Guy Spier & Mohnish Pabrai Office Tour, Warren Buffett, Investment Philosophy & The Key To Learning

[Music] hi John it's sky here uh really sorry you couldn't join us or me and Mish and Irvine but I hope you will at some point and uh delighted to be able to give you uh to try to give you a short office tour uh we're actually in a pretty uh nondescript office p in Irvine California there is not a financial firm in sight most of the other businesses that are here are um uh education companies companies that prepare people for SATs and I think that's interesting you know in um uh in Omaha Burkshire haway is there with a bunch of construction companies Mish PAB here is uh with a bunch of Education preparation companies so let's go inside so uh we're just going up the steps here and I find it interesting Mish has amazing photographs of his Heroes everywhere it's like a reminder of who he's emulating we've got Charlie two photographs of Charlie Mong a great portrait of Warren Buffett over here and then if we look the other way another one of mishes Heroes uh Mahatma Gandhi who wrote an incredible autobiography the story history of my experimentations with the truth so those photographs and those images are kind of going into mish's mind every time he comes into the office and then if you look up there at the above the door you will see a great um uh sign that says invest Like A Champion today it was originally from notra Dame football uh play Like A Champion today and that is something that is above the door uh in Warren's office we saw it in immed made a copy so there we go yeah all right I'll I'll talk to you soon then bye so Mish I've I've uh showed we're running video okay and uh I've showed them the outside of the office and we cut straight here and you know John did a tour of my library and it people were really interested and so I guess this is really for John to take a look at How mish is set up in his office and I guess uh some things it's a it's a messy desk yeah why don't you take the camera around your office briefly and show them all right well uh the wall to my uh the wall to my right uh if you if you just uh take the camera to this wall this is my wall of uh mostly Munger and Buffett letters and notes and we've got a few others over here so just odds and ends over the years uh which have um uh just kept uh and uh enjoyed enjoyed receiving um and then the the rest of the office if you just scan uh some of the other walls is uh mostly pictures um different uh different sorts of pictures uh uh right uh right behind you is uh is a set of pictures mostly with uh from Omaha or from Pasadena with uh Charlie and Warren and other luminaries and such and then we've got uh another wall here which is mostly the buffet lunch picture so this is you know just uh uh any pictures I find interesting I uh will tend to just uh uh if there's wall space pull it up uh so this is very much a pre Facebook approach to pictures here and uh and so that's what's uh Happening Here uh can you it does the bedroom exists Mish the bedroom exists shall we go to the bedroom let's take a quick look at the bedroom all right we have to go in here this is the bedroom and uh where the uh afternoon uh naps take place and uh you know we uh we we got some of the bedding from Western Heavenly bed and uh so that that works out fine and um it's a nice little room but it's very quiet and uh uh you know I I actually take a nap every afternoon and so works out great the the person who's most excited about these annual reports is guys spear more than anyone else and um so anyway uh one of the things I I um learned from Warren is that anytime he would look at a stock uh he'd buy 100 shares and U and he used to buy as he still does he buys 100 shares so he can just keep track of it because it forces them to send them the annual report and uh since I'm uh cheaper and more frugal than uh than Warren is I only buy one share and the one share goes in my wife's Ira so that we don't have tax issues to deal with for a while and um and so then that forces them to send the annual report but now some of these companies have stopped sending it because they they want to go all digital so we basically have long histories of annual reports and it makes the research easier uh when we're looking at you know uh a business and we can go back and look at several years and and basically what happens in many of these companies is you really cannot get the reports which are really old um anymore and I actually like to read everything hard copied so I actually prefer the actual original document issued by the company so so uh uh you know it's uh here's a fat 2011 annual report and I guess just a has not sent us the 2012 report as an example but I'll say something then a question I think think it's always interesting to visit people's offices I mean I feel I've cloned Warren Buffett but I didn't do a good enough job and one time I was here and I saw a bunch of annual reports and I asked why is he receiving them and then I realized it's cuz he' opened an account and it bought one share and it's only a year ago or in the last 6 months that I've done the same thing so I'm looking forward to receiving the annual reports have you have you gone hyperactive and bought one share of every stock I've been paying brokerage fees to the purchase price to Charles sh about the yinyang but um a question to you you can't keep every annual report so how do you choose which ones you want uh because you don't have no but no the thing is that we do keep all the annual reports for which we bought the share we bought the one share and they're not it doesn't take that much room I mean I think this is not all of it but this is probably 80% of it so it doesn't take that much room so let and uh let me just continue the tour over here of Shame and I'll stay behind the camera so and um so I learned this from uh Chris Davis um uh where he had a hall of shame in fact I went to his office in New York and he showed it to me so this wall right in front of me here is um businesses that we used to have a stake in and we've exited fully and we made money you know we actually uh we actually have gains in all of these businesses so things worked out well so that was good and then if you just follow here uh where we make our coffee in the kitchen we have a smaller number of plaques here which I think is good because these are the businesses where we had permanent losses of capital and uh so you can see Delta Financial up there which is a business which we lost about 65 million and uh and then