation with this mini crisis so to speak in there let me just tell you from from from a bird's eye perspective there I see credit expanding in so many different places and it is just wonderful to see because money is being put into the hands not of the rich but of the middle class and hopefully with time with people who have not very much and they are buying things that they need and they're being given on the opportunity to buy it that's all fantastic and these companies are providing that credit and you know we were with 1:00 this morning and their growth has been extraordinary I think you could say 10x over the last decade I don't know if we can mention the name but [Laughter] and we're after so that is really great for the Indian economy now I from my experiences in the United States will never invest in a in a growing consumer finance business there are a thousand reasons why I'm gonna have my head handed to me there's a company that I'm willing to mention in the United States called credit acceptance that people who've invested in it have made enormous amounts of money I would never touch it but boy am I happy that it's happening and so I don't have now you'll come the expert opinion he'll tell you specifically no but that's okay and I will never be able to evaluate the people managing it and I would tell you that the probabilities on what happens to those companies over time is that they inevitably the vast majority get tripped up in one way or another at some point that makes because they suddenly have a refunding crisis for one reason or another but boy are they good for the Indian economy and if I was a Reserve Bank of India I'm so glad that they're there and I want to find ways to support their growth and then they're doing as much now tell us and all these NBF sees right the people are running these businesses did not read Hamlet yeah so I think the thing is that that if if we had Hamlet and the CBSE critical I'm not sure it's there or not but the thing is there's a there's a section with Polonius talking to his son was going to go away and one of the things he says you know your son neither a lender nor borrower B and of course Buffett paraphrase that and he said neither a short-term borrower nor a long-term lender be right and and one of the problems that NBF seeds have in fact all lenders have is there's a strong temptation to borrow short and lend long because you just get fatter spread so just first of all just talking about levered financial institutions in I think nineteen plus years of running for bright funds probably the number one place where have lost the most money has been on levered financial institution right I can probably very quickly come to probably something like then probably more than 120 million dollars that went to zero on level financial institutions right now thankfully it's in the distant past but I I have the scars from that I'd remember that really well and the the problem with level financial institutions you look at any bank or any financial lender for the most part their black boxes okay we are not able to see things that our loan level we are reading reports we really don't have the kind of detailed layers and the second is there's a hundred different ways things can go wrong there's 100 from great things have gone wrong and the ones I have invested in and so one of the things I repeatedly think about is mounish these lower financial institutions give you so much trouble yeah there's a hundred different ways we can make money let's leave them aside and so if we look at Repco we'll talk about reprimand I'm done with it okay where we can have a more open conversation but I would check today probably out of 800 million repos maybe like four percent of the pie right so quite frankly if Repco doubles or triples in price or get cut in half it is not what's going to drive where we are five years or ten years from now and Popeye funds right now so I think that one of the one of the big lessons I have learned in the past from the level institutions is stay away from them and time will tell whether a rep Co which has spent a lot of time thinking about will be invested will work out or not I don't have any reason to think it wouldn't work out but I didn't have any reason to think the previous ones would work out either so I think I think level financial institutions are high octane and they can be combustible and one should be careful but what's on your radar I mean as you go on a shopping spree in India what I think is really unusual and again I'm sorry time there no names coming out but but there's a few guys yeah exactly sorry everyone there's a few things where I think that first of all India is getting it right better than the United States and Europe there's a few companies that I've started to notice India where I've kind of looked at it and gone wow this kind of this kind of company doesn't even exist in Western Europe or North America because they wouldn't be allowed to exist and this is just an extraordinary business but I guess I'm waiting for something to find things we're first of all it's unusual to me and I know that without coming to India every two weeks or every month I'll be able to observe and part of the business and I know that I'll understand it when I see it I should say this but first of all I deeply deeply regret that stupid day when I woke up and thought I'd made enough money in chris'll and that it was time to sell and if I just kept my license from that time which I didn't that would have saved me an awful awful lot but the fact that I mean India mohnish is an extremely unusual situation because he grew up here understands India but then spent 20 or so years really really learning about and understanding the United States and at exactly a time when India sort of turned away from from its former colonial master and become so many more people here are thinking and following American models or that I'm learning for example with reira not just American models but the big insight that Mohnish had I think was to say you know what forget about the top-tier companies and let's look that's sort of like the companies that are not they're not the sort of that the nifty 50 and let's see what those look like and I would not have