Mohnish Pabrai’s Q&A session with students at the University of Oxford

[Music] [Music] [Music] okay well gotham johnny it's a pleasure to be here and i think you guys are very accomplished and have done really well in life to have a seat at oxford which is awesome my good friend guys pierre is an alum he went to brazenos and i spent a few days living in the dorms of brazenos with guy and a few other friends and that was a lot of fun we had a retreat uh on the on the oxford campus and you know i'm biased towards overdosing on shawarmas and so i found some good shawarmas in oxford and life was great so that was a nice experience the tandoor investor is you know it it uses the patels and the their amazing journey with motels uh not only in the in the us but the patel that really done well in the uk as well so i use that as a backdrop to get some principles and perspectives across but just to just to clarify i am not a patel i did not grow up in a motel and i did not have the life experience that's the central theme of the book i was really uh an observer and i thought that the patel experience has a lot of commonality with value investing and so that's why i use that that as the backdrop because i think it's a it's a story that needs to be told more often and it's i mean i think at this point in the us probably something like 70 of the motels in the country are under patel ownership and patel's make up i would guess less than 0.2 of the u.s population so when this point two percent comes into the country as refugees in the 70s and then they end up owning 70 of a fairly large industry it's a peculiar event and it's a peculiar outcome and it's interesting to study why that happened and so that's kind of what drove my interest and the framework that the patel's used to establish their dominance is a very powerful framework so the patels had gone to east africa uganda etc more than a century ago and they had gone they've been actually taken there as indentured laborers almost like slaves but because of their thunder ways over a century they came to control most of the ugandan economy so similar type of situation where a very small minority is controlling large swaths of an economy and in the 70s when idiamine came to power in uganda his perspective was that africa is for africans and uh of course he's kind of ignored the fact that the patels were really africans they'd been there you know they were born there their fathers were born there and so on but that didn't quite resonate with easy amine so he pretty much confiscated all their assets and gave them like 60 days to leave the country and so their businesses were taken over and their homes and properties so patel pretty much overnight lost everything and they were stateless because they were ugandan citizens they were not citizens of any other country so britain took in quite a large number of uh refugees from uganda canada did as well and surprisingly india refused to allow them to enter india was at that time dealing with the bangladesh refugee crisis bangladesh had just been formed so they really had no appetite for more refugees and so the united states under nixon and kissinger took a large number as well and the patels were able to convert some of their assets into gold and such and maybe they got out with five ten fifteen thousand dollars and uh that was it and the motel business seemed to resonate with them because the first needed satisfied is it gave them housing so these 10 20 30 room hotels that were built along in the 50s and 60s as the u.s interstate system got built were a bunch of mom and pops and those folks were getting older and ready to retire and their kids really weren't interested in the mortal prison so the first patel who came bought some of these motels and they bought them very highly levered so usually like kind of these motels at that time like 50 000 they're like you know 10 20 30 room type properties in the middle of nowhere fifty thousand seventy five thousand and the patel's put up like five or ten thousand of cash and the rest was either owner or bank financed and they put the family in one or two rooms and the motel business is labor-intensive and so the families pretty much worked around the clock and they got rid of all the hired help and so they were cleaning the rooms and manning the front desk and all of that and so very quickly the patel's became low-cost providers if there was a patel owned motel in a particular geography its operating cost was lower than all the other neighboring hotels because they had no payroll payroll was zero and all the others had higher health so but what the patels would do is they would price the rooms lower than anyone else so their properties were always almost completely occupied and while the others when they try to match those prices they would end up either not making money or losing money so low-cost providers gives many businesses a long-term enduring competitive advantage i mean we see that with geico with berkshire hathaway and and you see that with costco and so on so walmart and so on so low cost will give you even with new core for example with their mini mails low cost gives you a huge advantage and because they were a low-cost provider and because they were their financials were healthier as they and they lived a very basic frugal lifestyle most of them were vegetarians anyway they couldn't go out to eat the 70s in the u.s you know your choices for eating as a vegetarian were very very limited so basically they ate their simple meals they had their simple rooms in their hotel so they had no housing costs and their living costs were low so their savings rate was high and what they did with the savings was they started to buy more motels and so the family would take one family member and move about into another motel and then that person would get going with that and you know cascade that over time and it worked well and the end result is what we see today which is they completely dominated an industry and they took over so that that story i think has a lot of resonance with value investing because in