there's a few others over here which uh have have led to losses and um uh pretty much uh see every day and uh thankfully this is not growing much it's uh constant and then um if you go just back to the uh back to our common area uh we have another wall here and these are businesses where we neither made uh nor lost money actually we made just a slight amount of money so they were just basically flat uh businesses where we invested and exited but didn't uh make or lose uh much money and uh you know there's some other uh things that you might find of Interest this is our wall of bsh hathway annual reports Warren is quite monotonous in the way he designs the covers every year of the annual reports uh they're all identical for more than uh I think more than 40 years and uh the only surprise is what color he places on the cover and the reason I put these up is to just uh you know uh drill in the point that uh it is really the content inside the report that one ought to focus on and in fact uh at uh at PAB funds and at the dakna foundation we've taken a queue from Warren and uh our designs basically um stay very similar and our our colors change so uh so that's uh worked out well and if you just follow me in here um this is just odds and ends of um shareholder credentials at the Bop meetings and um again every year when I go to the annual meeting I try to uh keep them and uh um you know I think they're they're nice collector's pieces and I think they do a very good job with them so so the office you know I've just tried to um uh make it a relaxed atmosphere uh uh make it a fun atmosphere and uh you know take it from there so all right so you know one of the things that uh I thought we might start with is um you know this this notion if you remember from the Buffett lunch uh herina my wife herena had brought up to warn that uh I thought uh a business like Ikea uh would be just a perfect company for burshire to acquire and so Hina mentioned that to Warren and Warren immediately says that yes I I wrote to them and uh told them that if they ever decide to do something you know to give me a call and of course then he explained How uh the way Ikea was set up with the foundation then trust and all that it was unlikely that there would be any kind of transaction with bush or anyone else uh and such but the but the interesting thing is that recently I was uh rereading uh Alice scher's book you know the snowball and uh first of all I think she did an exceptional job uh with the the depth of uh and the the writing style was just wonderful but uh what she one of the things she talked about was that uh you know one of the things that's on Buffett's reading list you know like he reads American Banker he reads all these newspapers but he also gets these Furniture Publications uh to his office and he reads uh skims that as well and um and then Alice also mentioned that he's very close to the blancan boys the Nebraska Furniture Mart uh grandchildren of Mrs B Irv and Ron blankin and in fact you know meets them frequently for dinner and even takes um uh I think a once a year trip with them and so the net net of all this is that he has uh spent an enormous amount of time uh studying the furniture business um and and what has what has happened out of the study of the furniture businesses he's talked to the blun kins about what other businesses uh uh what other companies and the fure business that we could to acquire and bsh shows and a number of Acquisitions uh in that space space including Jordans and uh and I think RC Wy and so on so forth and so the issue is that you know the in investing what happens is that uh it's it's one of the broadest disciplines and the The Edge you can gain if you will like I think Warren has an edge in the furniture business uh comes out of you know come of this multi-dimensional way of looking at it and I came at looking at Ikea being a fit just because of the nature of that business being so amazing and I think Warren probably came at it more from his whole Nebraska Furniture M experience and probably the blumin brothers uh might have even mentioned it directly to him so the thing is that with someone like Warren Buffett he had those unusual insights into the insurance business and then went into Insurance in a big way he had that insight into Banks uh waren understand Banks really well he used to own first Rockford uh Furniture if you look uh at Seas candy for example that was a big learning for Warren and the Seas candy experience led to the coke investment it led to investment in other brands and so on so forth so the thing with investing is uh what is most fascinating to me is when you go through growth and you grow to the next level and you find something that clicks you have the same data set all the data is public but it's the analytics that become Superior and it gives you insights uh that maybe uh you're able to see around the bend that others can't see and um you know we had some of that when we looked at the car business uh in the middle of 2012 and also when you looked at uh money center Banks and such so to me the interesting thing about the investment business is that you know one has to continue to first of all uh not only scan the Horizon but also go deep in some of these areas to find those Rich veins so I don't know what your thoughts well my question to you is um Nebraska fish M you know was that a successful acquisition and would burer so you're great so he knows the furniture business and I believe that if he owned if B owned um Ikea that might make up for all of these other Furniture businesses but my sense is that the furniture businesses have not been a successful Venture for both well but Nebraska Furniture Mt has been and the reason Nebraska Furniture has been is because economics the way simple thing is that he bought the business uh for about 60 I think 60 or 65 million um and uh they were at the time I think doing less than 100 million a year in sales and NE Furniture Mark today is more than 10 times that size and uh they really haven't plowed any capital and in fact they probably pulled out a whole bunch of capital u over the years so Nebraska fmart particularly is an exceptional business and the reason it's an exceptional business is because the cost structures uh lowc cost provider uh low overheads and you know they they they pulling in people from a several hundred mile radius coming in so the the per square foot sale is probably 10x there other Omaha competitors but the other ones I agree with you some of the other ones I think Jordans for example