Mohnish Pabrai on Learning from Mistakes and Reinventing Yourself - The One Percent Show

[Music] hello and welcome everyone uh i am vishal khandelwal and this is the one percent show this show is an open-ended exploration into the minds of the wisest people around to help us learn to think invest and live each day a little as little as one percent better you can learn more at vishal khandelworld.com my guest today is uh manish babrai monish is the founder and managing partner of pabra investment funds and also the author of two amazing books titled the dhando investor in mosaic perspectives on investing he's an engineer by training and was running an i.t services firm in the 1990s before starting to manage money monish is an outlier in the world of investing given that he's a rare investor who has chucked ego out of the door as he calls himself a shameless cloner in fact he has been quoted as saying i am a shameless copycat everything in my life is closed i have no original ideas one of his favorite investors is nick sleep of nomad investment partnership who as monish has said has transformed his investing style in one of his letters for nomad capital sleep wrote and i quote investing is a wonderful thoughtful adventure but it can also be self-centered a tendency that can be reinforced by the wealth that can follow we think it is true that once passed x amount real meaning comes with reinvesting in society through charitable giving which can also be thoughtful challenging wonderful adventure but with the added bonus that it feels like the world working properly now this description fits monish to the tea given that he has also running dakshina foundation that provides comprehensive scholarship and support for very impoverished and very bright kids to undergo one to two years of intensive coaching before taking the iit entrance exam in india in short he is transforming the lives of countless kids pulling them out of and their families out of poverty by giving them opportunities that might otherwise be unthinkable in today's show among other things we are going to talk about the biggest lessons manish has learned from the people with whom he has been in closest in life like his father warren buffett charlie munger nick sleep and guy spear but before that and with no further delay manish welcome to the one percent show and thank you for agreeing to do this well uh vishal it's a pleasure to be here and i think you do a great service for for just the common man and i think you you help help people uh very well by helping them becoming better at uh better at investing and better at managing their money and growing wealth and uh and financial stability and all that so i think it's it's really wonderful it's things that should be part of core cbse curriculum before 12th standard but it's not there so we need you so thank you it's my pleasure in fact uh as i've mentioned uh several times i i've all i've done is like as newton said walking on the soldiers of giants like you right so i've learned a lot from you from warren and charlie right and all i'm doing is trying to pass on those learnings in simple language to people who need them the most so thank you so much for your kind words uh so just to get started right i i take you uh 20 years back when you were still running your tech company and you hired two industrial psychologists to assess you they revealed how ill suited you were to manage a large staff and that you were wired to be working best all alone which you have actually done over the past 20 years and that came at a time when you were almost on the verge of starting your investment firm the rest as they say is history now while researching for this conversation i went to the website of one of those psychologists who is jack skein and the question right up on his home page is what makes you feel the most alive and that is my first question for you manish what makes you feel the most alive well i mean i think that i was lucky to i stumbled upon uh upon jack skeen and and jim dethmer his other partner they were together then now they've kind of uh gone on different uh different journeys uh but yeah so uh you know i i think that uh i didn't realize uh how how far out of alignment i was and uh and so really i think and and i was you know i think what happens with most of us is that we can tell when we are unhappy with something like i mean if you have a job and you're not excited in the morning to go to work and such then you know that there's some issue there or if you have a relationship and you know again it's kind of dragging whatever so you know there's issues there and and and if that persists for a while uh then probably worth uh taking some action uh to try to try to try to fix things uh so actually for me uh this is at least definitely in the last i think 20 22 years maybe even even earlier than that i always try to look at uh what uh what would make me happy and what would get me excited so when i'm trying to you know figure out different things to do during the day or you know planning planning things in the future and so on uh that's the overriding thing i i look at and and one of the ways i get to it is that i i do a postmortem on things that have happened so let's say for example i meet someone for lunch and you know we have a conversation whatever and when i come back i ask myself you know how was that you know how was how was the meeting and uh was it was it great or exceptional how was it and if it if it really didn't kind of you know move me in some way whatever you know had really off the charts kind of uh take home value whatever i probably will not meet that person again for lunch or did not whatever so so basically i think the thing is one of the things i learned from mr buffett is uh you have to be really good at saying no and i learned from warren uh that he he hates to say no uh but he has to say no a lot just to keep sanity he has to say no a lot and so i think that what makes us alive what makes me feel alive is really it's really the end result of a process of culling so less is more so you you you cut out as many of the things that you can that aren't uh aren't that exciting to you and one of the things i find very funny when i talk to my friend guy spear is he's excited about doing three different things at the same time you know and he's he's always struggling with oh i want to go here and do this and i want to be here and do that well and so he's always got these multiple things that he's trying to do i i don't tend to have that