investing what we are trying to do is we're trying to get a unfair advantage you know there is some quirk with some company where they have a you know so taking a step back capitalism is brutal it's a doggy dog world and one of the things you may enjoy is there is a video on youtube which was i think maybe put up five or six years ago and the title of the video is competition is for losers and i think you guys will enjoy that video it was it's a video recording of peter thiel teaching a class at stanford business school he used to teach a class on startups and entrepreneurship and i think the videos got a huge view count and i think it's an excellent video i don't know whether peter thiel would like that video out there now because he's become somewhat you know notorious but what peter what peter says is that if you look at most businesses almost all businesses you can put them in two categories around the planet there are a small sliver of businesses which are basically monopolies oligopolies and they have very strong competitive advantages and then there's a overwhelming majority of businesses which are basically really tough businesses to be in and so 99 of capitalism is these really tough businesses and maybe one percent or less is these you know monopolies or you know somehow somehow insulated business and peter's point to his his students was that there is no point following the masses of capitalists and either working at or founding a business that is dealing with all these competitive forces we want to be sitting there with monopolies and that's how we make a lot of money and i think in investing too basically what you're looking for is some kind of an edge that the business has that is an enduring edge and if you can invest in a business which has that edge at a reasonable price good things will happen to you so that was basically the genesis of the dhandu investor and why i use the patels and so on as my foil if you will that that makes sense thank you thank you for clarifying explaining that i'm curious when you started out investing was it easier to find these one percent of minimalistic companies than it is today have markets become more efficient and have these kind of have more people kind of understood what to look for or do you think that your hit rate has kind of always been the same well actually the monopolies even if they are one percent you know there's 50 000 listed businesses around the planet so even at one percent you would have 500 of these you know awesome businesses so actually identifying awesome businesses is not a problem there are many many great businesses around okay i mean you know amazon's a great business and alphabet's a great business and microsoft's a great business and what the patels have done has been a great business so actually great businesses all around us and it's it's also not that hard to be able to tell that a business is great and that's another point that peter thiel makes in his talk he says that the monopolists go through extreme lengths to convince you that they are not a monopoly that they exist in very competitive spaces because they know that if they are a monopoly and they you know beat their chest about it they will attract unwanted attention i mean like facebook doesn't really want the us government to think it's a monopoly and google doesn't want anyone to think it's a monopoly you know so the monopolists try really hard to convince us oh poor me i'm not a monopoly okay and the loser 99 of comparative businesses go through extreme lengths to convince you that they are a monopoly they try to convince you that i got the secret sauce look at me i'm awesome okay so the monopolists basically are telling you i'm just joe public man i got nothing going on don't look here go keep walking and the the competitive ones are beating their chest saying no no come come to me you know i have this awesome business and let me tell you why it's so awesome right but i think that from uh for an investor to figure out whether a business is great or not and whether it's a monopoly or not is a relatively simple exercise not that hard to do because i think a simple thing you can do is if you make a list of all the products and services and places that you shop at okay you will find the overwhelming number of those a monopolies okay so you know do you use an iphone guess what it's a monopoly okay do you shop at amazon okay and do you who sends you your utility bill they're all monopolies okay so identifying monopolies is relatively easy you can identify them by looking at companies that you're really familiar with that you're a customer of a client or whatever the other way you can get to understanding a monopoly is looking at the numbers their financials will scream out and tell you i'm a monopoly even when they just want you to go away and not look at them so it's not about finding great businesses it's easy to find great businesses it's about finding great investments and the two are different so once we identify that a business is great that's awesome we can collect a list of those and then we have to go to the next level which is try to find ones which somehow the market has not figured out and somehow there's an aberration where the price does not reflect the great underlying economics and then you're off to the races hallelujah it's great so that's what the game's all about it's easy to sift the grate from the not so great but then the second piece which is is it a good investment from that subset list that becomes a little bit harder but as my guru and mentor behind me charlie munger likes to say why should it be easy to get rich that that makes sense i'm curious has it become easier harder for the same level of difficulty to find great investments as it was 10 15 years ago so humans vacillate between fear and greed as long as there are humans making investment decisions we will have mispricing of securities and the mispricing can be in both directions they can be ridiculously overvalued and they can be ridiculously undervalued so from time to time humans get very euphoric and they