hasn't worked but that's the nature that's the other part of the investing business you know you can have a pretty healthy error rate yeah and do fine but what I'm trying to say that in aggregate I think Furniture uh yeah Furniture one would think looking at the outside furniture retailing uh doesn't come across as a you know enormously you know lucrative thing to go into I think it's worked out fairly well for Burkshire the same with jewelry they've made a number of investments in the jewelry business that may have not been so well but bores for quite a while uh same as in Furniture low cost provider did fairly well hburg diamonds so great but then I guess uh you know even if he doesn't get to invest in Ikea he didn't invest in the flooring company whose name carpets which is a doop and in a certain sense probably learned from furniture retail absolutely sh carpets was the place in the value chain where they captured the most um yeah so so that's the interesting thing like you know if you think of something like carpets you know we a normal investor might just think of it and you know move on saying okay carpets blah but you know when you drill down uh that's when you really start understanding or like for example USG you know which makes sheetrock again they've had John Mansville in their portfolio um and you know the contract trctor say that the way the sheetrock USG Drywall drywall is you can say a commodity but USG Drywall the sheet rock breaks and is easier to cut uh and crack than other drywalls and so contractors in terms of Labor savings and all that prefer it yeah and so even something as subtle as drywall can have a mo and so um the the fascinating thing about the for me the invesment business is um you know you don't need too many if you can find one of these insights uh kind of looking around the curve even every couple of years uh that's quite a bit I mean the railroad for example you know Warren's uh perspective on the railroad I think the ra Burlington Northern was bought for like 40 odd billion and today I don't think it could be bought for 100 billion yeah um you know it's gushing cash and and that is uh the ultimate toll bridge uh because you know going to build another transformal ra Railroad and they're um with every passing day getting uh a deot more towards the trucks and so on so the question that comes up for me is that in many of these sort of the kinds of interviews that John does there'll be the question what is your process and it just seems to me that those insights those aha Eureka moments come when there isn't any process and actually you said something to me very early on when we met that um and I don't think that's the case with me in all in all of them but you have these aha moments you don't know when you're going to get them and suddenly you realize you're on to something that happened with the automobile business but if if someone was to ask you what exactly did you do how did that happen I don't think that there's any answer that Mish can give it's probably different every aha moment happens well but I but I would say I would say the following as I have mentioned several times um you know I'm a I'm a Shameless cloner right so you say you're a Shameless cloner yeah so let me let me just kind of uh uh crystallize my thought a little bit on that front so the thing is you know this this process of getting insights um I think Warren Warren and Charlie um they're you know light you smarter than I'll ever be yeah and uh so I I take um a low life shortcut you can say and so the low life shortcut is I I I looked at for example and I continued to look at what great investors are doing and so for example the automobile Insight uh the automobile Insight really came from looking at uh the manual of ideas and finding that GM was owned not only by Burkshire uh but it was the second largest position owned by David Einhorn yeah and I've always hated the auto business for all the obvious reasons of unions and high capex and consumer tastes and all of that and you know American autos I hate it even more because of all the quality issues and such so the question I that that that prompted in my head is that you know clearly David Einhorn is a smart guy and clearly at Burkshire my guess was it was Ted vexler because the size of the position for bsh show was not that large that it would have been warn it would have been one of the two managers and I thought because the GM distress and such it may have been Ted because that's more his bent and uh so I I the question I had is why would Ted Wexler and David Einhorn who can clearly see all the problems in the auto business want to make uh this bet autos and why would someone like IH Einhorn want to make such a large bet and the funny thing about einhorn's bet is his largest position at that time was Apple so you think about it you know you have a bet on Apple which is a big position and then your second bet is General Motors and the two Shi cannot be more different in terms of the nature of the business so for me the starting point with the Autos was to simply try to answer the question why would these smart guys want to do this and I wanted to actually get an answer uh which made it clear to me and as I drill down to try to get that answer it dawned on me that it wasn't stupid to be in the Autos it was actually pretty smart to be in the I because there had been a sea change yeah and that sea change was not fully appreciated or recognized by the market yeah and Detroit had gone from being one of the worst places on the planet to build a car to one of the best places on the planet in fact the US is now exporting uh lots of cars to other parts of the world because it's so comparative in terms of its manufacturing so that Insight did not come from just looking at a 13f yeah but without the 13f the seed of the Insight wouldn't have happened and uh so for my for me uh what has usually worked is something somewhere has given me a seed uh and usually it'll be you know looking at what the great investors are doing and then trying to understand why they're doing it or sometimes it can come from a position in my own portfolio so for example uh in 2008 in December 2008 when all these commodity stocks were uh collapsing uh I made an investment in Hors head Holdings you know they're a zinc recycler and I made the investment because it was a net net it was it was trading below uh net current assets you know really cheap a classic Ben gram type stock and you know the classic thing that they say is that you really learn about a business after