problem i i uh i have really i would i would say very basic uh needs in life i don't have uh very esoteric needs when i was running my i.t company and when i had first started the company when i was just kind of bootstrapping it there was a there was a chinese restaurant which was about you know two three miles from my for my office and every day for about i think four years i carried out the exact same lunch from that restaurant every day you know i really liked it a lot and and uh and uh it was it was to a point is before the internet and everything right it was to the point that i used to call and say hello they used to say 10 minutes you know when we didn't need to talk anymore i just say hello let's say 10 minutes and that's it and then i'll just go and and it was four dollars and 27 cents uh for a meal it was a good meal and uh and i missed that you know actually so my office moved i couldn't go back tonight i so to me i don't need a lot of variety i just need things that i like i like that place and even uh even now every year once a year i go back to chicago i have one meal at that at that same restaurant and now the couple has retired and this kids are running the place uh but anyway so i think the the what makes me alive and what makes me excited is is a process of a feedback driven mechanism where i do an activity ask myself how do i feel about it what did i like don't like and basically i just i don't really care what other people think i care about what how the glove fits on me and so uh like i love playing bridge so i play a good amount of bridge i love reading i do that uh i don't really enjoy having a lot of things on my calendar or meeting people for lunches and dinner so there's very little of that so uh and then when i do all of that i'm really happy because i'm basically living life the way i want to live so in a sense you're saying your ability to say no to a lot of things which don't really matter right has helped you live a life and find a life that you really are actually living right so that's the essence that i can draw out less really less yeah less is more less is more uh yeah what is we are living in a world of fomo right so uh you you've learned over the years you've evolved over the years right but for someone starting out or someone like in right in the middle of the journey right we are surrounded by a lot of noise and a lot of fear of missing out factor right so uh what what qualities or how does one actually get over uh uh this or or develop this quality of saying no right so because it's all there upon us right it's an attention economy that we're living in so how have you done that in that over the past few years yeah so actually it's it's interesting like so for example uh you know in in 94 i was vacationing with my wife in london and i was looking for something to read on the way back and i read this book by peter lynch and that was the first time i read an investing book in my life you know i've never and then i you know i got interested i went i went next book and then that led me to buffett and i started digging what i find in a lot of humans is that they will encounter something they like or something that's of interest but then they don't take it further uh and and i think that for me the thing is i'm uh you can say uh obsessive compulsive okay so in the sense that if i find something is of interest i want to keep digging okay like for example uh i've known i've known nick sleep for probably more than 15 years 15 or 17 years long time but not much interaction you know once in a while i would meet him he was in california or sometimes in omaha bump into him once in a while he'd send me his letters it was kind of very sporadic you know and he's really guy's fierce friend that's how i got to know him and uh i had not really kind of kept in touch with what nick had been up to and then when william green sent me a galley copy of his book which was about a year ago the next sleep chapter really kind of i said wow i he he's been on this journey he went from zimbabwe cement to amazon which is quite a leap and and and he's left zimbabwe cement behind and he's gone all in on amazon which is great and and so i wanted to drill more right i i wasn't satisfied with just what william has written so i talked to william he gave me more data about his interaction then i contacted nick and then he sent me all his letters and i went through that then i again had some exchanges with him so it was it opened up uh um a nice a nice world for me and and actually seeing that trajectory that he went through uh helped me help me make uh this leap and the leap is actually it's it's a difficult leap uh it was a difficult leap for buffett i think you know the relatively easy leap for charlie he's just you know he's not human so he can leave pretty quickly but but warren i think even today um is not completely there and i'm not completely there you know uh so this the the notion of uh you know investing in good businesses and paying up for them um is not an easy notion when you try to balance it against other options and other things that are going on and such so it's uh it's a fascinating area and it's you know part art part science so for example so that's an area like i said it's it's a journey that i'm on and i want to know and learn more but what i find with a lot of other humans is they'll encounter something and they'll they'll read a book it's interesting for them but they'll just move on you know they'll move on to something else they don't so i think what you have to do is you have to if something grabs you it means it's hitting something in your psyche or whatever you have to be willing to go down that rabbit hole and you have to be willing to go down the rabbit hole till you get to the end of the rabbit hole and have satisfied yourself right that okay i want to be in this rabbit hole or no this is not for me let me keep walking and so i just find that a lot of humans just don't do that and the successful ones i think um go there so you know you can be a mile wide and an inch deep or you can be an inch wide and a mile deep so i think i think the uh the willingness to just dive in to something that you encounter when you're just kind of scanning the radar is an important thing to pay attention to right right right uh uh talking about nick's sleep right so uh it's good you talked about him right here uh you you have evolved a lot over the past 20 21 years of being an investor in public markets right in 1999 as as when you started really