get really excited about certain assets and classes and such and you know they get overheated and many times things are not of interest so i you know so i would say that if one is a bargain hunter looking for great businesses that are underpriced there's always a set of them somewhere that fitted criteria the problem is that the ones that fit the criteria aren't the easiest ones to invest in or to actually even convince yourself so for example in 2019 i made an investment in a company in turkey okay and at that time in turkey and even till today from then till now their backwards macro policies has decimated the lira the turkish lira pretty much for the most part has collapsed i mean in 2019 when i was looking at turkey it was under five you know a dollar dollar was under five lira now for a dollar you can get more than nine lira so it's a pretty significant move in a couple of years and the leader will continue to weaken because of their backwards policies of how they think about you know the exchange rates and such so anyway when i was looking at turkey i found and even now i find turkey is one of the cheapest markets in the world and it's the reason it's cheap is because everyone and their brother just wants to exit they just do not find it comfortable being there with erdogan and company and they just don't want to be there and if everyone is rushing to the exits the odds are pretty good that you might find a bargain or two and so for example in 2019 i found this really incredible monopoly business you know peter thiel would be proud where us this company in turkey are invested in they had 12 million square feet of prime warehouses they have a bunch of other businesses too but they have 12 million square feet of prime warehouses 99 percent leased to amazon ikea car four just brand top brand ten year leases inflation indexed rent adjusted every year and the market cap of the company was 20 million dollars and the the debt the business had was less than 200 million okay so if you take the entire 220 million whatever 220 230 million whatever let's say it's 240 million let's make the math easy okay 12 million square feet it's 20 dollars a square foot okay anyone would be willing to buy those 12 million square feet in about five minutes from them for around 75 or 80 dollars a square foot like the deal would just happen like that okay these are very prime properties with class a tenants with pristine credits okay and so if you sold this 12 million square feet you would end up with like a billion dollars okay and then you pay off the 200 million and you'd have what 800 million and the market cap was 20 million hallelujah and then we come to the pesky issue of rampant inflation and rampant devaluation of the lyra and i looked at it and said this is the complete non-event because if inflation goes up then cement prices go up land prices go up the replacement cost of those warehouses goes up so instead of eighty dollars a foot they'll be at 120 a foot okay so who cares about the inflation bring it on okay and if the lyra weakens implicitly what is happening is that the properties would appreciate in lira but in dollars they would stay similar this was the theory i had okay that one is i was buying at like four percent of liquidation value you know i was buying a dollar for four cents okay nobody was interested okay i thought i won't get much stock the rush to the exits was so intense that i ended up owning a third of the company well done well done he i think i outed even the patel's i don't think the patel's ever picked up a property for four cents on the dollar and my last name isn't even patel okay so now fast forward two years the lead i went from four and change to nine and change in dollars my investment is up 6x in dollars in lira it's up 10x who cares about that that's irrelevant but in dollars we're up 6x okay and basically even at 6x we are still undervalued we've only gone to 24 cents on the dollar from 4 cents to 24 cents you know still have another forex to get and the company is not sitting idly the last two years they raised the intrinsic value of the business because they were a bunch of smart things they put solar panels on all their rooftops they're not going to be generating like 50 megawatts of power with turkey's new net metering laws which they sell to the government at the same price of the government sells electricity and solar panel prices have dropped like crazy and turkey has no fossil fuels so their electricity prices are indexed to oil and so those prices keep going up they've already spent the money on the panels and they keep getting more money so the value of the business went up i think another 200 million in the last two years on a 20 million market cap okay so we don't need to be very smart we don't need high iqs we don't need high grades from oxford we just need to have basic common sense that's it that that's a that's really good answer you didn't usually need a calculator for this and you definitely didn't need excel i don't have a calculator or high grade third what two things right um some of your earlier arguments um about what makes a value investor a good value investor could be applied in reverse you could also say that a value investor would be able to identify when a company is very overpriced and when there's too much greed um so with that in mind why aren't more value investors like yourself buffett or manga active on the short side yeah i think i think shorting is uh one of the dumbest activities you can engage in and roaring kitty gave you a great lesson this year on why it's a dumb activity you know i just finished reading this book and i actually sent it to warren and charlie and i really enjoyed it you know the anti-social network and the guy who wrote the same guy who wrote bringing down the house you know the mit blackjack team that cleaned up all the casinos and then they made it to the movie he rambles a bit so i think this is not one that you sit and underline i think this is a book that gets skimmed and i think he wrote it from the point of view that becomes a movie someday one