you own it it yeah so I bought horse head because I was buying a basket of Commodities and this looked super cheap but then as I subsequently uh you know drill down more and more about the business and try to learn more about it um I was fascinated and I actually saw that they actually had uh even though they were in the commodity business they had an incredible Mo and so in that case uh I wouldn't have found that with HSE head if it wasn't a net net no I wouldn't have been able to appreciate the final points of the business if I hadn't made the investment as a net net so you know I would say the the key is there has to be a seed somewhere uh I think in the case of uh someone like Warren Buffett uh you know he took that guy uh Adam Smith uh around Omaha in the uh' 7s pointing out all these great businesses in Omaha and about 15 years later he had bought bought most of them and uh and so the thing is Warren actually had looked at his own Hometown and picked out the ones that were exceptional and uh that's that's another way to uh to do it which is you know and I've thought about that is you know look around in Irvine for example and what are great businesses in Irvine and uh you know take it from there so to me to me the thing is that cloning the 13 FS has been a good seed sometimes these net Nets have been a good seed but what are your well I was just thinking that a good business in Omaha might be right around here but I guess that's already owned by PAB but I I would say that and when I have looked at or I find myself looking at a General Motors or a hsee head or uh um the uh company in um in Argentina the real estate and so what so what happens in my mind which you understand very well is that I have this Rising sense of nausea so I'll be looking at GM and I'm thinking of the bankruptcy and I you know I might even mention it to a friend and they'll say are you nuts this thing just went bankrupt and my sense is that you don't have you know it it can be have so much hair in it you don't have that Rising sense of nausea you actually have a rising sense of excitement even as all of this hair comes out and you need to overcome a huge amount of resistance just to want to start reading it I mean who would want to start reading the agreement which I think you did between the unions and the automobile company to see what's actually in it so my reaction would be oh my God I'm going to read what's in the union now those that helpful book but you just going to that Rising sense of nausea you don't have it do you well actually U um maybe this is wiring but I actually uh do not find it exciting uh to look at a Nestle or a Proctor and Gamble at 17 times earnings in fact usually it just doesn't do it for you so usually and I think it's a negative I think it's a negative because the thing is that uh these great franchises uh can turn out to be Bargains uh just because of the the the amazing returns they can generate and the amazing growth and in some cases they can go from being National to International and such so um so I think that but when I look at you know Global established Brands and they're not under distress of any kind uh the concern I have is you know how much money can we really make off this and what type of insight do I have that is so unique that 17 analysts following it for 17 years don't have it and so uh it's not an area that um and and you and Miss some for example you know I've been a loyal customer of Amazon for a long time I've been a loyal customer of Costco for a long time uh you know I've always thought Amazon was an incredible business and if you take if you in fact Amazon's an interesting case to talk about because you know there's a different way you could analyze the business so you know Bezos Jeff Bezos is one of those probably one of the all-time probably greatest uh business managers out there he's he's an incredible um Visionary and leader and CEO and such and you know he's taking Amazon to areas like if you look at Amazon web services so if you compare Amazon to Walmart for example Amazon has lines of business uh which are outside of retail yeah like their web services their hosting businesses and all of that and he dreams up new businesses for them to go into he's probably capable of dreaming those up every three hours okay so the areas the company can go into is wide open but even if you look at the range of businesses they are in today and you look at Geographic expansion and just uh you know the number of customers they have Amazon does I think 70 80 billion in Revenue today it is probably not outside the realm of reasonable probabilities that five or 10 years from now it could be a few hundred billion it could be a four $500 billion company and if you think of uh Amazon getting to something like 500 billion and if they put three or 4% of that to the bottom line you know so they have you know 4% net margins if you will um you know that would be a 15 or 20 billion cash flow producer one of the one of the most um one of the best cash flow producers on the planet if you will and so what is that worth and at 500 billion they may not be maxed out just look at the number of countries they operate and it's a small number of countries uh the number of geography is small so but the flip side of this is so there is a there is a moonshot aspect even now to Amazon after all these years but the flip side of it is it can also falter and so this is a difficult one and if if if things don't hit me over the head with a 2x4 uh I tend to just take a pass so something like Amazon uh even though I can see the upside the downside would dissuade me from I don't see the margin of safety I would say that regarding lesle and PNG is that um for the longest time I did not fully understand how the latent desire to say something that was pleasing to my investors influenced my desire to look at those companies and um what in the last two or three years what really freed me up was the sort of blatant rule I'm not going to feel obligated and in general will not talk about what I own what I own is is is my concern and the minute I did that and I'm Blown Away by how many people who are very smart and have studied all of the sort of psychological behavioral Finance stuff still fail to see that and they fail to understand that simply talking about your investments will result in it it um it dirties up the thinking process and and it's got nothing to do with intelligence in a certain sense so I think that I've become better on the n front but there is a long way to go so I think Mish when it comes to