even bothered to come here because I knew that I had no chance to start digging around those things there's no question the ability to reference what Mohnish is up to but then through people I'm getting to know through Mohnish just to reference what they're doing and here's something that we all do and I am honest talks about cloning so Mohnish started off cloning Warren and Charlie I continued to clone Warren and Charlie but there isn't just Mohnish I mean at the time that I owned frizzle John John Rakesh George and voila was invested in chris'll and that guy still invested in chris'll and I'm not but but to pay attention to him in a number of other super smart people and the people who specifically sit and hold things for a long time is a great guidance for me but at the end of the day sooner or later something will come up one of the key things in investing is independence of thought right so guy actually is quite independent and he he marches to his own drummer but one of the things I wanted to tell you about the timing of the market you're talking about is it only happens to me no one else everything I buy goes down in price after I buy it and everything I sell goes up in price our price had it but that's only my exactly so in fact even even like a rain industry I think after we finished buying and written down to 30 to be the share and what else is new you know and so so I think we are never going to get the timing right and we should not even try I think the thing is that's a futile exercise I have no idea where the Indian markets are three days from now three months from now three years from now irrelevant what will actually matter is how these underlying businesses that I own individually perform and and if they individually perform well you know the thing is that in in markets it done whatever they've done but tightened has much to its own drummer and that business has done phenomenally well and even in this market it really doesn't matter the business continues to do well in one day you wouldn't believe four people have spoken about how bullish they are on Titan today itself well I don't I haven't looked at Idlewild I just know I don't know I just know that the quality oh you talked about so now Titan is the interesting business because it's not recurring revenue right I mean it's some of the business but Titan has a franchise and one of the key things you know what Buffett said if you don't know jewelry know your jeweler and so one of the easiest things for us to get taken is when we buy jewelry right it's very easy for us to get deceived and so the most important thing is trust in the jeweler right and and tighten and the biggest asset they have is the is the trust in tens of millions people's minds on that brand and and actually there is no second so if you think about it you know they can go into a new city second 30 or 40 or 30 cities and people know that if I buy something from tightened I'm not gonna endure profit yeah no absolutely this tremendous brand value their monies your fans know how you're thinking and very investing in India but guy and a lot of people who you know literally be like tell me why didn't you AHA's guy when he is looking to invest in him they are you know what is known as radar so I'm gonna push you again what is it how are you going about this whole process you made one investment in three months and I'm gonna tell me which one it is how about telling me how close you are to making your next investment and where would it be you know I mean one of the reasons why I very much wanted to come was to actually meet in the flesh some of the people that I'm considering investing in you mentioned where up is gonna sit on your mind I think I think that India forgive me because it's just a you know this may sound awful but you know guess what Indians like nice buildings as well you know and I you know it's like going to a nice Lobby they nice like living in a place where there's air conditioning where things function and that is happening in a way that's just extraordinary and it's so much fun to watch although it makes in India a little less foreign to me but yeah I think that the real estate transformation that India is going through is just extraordinary transformational for the country in all sorts of ways and is driving so many things what would be your opinion on the significance derating that mid caps and small caps have seen over the course of from the start of the year till now they've been bad you're out of shape if you own mid caps just go to sleep eat some great food and ignore the sell-off and if you don't earn the mid caps and get interested you know see what's there interesting so I would say that before we buy a stock I would hope we would have figured out what it's worth right and so that is that is our reference point what is the business worth not what the business is trading at and definitely not what the business is trading at after we buy it so we are not we should not be reacting I mean if my entire portfolio drops 25% tomorrow it doesn't mean that the business is over 25% less then those are two independent facts and so I think keep to keep the basics in mind I mean if if we if if you own an apartment let's say you want a flat in Mumbai let's say you paid 3 crores for it for example and let's say that flat was created on the Bombay Stock Exchange every day its price will fluctuate and you would see it's 2.7 floors and 3.3 corals and then sometimes 2 crores but you don't get a daily quote on your flat and so you don't think about it and I think the way to think about stocks is the exact same way think of them like the other assets you keep the face

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Keywords: Mohnish pabrai, Guy spier, rakesh jhunjhunwala, mohnish pabrai interview, mohnish pabrai lecture, pabrai funds, stock market, mohnish pabrai latest interview, mohnish pabrai google, value investor, warren buffett, guy spier 2016, guy spier google, Business news, news today, economy, economic news, money, finance, financial news, times now, et now, latest news, stocks and shares, stocks today, Investment, shares, stocks, exclusive interview

Id: OTvzQR9KKT8

Length: 22min 50sec (1370 seconds)

Published: Fri Nov 16 2018