day we will see roaring kitty on the big screen instead of just at a congressional hearing or in his basement so anyway the thing is that shorting the economics make no sense because if you're wrong the answer is bankrupt you've gone bankrupt if you're wrong so there is no limit to how much a stock price can rise as amc and gamestop etc have shown us the maximum you can make in a short position is you can double your money and the maximum you can lose is everything so right there why would you want to engage in that type of a bet if you went to a race track and someone said listen man if you pick the right horse you get 2x you pick the wrong horse you get nothing and we take all the money you have you'll never make that bet so shorting just seems like a really difficult so i think the nature of investing that there are two major advantages you get as an investor even though you guys don't play baseball maybe you know some of the rules so one is that buffett says that in investing there are no call strikes right so basically in baseball which is a less civilized version of qriket if you get three strikes you're out you know in cricket you can just sit there and let 100 balls go by as long as you know they don't hit your stumps or your legs or whatever you're in good shape and uh and that's fine uh but in baseball you have to swing and if you if you miss three times you're out and so the rules are kind of more difficult but in investing there are no called strikes which means that you can let a thousand balls go by so you don't need to have an opinion on everything you just need to have an opinion on a very small sliver of the planet and so one can live a very healthy life in a very wealthy life without ever shorting a straw the inversion to the store shorting issue is i don't see any short sellers in the top 10 positions of forbes where are they well they lost their shorts that's where they are so we can we can do well without shorting that checks out um i'd like to abstract a little bit away from the specifics and investing to some broader questions so one one of the things that both you and buffett talk about is managing your psychology and one of the ways in which you do this is you have an inner scorecard like a checklist of the things that are important to you um if you're comfortable would you be able to tell us what's on your inner scorecard and on top of that would you be able to tell us how and when you knew that those were the right things to have on your inner scorecard well i think this the inno scorecard is is uh it's not a static it's not a static kind of template if you will basically like when i when i met buffett for lunch with my friend guys pierre he said to us that would you rather be the greatest lover in the world but known as the worst or the worst lover in the world but known as the greatest and he said that if you know how to answer that question you've got it made okay so the inner scorecard for all of us is very straightforward we always know what the internal correct answer is we know that we have a conscious and we know that it's just that it's very tempting to live life with an outer school card which is if people think i'm the greatest lover well let them think that that's awesome and that would be an outer scorecard way of living life and so all you have to do is that when you encounter distortions between the inner scorecard and the outer scorecard focus on the inner scorecard and for each different type of you know activity or conclusion or whatever you come to about something your inner scorecard is really what should guide you so for example if my fund is up 30 next year you know everyone would be saying oh that was awesome but what i have to do internally is ask myself well what was the risk i took was it risk-free was it truly a great return relative to and was it the best opportunity cost of the way i could put the money these are questions i can answer better because i have underlying data a lot richer underlying data and so the easiest person to fool is to fool yourself and you really have to make sure you're not fooling yourself so an inner score card is a really important it's it's a really huge advantage in life to live live your life with an inner scorecard what will happen is that if you live with an underscore card you will become more trustable you'll become more trustworthy and if a lot of humans are willing to put a lot of trust in you that's a starting point that's going to give you a huge edge in life that that that's a very very very poor private answer thank you i was hoping you could tell us a little bit more about the things you've learned from knowing buffett personally that you would not have picked up from reading his books i don't know warren that well i mean you know i've met him a few times but i would say that i'm acquainted with him i'm not a friend of his but it's been interesting to observe him at close quarters sometimes i think that's been so i think i think the thing about warren is that warren is a very and a lot of a lot of things about warren buffett you can get to without ever knowing him is one of the most open books you can you can think about so for example and you know one of the things about humans is that the way we are at the age of five our personality templates our likes and dislikes our traits between our genetics in the first five or six years of life experience they are hard coded between the age of 6 and 96 humans do not change and once you understand that and you take that as a gospel truth it becomes really easy to figure out which humans to interact with which humans to have with your friends and that sort of thing because so that's one data point which is humans basically don't change the second data point is that there's a gravitational pull so if i hang out with people who are better than me i'm going to get better if i hang out with people worse than me i'm going to get worse so given that humans are not going to change once i know the nature of the human it'll be wishful thinking to think that you're going to change them or something is