Nestle versus some kind of Turning Point that your playing bridge has has has made has improved your ability to stay away from a highly valued sensible investment or sensible there we go that's a wonderful Freud and slip and go into the things where nobody's looking because in Bridge it's not the quality of your hand it's what you bid how you play the hand and so you have this uh orientation that is you can have a really bad hand and play it well and do really well and that would be the same as buying into a horrible looking business but if you play it well you can end up with very high returns well what what I've learned what I've learned to appreciate is I think the the Holy Grail is is to identify uh hidden modes not so much cheap assets yeah I I think because if you if you found a 40 Cent dollar and uh at some point it gets valued as a dollar so fine you'll double your money in some period of time but if you if you found um uh a a Chipotle yeah when it was in three states for example and uh you you had a sense that there were high probabilities that this would appeal to a much wider group of people for example um or you know a long time back in PAB funds I think one of the First Investments we made in I think this was in '99 was in uh a bank in uh in the Bay Area Silicon Valley called Silicon Valley Bank and Silicon Valley Bank is one of those unusual banks that has a uh that has a definitive Mo that is different from other Banks and uh and and that was one that I thought had some legs to to do things plus they had other uh kind of pecularities that made it interesting yeah I would actually say that I realize now the the two for-profit education companies in Brazil what was really great even better maybe than a hidden MO is a moat that you can see is in the midst of being constructed so Warren talks in the flooring business he's excited even when his a competitor acquires a business because it's consolidating that market and but something that happens a lot is that people will talk about what is they believe is a hidden Mo so it will become sort of common knowledge that XYZ company has a great Mo that nobody understands and it's a high valuation and there's a whole dynamic there and I think that for me those ideas can shout so loud that it's hard to get away from them and I I'm I'm thinking like right now Bitcoin not that it has a moe but everybody wants to talk about Bitcoin or there wasn't long ago that everybody wanted to talk about Netflix or I guess those are well known but to really understand the subtleties that this really is a hidden mode and to be comfortable with that well one thing you've done well is you've identified clearly visible modes and then gone hunting around the world for clones of that which maybe were not appreciative of investor so kind of like look at Moody's and say what are the other credit rating agencies around the world uh because they all have the same Dynamics in terms of uh you know the duopolies and pricing power so I was uh in a bookstore recently and I saw the the book City of Gins and the first time I went to India I think I'd met you once it's very funny because I was just remembering back i' emailed you and said I'm going to India to visit krisle H what book should I read and you sent me city of Gins which was just a great book about uh new Daddy and yeah that's a relatively straightforward thing to do and it's paid off really well but I think that a lot of people are running around the world now but the same thing you did the same thing with for-profit education in Brazil right so you took you took for-profit education in the US and you've looked at it in other part of the world yeah funny enough in for-profit education it's now a Better Business outside the US than it is in the US right but there are many ways in which that doesn't work I mean uh you know there are a number of well-known brands in Africa where it's just too highly valued and they're wonderful Guinness and other brands that you could go and buy in Africa but you're just paying a very very high amount of money for them and actually it's something I haven't done for a year or two maybe I should go and re things happened in India the the Indian subsidiaries of um you know dominant multinational Brands kind of like the Indian subsidary of pro and gamble or the Indian sub subsidary of lever un lever and such um they are publicly creaded in India and they've actually widely outperformed their parents yeah and with good and that would have been quite obvious uh because uh because you would have just seen uh you know just the way uh you know Indians using unbranded soap was going to go to branded and it's still going to keep going to branded or Indians not having bank accounts is going to go to having bank accounts and that sort of thing so many of those things I think are obvious um and uh if one has some conviction then one can proceed do you think speaking of India do you think there's any event that could derail India's uh sort of emergent growth do you think there something that could happen that could take India I mean well India has already been derailed in terms of its growth for the last at least 3 years three or four years uh where uh it was a 9 plus% grower yeah and now it's a sub 5% grower and uh a lot of it has to do with government policy and uh there's a there's a good chance that the seats the the people in power will change in the next few months and if if the new government if you will uh takes a bent towards uh you know focusing on the economy um I think India has you know I I make so many trips because of du uh and I see you know deep parts of rural India and such uh there is some intense pent up energy um and intense ability to grow by some margin for a while uh so for example example you know the the sense sets in India is at about 21,000 or something right now if the government got us act together in 10 years it would not surprise me to see it at past 100,000 150,000 so my sense is that um there's pretty much nothing the enough people in India the middle class is about 70 million people enough people have tasted the fruits of capitalism that even though you know India is a dysfunctional place and it's got enormous difficulties there's nothing that's going to derail India in the way that Egypt was an emerging economy when a certain way it's been derailed uh by by their political difficulties although you know yeah I guess I is there any chance of it being derailed the way Egypt was derailed I I see the odds of uh you know the core principle of democracy um going away as being small in fact I think the thing is it's it's the other way around in fact even even Egypt you can say with the you know rise of social media Etc it's a path towards democracy yeah but the path is not straight yeah you know so so Egypt is it's a different country and I think a better country than it was even 5 years ago in in India I'm less concerned about democracy I think that's pretty well embedded I'm worried about communism and socialism and uh just sort of uh uh people feeling that it's the government that's going to solve problem rather than the private sector yeah I think I think that that we are uh getting past that because they can see what happens when you take that sort of approach so I I I have a question for you on this wonderful table if you had to choose between the multiple version there's three different ideas on the table there's a Swiss cow there's Ganesha and there's Charlie Monger now if you had to choose between just one of the three one of the three ideas is do you go for the Swiss cow gesha or Charlie well the Swiss cow is a is a gift from guys Al so thank you guy uh that would be a easy decision we would we would keep Charlie though though I like my ganesa and I like Lord Ganesh he's the god of prosperity and he's kind of a cool God and I'm I'm not religious or anything but uh I think he's a fun guy to have around because we we like to have prosperity you know the the the one that has really gotten to me and I really find fascinating is this Shiva Naranja creative destruction and you know there's a huge amount in your life that has been creative destruction and I've seen a number of times how uh you you you you had something in D Shana where you decided it was a nogo even though it had good prospects and you tore it apart and a number of times in your life you've you know you had a a business with hundreds of employees pulled it out by the roots put it somewhere else and hitting the reset button you know I think that every time I've hit the reset button it's been incredible for me and I've always felt like I did it too late and uh you know maybe I should have a couple of images of Shiva Naranja there to help me hit the reset button but you well I've I've I've always found and it's been surprising to me but every time I failed at something it's led to tremendous growth and and in fact that failure has in hindsight been a blessing and uh what I've learned is that we don't we don't learn much From Success uh you know we just feel good about ourselves and we think we're great when we succeed that's not a bad feeling to have but but I think I think it's when we fail uh and I I found that failure is really uh been the the driver of growth for me uh you know if you look at things like you know the checklist the checklist wouldn't have come out uh if I hadn't had the big stumble in 20089 um some of these insights we got into Commodities that wouldn't have happened uh I think I'm a much better investor today because of a whole bunch of different stumbles and um and so I I actually uh have have always welcomed failure yeah and even in even in dakshana we um so we've had number of uh yeah go ahead so let me tell you about a failure that I noticed well you were dealing with when I the trip that I took with you to Du Shana you had an office I think in gurug in in Delhi right you had staff and uh I know that you weren't happy with that setup and now you have the colonel right and uh I just you know maybe you can tell me the story for John the story of how the colonel keeps wanting to retire and you've told him that he can have an office wherever he likes sure yeah I mean I think I think in uh in 2009 when you were visiting D with me uh that was a I think this was uh you know the first quarter of 2009 so things were at a pretty low point in terms of net worth in terms of where markets were at it was a great time in terms of making investment so that was wonderful uh but one of the issues I was facing at that time is uh there was a severe drop off in my net worth and our ability to fund Daka so so I knew that I had to uh dramatically cut back the scope uh that dakna had and uh I I actually found that as I was looking at the changes to be made I it it it became clear to me that as we would you know slim down if you will it was a great opportunity to improve the improve daksh in in a pretty dramatic way so uh and so that's what we did we had to hunker down but in the process of hunkering down we uh we were able to uh put in the seeds of some great restructuring and some great growth and of course at that time one of my board members referred uh Colonel Sharma to me as a potential CEO and uh it didn't hurt that he was willing to work for one rupe a year uh which was which was wonderful and uhu and Colonel Sharma is you know he's in his U 7 and U uh he's still pretty fit and uh and very energetic but he he brings up uh interest in going off to some Mountain Resort and retiring every few weeks a few months with me and uh I always tell him you know you retire you die you there's no point uh thinking in those terms and I told him he can go to any mountain resort he wants and you know we'll put an office 5 minutes from his house and uh he can show up there for 10 minutes a day if he wants or half an hour a day or whatever he wants to do but to stay engaged and and U and uh and I I think I think he would have a hard time himself pulling away from Dak because it it it draws you in but so it seems like you found your Buffet manager there and it's fascinating that you know somebody with all the professional qualifications to run a not for profit in India would not be the right person and you you found somebody who's working for you for free and you don't even care he's working for duck Shana to be more precise and and you don't care how much time he spends on du Shana if it's 5 minutes a week he's still the guy that you want running it and that that seems the the colonel is an you know he used to he used to handle 40,000 troops and he's got a great team under him and there's and he's he's groomed and trained that team really well and that's why he keeps telling me wants to retire because he says they really don't need me and they're running so the team under him is absolutely jamming uh all the time but I think that I still feel Daka needs him um for for many different we don't need a lot of time from the colonel but we do need him to be available from time to time and uh and I think that that I would hope continues endlessly so you know regarding nonprofits it was very clear to