going to improve in them it is what it is so being extremely picky on who your friends are is going to give you a huge advantage in life so in the case of buffett he used to go to the sarban race track in omaha when he was nine or ten years old like sovereign is nebraska fell back spelled backwards and what he used to do is at the end of the races he'd pick up all the tickets that were on the ground because they would be drunks who'd want something but they wouldn't even know they won they just tossed the ticket and he'd go through each and every ticket to see if there were some tickets that were actually winning tickets that they were discarded and he would find some winning tickets but then he was too young to go to the window to collect so he sent his aunt alice to collect for him okay and he did this every weekend okay and he was very so it's a very dogged person who's going through that exercise of you know because you would go through 500 tickets and find one or a thousand and find one you know it's a needle in the hair stack in his mid-20s he was going through the moody's manual the moody manual is really thick manuals which had like four companies fine print on each page and he was doing a quantitative assessment of thousands and thousands of companies in fact he went through the moody's manuals two or three times and in going through those he found a bunch of extreme bargains not i don't think any of them were at the level of race i still am one up on him okay i don't think he found anything in the moody's manual that could and the reason for it is actually increasing value and whatever but he found a bunch of you know companies with a 15 million market cap making 25 million something like that okay so he found a bunch of these things the activity that the kid that examined was doing and the 25 year old were doing are identical okay it's the same activity and then a few years back kai and i were visiting him in his office and i saw that on his desk was the japan company handbook which is kind of like a value line of japan except it's just very quantitative fine print two companies per page every listed japanese business and he was going and this is no berkshire's got 100 billion plus in cash he he's not going to move any needles by finding some company that's worth 25 million but should be worth 50 million of what 100 million should go 200 million that's berkshire can't do anything with that but the kid is programmed that way okay and so this was when he was maybe more than 80 years old okay what he's doing at nine and what he's doing at 25 and what he's doing at 80 are the same thing okay and i actually it it was a coincidence but i was going through the japan coming handbook at about the same time i had the exact same addition as him and i told him oh warren listen i can make this faster for you there are some companies i already found and i took his i took his japan gummy handbook and i dog-eared some pages for him okay i think he might have been horrified that somebody just you know i didn't even ask him oh may i dog-ear it you know i just went ahead and did it i was so excited about it and then you know a lot of the dog ears were in the back of the book he says you know usually all the good stuff is in the back you know so what i'm trying to say is that warren is a very unusual person but i think there are a lot of lessons to learn from him i think most entrepreneurs where you can look at sam walton or warren buffett or howard schultz or jeff bezos they're very intense in their pursuit and they're very singular in their pursuit and when you have those traits you're going to do very well so a lot of people want to be buffet a lot of people want to clone buffett if you don't have the personality who would really enjoy picking up those tickets and examine you're not going to get to being buffeted so if somehow you have the personality and you can't do anything about it you either have it or you don't have it it's pretty binary it's not something you can add on okay there's no add-ons that happen so i think the important thing for humans is you really have to understand who you are and once you understand who you are then you have to have behaviors that maximize the talent that you have and your talents may be very different from buffett so you have to focus on those talents and those behaviors then that's a fantastic answer thank you for sharing that one-ish i have one final question and then after that we can do some q a if you have the time um noise if not my final question is i think one that that like a lot of us as students and as young people struggle with we haven't had the experience or the time in our careers they've had mistakes and learn from them so if you could compile all your years since you were back at university and think about the most important things that you've learned that you wish you'd picked up earlier what would they be if you could distill it into maybe three top things i mean i would say that without failure there's no success so it's two sides of a coin so it's i think generally speaking when you look at people who've been very successful and you can appeal the onion you'll find that there were a lot of failures along the ways and without those failures those successes wouldn't have happened now we are probably better off where we learn not from our mistakes but from other people's mistakes and if we can do that then it's it's a lot less painful right but the nature of life is that our own mistakes get seared in deeper and the lessons get seared and deeper so in general it is more difficult to learn from warren or charlie's mistakes and sear it in than it is from our own mistakes and see that one of the things you know i think charlie says we're old too soon and why is too late last year for example you know for when i first started investing in the mid 90s i was trying to find these businesses with these long runways and you know set it and forget it type of thing like what buffett had under coke or amex and so on and i found a bunch of those and i did really well but then 99 2000 the dot-com bubble was getting pretty intense and i was very concerned and so i switched to ben graham looking at businesses which were not necessarily great businesses but they were very cheap and there was downside protection you could make some money you know kind of what peter thiel is saying not to do you know and that did really well i think from 99 probably i think if i had been smart enough to switch around 2012 or 2014 that'd been great but i got so used to doing that you know finding these bargains it's a very natural comfortable place to be then i realized last year when i was studying there's a book called richer wiser happier which came out earlier this year it's a great book and chapter six is on nick sleep who's in london and who's done really well as an investor in fact i think if you google next sleep you can pull up his letters they're worth well worth reading and i realized that nick had done really well by identifying some great long runways and then just leaving things alone you know no activity so when he when he shut down his fund he had three stocks he put all his money in berkshire costco and amazon and i think he's outperformed pretty much anyone else no matter what they were doing because amazon's just done so well since then and so i realized that actually i needed to go back to the engine which is buying these great compounders and i started to make my journey back so i would say one of the things if i could fix it is that i shouldn't have abandoned the compounders as early as i did i remember in uh i think in 2002 i was taking a class at harvard business school and we were doing a case on amazon and was the case on joy kobe which was who was amazon's cfo joy has actually unfortunately passed away she had a biking accident but wonderful lady but this case was about her she was a cfo at amazon and i was so impressed with joy and i was so impressed with someone like jeff who would hire someone like joy and at that time amazon stock had collapsed it had collapsed down to ten dollars a share and i put ten percent of my fund at the time in amazon at ten dollars a share and very quickly it got to 14 and i moved on okay very dumb okay they can't be things that are more dumber than that and that's like a 330x that got blown away and i remember at that time i was managing about maybe 70 80 million so maybe even if 5 million went into amazon at 10 you know 300 times 5 million is a billion and a half you know it didn't it wouldn't have mattered what happened to anything else you know but we live and learn and so life life life goes on life is great thank you for sharing that one it looks like we're up at the end of our hour why don't we take some questions and if you guys are out of time and want to leave feel free so we'll go for a few minutes and see how it goes perfect talking again well before i hand over to johnny i just want to say thank you again it has really been great speaking to you and thank you so so much once again for coming to oxford alpha fund it's a real honor for us um so johnny do you want to come on and take over the q a awesome thanks so much captain um yes so so guys thanks for sharing your questions in the chat um we'll try and cover a few of them monitor you don't want to take up too much of your time but yeah this is saying the same accountant thank you so much again for this for the talk and maybe you don't mind a quick question from from me before we move into the others just maybe on like investing psychology or the sort of thought process which goes into making one of these investments so say say the sort of turkish warehouse in batman when you're thinking that putting like your capital on the line here and you're thinking i've got a potential 25x investment in front of me no one else seems to want to touch it what am i missing you know i just have overcome that fear of thinking you know i must be missing something surely it can't be this good how do you sort of get beyond that stage i guess and into the one where you can you know you just say everyone is wrong i'm i'm willing to make it that on earth yeah just curious to hear about psychology i think that was a that was like complete disbelief when i first saw it you know i remember there's a good turkish friend of mine who i just told him he's a he's a wonderful value investor and i was i said listen let's just visit all the companies in your portfolio you know because i i know his in the way his brain works he's a hot the unfortunate thing with him is he's too overdosed and on graham and two under dosed on monger but i'm working on that he's a work in progress in spite of the 6 and 96 rule i'm hoping there's some possibility to tweak him we'll see so i remember i told him listen are these guys crooks is this like an outright fraud like and and i spent an afternoon with the founder visiting these warehouses you know we went one after the other after the other so they were real i mean they were real they were a very strong sense of pride in what they had and i could see that the company did a poor job of laying out its story and they didn't fully i still don't think they fully understand or appreciate the importance of educating your investors they tend to do a not so good job in my opinion on that so i could see that the value was there i repeatedly asked my friend what am i missing why would this thing sell at this price and this sell at this price and and then the whole pie is selling at and he said i can't tell you there's no answer i can give you which would so i i said i can't really find anything i i tried to find if there was a fraud and i could see why so this company a 20 million market cap would be so below the radar of almost any institutional investor they wouldn't even look at it and even if they looked at it the financials were so convoluted uh they wouldn't be able to make head or tail of them you know because the thing is that the value of the warehouses doesn't show up in the finances because that's book value with depreciation they've been buying these things for 30 years and it's in lira so you know historically up