me that the nonprofit world has a myid of problems and one of the biggest problems is that the people who typically run nonprofits are typically people with Great Hearts uh but they don't have great business heads and what you really need to have an effective nonprofit is really have a uh you you can say a benevolent entrepreneur running it and so if people haven't met pay roles if people haven't built businesses they are missing some basic skills that I think are fundamentally to running a great nonprofit and almost every nonprofit is run by individuals who've never met a payroll yeah and uh and so one of the things that we did at dakshana is we specifically had no interest in hiring people who had spent time in the nonprofit world because I think having them unlearn what they thought was gospel would either be impossible or take a long time it's better for us to start with a clean slate so we we've we haven't had people who've come from the nonprofit world we also haven't had people who've come from the education world uh and I think what we found is that having people come from completely different Industries and disciplines has been a source of great strength for lakna because they don't know a way of doing things and so we are able to uh come up with ways of doing things uh that probably are quite novel and U unusual what I see is is uh your your and the Colonel's capacity to take tough decisions decisions that would not by any stretch of the imagination appear to be benevolent because you're aiming at a goal uh and you make some very difficult decisions I mean you are there helping uh the privileged High intelligent group uh get into the iits but but the decisions that you make for the people at the borders the people who don't make it in are heartbreaking for me actually and uh it seems like both you and the carel are okay with that because you have your well we're not okay with that but I think that any nonprofit has to realize that the problems of the world are immense the resources at their disposal are very limited and one has to think in a manner of maximizing the good one can do one cannot uh even if you're the Gates Foundation you cannot take away all the problems of the world the they just is too too vast and uh and you know certainly someone like uh like like dsha is not even a thousandth of the Gates Foundation in terms of assets or funding and such so our our mandate is is simply to uh try to be good stewards of the resources at our disposal and try to do the most good we can with that and I think uh uh I'm actually proud with of what dakna has accomplished on that front because very few nonprofits think that way so when are we getting I know that the Charles tonger Hall is being built and when are we getting the Warren E Buffett um we'll we'll definitely get to that at some point I'm working with the Indian government um the next one we're going to build is going to be in Hyderabad uh so the Charles t mango Hall will be a 360 person capacity um coaching Center in in in Bangalore uh the one in Hyderabad I would really like to name uh the we PR Wata hall because PR is from Hyderabad and he's been uh an incredible supporter and I think just that um uh I think his name on in that City would be wonderful to to have um but we've got many more of these coming up so um so definitely uh Warren name is coming up so do you think that you could do as good or job job of being now your business card the duction of business card says Chief catalyst so you haven't called yourself chairman or CEO and obviously you're the you you're you're the Mind behind it do you think you could do as good a job you could have done as good a job if you had been in India do you I mean there are definitely disadvantages being in Southern California with with the with the beneficiaries being in India but there may be some incredible advantages the distance actually helps for you to get your thinking clear or is yeah actually I think it would be worse I think my uh I have I have lived all my adult life outside India you know so um I think I've been in the United States for more than 31 years and uh and I I actually think that people people may not fully appreciate it but when I go to India uh for daksh basically I'm a tourist uh I really um I think I've spent less than a half an hour uh in our headquarters in all these trips in fact most of the time when I go to India I never make it to the city where we are headquartered which is where uh which is in Pune and uh because I I love to uh meet the kids either in the schools or meet the parents in the homes and all of that and the rural India and all that so you can really say that my uh my Dak related trips to India are really not uh Direction directly operational uh I just focus on things that I happen to enjoy and of course there is data and learning that comes out of those visits that is helpful to duana but in my opinion it's it's a perfect match the the folks who are running D in India are extremely good at it I think they're vastly better at it than I would be and uh they they have uh rightfully stressed to me that my job is to make sure that D never has a financial Hiccup and uh and I'm proud to say that it's it's actually in the very best Financial State it's ever been in and um uh so I think I think we've got a good engine because it's a great match um I think uh the the DNA of D part American part Indian is a terrific DNA so I think I think this that that um uh the distance and such I think has allowed me to like you said uh look at things in a more strategic way and uh and I think I've added plenty of value on on the strategy and direction I've had I've added very little value on the the nuts of bolts of running it on the ground in India so that American Indian combo of course my heart is slightly pained because I feel like it should be a British India thing but I guess Britain's Britain's in there too because you know uh my education and your education even though it took you yours took place in England and my took place in India has lots of similarities yes so so it's it's deeply EMB embedded in there as well but you know so I brought up to you the book um the Billionaire's apprentice and uh one of the things that I said to monish John was that I was just glad I was glad it wasn't this just the Jews the Bernie mads of the world who were uh uh doing what they were doing and but just in the context of that uh lewu in his book one man's view of the world talks about America being an amazing place to live but he talks about how if he was sending his