lyra pricing is nothing to do with current market value so the published financials were not going to help you figure out what the value of the business was it's not it wasn't there and so i could see the reasons why people would miss it but this was a pretty glaring business by a lot of people but turkey has many many businesses not to this extent but it has many businesses which are widely mispriced just because it's such a difficult place to be with all the backwards policies they have awesome noted uh something to keep in mind um i guess some of the thing of things to learn early on and keep in mind some really valuable advice for everyone there um so we have had a few questions in the chat so i saw uh julie asked a question about sort of switching from uh sort of towards more quality oriented investing which i guess we've already touched upon and what we will have to probably go away from any questions on on current holdings monash i think we can't touch on you know that there's a question here about like why did you sell shinoku and buy more alibaba i think we we probably can't talk about that yeah i would i would like to reduce those questions yeah i'm happy to answer them at some point when we're not you know in those talks so luke i saw you asked a question would you like me to read it out or do you want to maybe ask it yourself i was just reading through the blog you had up and you were talking about um your cloned portfolio and the way it performed but i saw like a lot of the guys who had really performed well in sort of like the 2000s and like earlier than that have they closed their funds and their funds really haven't performed as well recently and i was sort of wondering when you decide to sort of cut your losses if you if you previously thought someone was performing well because i guess you might have some kind of emotional attachment or like if they have one bad year i guess you will let it off but like at what point do you sort of that maybe the the skills go on or they've lost their edge or something like that well i mean i think cloning cloning is a very powerful mental model and i don't fully understand why but and i've been a student of learning for more than i would say more than 33 34 years and it's given me a huge edge to understand as much as i do about cloning but i still don't understand much one of the main things i don't understand about cloning is why so many humans have an aversion to it what i do understand is just a small sliver of humans embrace it and most don't and so the ones who do embrace it get an edge but in investing i think cloning is a approach you should you can take as a starting point of research so if i find that i respect some investor and understand how their brain works and i look at their portfolio and i find some companies and once i look at their portfolio from then on the cloning piece is history and i have to turn my own brain on so it's just a tool to get a short list it doesn't really matter what that investor does in the future or in the past or whether they have lost their way or whatever has happened you're looking at a specific position they've made and you're just using it as a way to reduce the funnel of stocks to look at so if you identified you know five or ten great investors and you just spent your time looking at their portfolio that is a way better way to invest than throwing darts or running some you know quantitative screens or whatever else to get a short list because at the end of the day investing has a basic problem the basic problem is the data set is too large there are 50 000 public stocks in the world even if i spend all my time on on them i would never be able to become an expert on even 5 000 of them or even 500 of them or even 100 of them okay it's just the data sets too large so we need some way of culling the data and cloning is a great way to call that data set thank you thank you so we have another question here from from miho but that that's also related to sort of current holdings so sorry we'll have to skip that i have one more from from harry as well so so harry's asking maybe this has sort of to do with with the throwing darts idea and so harry says like considering how studies show that statistically only about 55 percent of investment decisions are directionally correct why would you call someone with a good track record an investment expert and not just an extremely lucky outlier i didn't i didn't fully follow the question can you just repeat that again yes so harry's asking um considering studies show that statistically only 55 of investment decisions um i think what he means is investment decisions by investment professionals why would you call someone with a yeah with a good track record an expert and not just the lucky outlier i mean i think so i think investing investing is one of the broadest disciplines you can engage in the kinds of factors that affect the future performance of a business are are numerous they cross boundaries of different disciplines and so one really has to be kind of a you know swiss army knife kind of thinker of different ways and the world is a very uncertain place so if we are trying to figure out what a business looks like five years or 10 years or 15 years from now by definition that's going to have a high error rate there are so many variables that can change those outcomes right and so john templeton said that even the best investor will be right only two out of three times and if your batting average is 65 that's the top end of what you can expect of the batting app if i looked at every acquisition berkshire hathaway did they may have done maybe 100 acquisitions in the last 50 years a majority of those acquisitions i don't think worked this is warren buffett making these acquisitions the supposedly the best investor of all time and there were lots and lots of bets he made on retailers that did not work so when i look at someone like warren buffett and i look at his track record when he's bought retailers it's a terrible track record when i look at his track record when he's invested in banks it's a