CH if he wanted to live somewhere he'd actually go to the UK and I guess uh the the Indian experience in the United States has been an amazing experience and of course it's a broad experience that been amazing successes and there've been also some people who've engaged in criminal Behavior but I maybe you can just give your take on being having immigrated to the United States from India with your background and what it's done for India what it's done for well I I think that you know the I think the United States is you know like I I would say that you know people say America is an idea and and I think it's an incredible idea and it is I'm so glad um this idea exists and I think it has a physical presence um I um I I love America for for so many reasons because many of the things that are possible for Americans and immigrants and anyone in the United States is not possible anywhere else in the world I'll give you an example so I I went I finished high school in Dubai right and I I still have friends who live there there and one of the things that uh impacts your opportunity set is how big is the country and how big is the is the market yeah and you can be as smart as you want uh in Dubai but you basically have limitations because of boundaries and geographies and all of that the United States has just amazing advantages in terms of size and you know you know going across two oceans ET that so how you can scale up not only that but then and then on top of that you overlay so incredible natural resources then you overlay on top of that an incredible approach to developing human resources and an incredible openness for anyone to come in and uh and be able to do their thing um you know you look at a company like Google you know it doesn't happen if if you don't have migration from Russia and uh and such so so we have all these uh all these amazing advantages in United States I I I just think that there is U no other country uh on the planet that can come close in fact I I feel now that the United States is the real Emerging Market I think people start looking at all these different looks and crannies around the world for emerging markets and where the growth's going to come from and such but I think America has so many intrinsic strengths um and those strengths are getting uh more and more uh prominent so for example the the whole Shale gas Revolution is a huge Tailwind for the United States having all the leading universities huge Tailwind still a huge importer of incredible Talent huge tailwind and if they get immigration fixed those Tailwinds get even stronger and no other country has those advantages yeah no I think you're right you did miss out a few universities outside of the UK a couple outside of the United States AB no there there's good schools iits in India are great but I'm just saying that the The Collection that you have um in the United States is just incredible I mean uh I was talking to one of my Pakistani friends and he was saying Mish you can go to uh just a place like Orange County and the number of Pilots you would have in one county in the United States would probably exceed all the pilots in Pakistan wow you know you know so I'm just saying just the the uh the strength of this country on different fronts is incredible yeah that's absolutely right but you know I would argue that um for those of us who live outside of the United States what's incredible is that you could participate I participate in the life of the United States and I don't even live here I invest I would argue on equal terms to any American investor in terms of information and insight and uh so um but well you are you are riching the United States that's the beauty of it by diverting capital from the global Capital Market into the United States absolutely ensuring a lower cost of funds for American businesses uh and you know I think that people all over the world are doing that it's uh we talk about uh the US losing its Reserve currency status and the institutions that make it such a great place to invest mean that I don't think it'll happen in our lifetimes actually yes I I mean that's kind of hard to predict but I think it's a it's a Bad Bet to make yeah absolutely although many people that we know so going back to investing for a second why is it that some of the people that we observe who are so smart smarter than I am and possibly even smarter than Mish PAB is do things like bet against let's say uh a a fixed exchange rate in Asia or and things that that uh or or continue to short stocks uh why why do they well I think in in many cases like like Warren says that uh if if you were to give up 50 IQ points uh you would actually do better yeah so I think egos get in the way I think too much intellectual horsepower gets in the way I think Buffett's approach which is don't invest in anything till it hits you like a 2x4 on your head and it's blindingly obvious do not do not invest in something which requires a 14 page thesis to explain why things are going to go go away go your way invest in something that requires four sentences what is a 2x4 it's a a piece of wood used in American constru I was thinking 4x4 truck something 2x4 I would just say and this may be an interesting place to close up so I had our videographers John out admonish because John's already heard this uh and the way I introduced your office was that I said and I only realized it now no Mish I was thinking if I was to move here and I saw some office parks and I saw XYZ Financial factoring company uh you know in keywood Plaza they're all constructing things and there's bir haway sitting in the middle of that allocating capital and here in this park you have a yoga studio and you have some college preparation companies all teaching kids how to prepare for the SAT and then you have Mish allocating capital in the middle of something that is completely non-financial and I'm convinced that that makes a big difference I would argue that if you had your office somewhere in an office tower in New York with a bunch of hedge funds around you'd be thinking up all sorts of crazy things to do and you would have done many of them actually so right well let me put it this way guy I'm not looking to move I'm happy being where I am and I think it's a great place to be and um very much enjoyed this conversation yeah thank you that's great fun and thank you John for making this happen thank you [Music] John

Channel: Guy Spier

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Id: PJ5NawGb9-k

Length: 60min 36sec (3636 seconds)

Published: Tue Jan 09 2024