perfect record he's never lost money but he's invested in airlines and that hasn't worked so well he's invested in retailers and that hasn't worked so well in a number of areas that he went into it didn't work so well but i gave you the extreme example of my investment in amazon if i had just kept that investment it was it was just five percent and the other 95 percent was all mistakes and they all went to zero it wouldn't have mattered okay so in that case it would have tolerated a 95 error rate and still had a incredible outcome so the interesting thing about investing is because the returns you can generate from some businesses are so asymmetric with the risk taken that this is a business that can tolerate a pretty high error rate so one should be under no illusions that one is going to be right all the time or even right 40 percent of the time or 50 of the time as long as you are patient very patient as long as you stick to your circle of competence invest in things that you understand well even if you're patient and stick to your circle confidence you'll still have an error rate like buffett did but it won't matter he still became the wealthiest guy on the planet it didn't really matter mistakes are part of the landscape we embrace them we learn from them don't try to learn too much from them and we keep moving forward so shall we shall we wrap it up maybe one more question i i think yeah maybe we're sort of running towards the end of time but um i've had a quite a funny one from that i'm here i think this is a sort of nice light-hearted way to to wrap up the chat as well um so usually we'd wrap up with a sort of like advice to students thing but i think this is this is better so um mitham is asking who does guys fear admire more out of uh you and uh buffett who does guys fear admire more than buffett or me yeah that is sorry who does he admire more out of yourself or uh or buff it i don't know you know the thing is that what's happened with guy is that he comes with me sometimes on my eska page to india and when i'm meeting all these different indian companies and a few years back you know he the great thing about him is that he takes in a lot of data but he already hardly acts on it so his his propensity to make change changes in portfolio is very low and that's a huge edge in investing if you have high degree of patience and such and in fact you told me once you know i don't trust myself to make decisions so i try to make as few decisions as possible we were visiting this company in in india in 2018 or 2019 called the indian energy exchange i felt like out of maybe 200 plus management teams that i've met in india and companies that visited iex was by far the best highest quality business very high quality management and an incredible business model and it was ridiculously expensive okay and basically they are an energy exchange so at that time about three percent of india the electricity was flowing through them and they collected about a one percent fee of the amount transacted through their servers so they had no cost so about 70 of revenue was net income and that 3 was going to grow pretty spectacularly and india's per capita energy usage also would grow spectacularly over time so there was a huge tailwinds for a long time because it was such a critical asset for india foreigners are not allowed by more than five percent of the company so guy loves these guy hates businesses like reisas in turkey i cannot get him to even come with me to istanbul okay much less ever invest in some warehouse operator in turkey but he was all over iex he loved iex and i think he bought like 4.4 million shares i think at that time they were like two dollars a share or something so he may be invested about 9 million iex has gone bananas the business is going crazy and whatever else it's up like five six times since then and so now i think for him iex has become more than a 50 million dollar position it's a significant portion of his fund it might be one of the largest positions in his fund and i think he's torn between is monish the best or his monish god is some vacillating somewhere between those two so i don't think if you talk to guys peer maybe you should bring him on uh that these days i think he's created like an altar to monish and uh he worships at that altar i mean like like last night i think the iex price went up at one point twenty percent in a single day you know so it was it's a but it but they've got some incredible tailwinds and thankfully i was also able to buy some iex in spite of my resume in fact i i used to own 4.99 of the company and i was very dumb when i sold during covid but we still have a a good amount and so similar position to guy i think so it's worked out great but i think i don't think i think guy would maybe admire his parents more but i think he worship worships at the church of monash especially after i well if ever we have a guy come on as a speaker we'll make sure to ask him whether he has one of these uh mono shulkers at home yeah and i think maybe you should surprise him and start the conversation in indian energy exchange it'll bring a big smile awesome well um anyway i think i think with that we probably are at time i know we've run over a bit but thank you so much monash for for speaking with us uh that was such a useful conversation and a lot of really valuable advice for everyone here on the call to take home especially as a lot of us sort of begin begin careers in investing so one day trying to maybe replicate for a small small uh degree while you've done managed so yeah just on behalf of everyone on behalf of the fund thank you so much for coming down and yeah we hope to keep in touch as a society going forward yeah well i i very much enjoyed the session and i think like i said you guys have uh i have a wonderful part of the world and a wonderful institution and i wish you all the best so thank you very much thank you monis all right have a good evening much [Music]

Channel: Mohnish Pabrai

Views: 44,772

Keywords:

Id: PN3f668IKO0

Length: 61min 32sec (3692 seconds)

Published: Wed Nov 03 2021