managing other people's money right you mentioned that you were classic graham style investor right and you were looking to buy dollars for 50 cents and sell when the stocks actually became overvalued and you did that very successfully for the past 20 years right but in an interview last year and you mentioned you mentioned just now as well that right uh you've actually shifted focus to now trying to find those long term compounders with long runways right and even if the stock looks a bit like price you're like a little bit overvalued at this point of time right and you want to keep holding on to those kind of compounders till the story or till the business remains good right and you mentioned that you you you learned deeply much more deeply about this idea from next sleep who has been your friend for many years right right tell us about your transition so we know the starting point where you started like a gram kind of investor now you're talking about evolution to being a holder of business for a long term but from a long-term perspective holding on to those compounders for many years how has been your evolution been what are those most critical lessons that you've learned as an investor in the past 20 years of your life yeah so actually i didn't start as a gram investor i actually started as a investor investing in good businesses so when i if you go further back 94 when i first started investing for 94.99 i was doing investing just for my own own money on portfolio in that period it was a very heavily focused on looking at good businesses good businesses and and specifically what i was interested in because my experience as when i was running the it firm uh it what it had shown me is that very small amounts of capital with effort and some intelligence applied yielded enormous returns i mean literally there were there were some businesses that i started where i think the money that went in must have been less than 10 or 20 000 and very soon it was making more than a couple of hundred thousand uh so i had seen that directly with a direct experience in my business and i was looking for that in the in the public markets and that's what how i invested and from 94 to 99 it was like you know 70 a year a million had become about 13 million it had done really well the issue that came up was in 99 2000 i could see that there was a massive bubble uh you know the dot-com bubble was coming about and there was change coming but there was also incred incredible euphoria and i was able to just uh see things maybe a month or two ahead of most of the other people just maybe i was not that far ahead but i could see things a little bit further ahead so when fabri fun started in the middle of 99 uh in our first year we were up more than 70 so from mid 99 to mid 2000 we went up more than 70 the nasdaq peaked in march of 2000 and then started crashing and in fact for the next eight or nine years i was up you know uh more than 35 a year before fees and the nasdaq went from 5000 to 1200 in the next two three years so everything crashed but i didn't crash and the reason i didn't crash is that in 99 i was really concerned about valuations and then when i was trying to look at you know what are you paying for these businesses versus what are you getting in cash flows i said this is this makes no sense it made sense five years ago because those numbers were much more palatable but it did it had moved so much didn't make sense so i completely shifted to graham because what i found at the same time the day the nasdaq peaked was the same day that berkshire hathaway hit a multi-year low they both happened at this on the same day literally people were pulling money out of berkshire hathaway and putting it into pets.com so that's what was happening so um i i moved away from tech completely and i moved into businesses that were just because there was so much money flowing in one particular area into these neglected things that were not sexy and no one was interested and and a lot of those were grand type pets they were you know arbitrage and different things going on and that worked really well and and the the thing is that what i was supposed to do which i completely forgot about is i was supposed to switch back okay i mean the the idea was that okay you know you you go to graham get some cover against this craziness going on then when everything gets back to normal get back to uh you know being a compounder investor and and i had become so used to that approach of investing that the the reversal should have happened maybe around the ideal time to make that reversal would have been 2009. i think a lot of great businesses were really mispriced and underpriced then and if i missed that then probably 2011 2012 was also fine but i missed all of that i missed i missed switching over because in 2009 you could buy great compounders or 10 12 times earnings whatever else but you could find other stuff at two times earnings and of course at this point i would say that the you know if you're buying mastercard or visa at 12 times earnings you know that's a better way to go than something else which is uh cigar but and such so anyway the um so the switch took place later uh then i then then i then i should have made it happen and and it all was not lost because i still found great returns on a number of businesses and investments we made and the where i am today is i'm going through an evolution where i found that you can't go all nick's sleep uh i think i think all nick sleep is i mean the the reason like warren reason that warren buffett does well is because he's a swiss army knife you know he brings out different blades for different different uh uh you know opportunities and and he's willing to go across the spectrum so i think i think the thing is that it is it is definitely a great thing to do to buy great businesses and hold them for a long time if you can get them at reasonable prices you can also do really well uh using grams techniques that also works so probably the right answer is some mix thereof and actually the the thing that what i was what i've even been thinking about is can i have my cake and eat it too you know that would be the best and so the best of all these worlds is to find compounders at gram prices right so everything is possible in a world with 50 000 stocks and so for example you know i got lucky and i invested in this company in turkey in 2019. and this was a business where the business was worth about five or six hundred million dollars and the market cap was 20 million so it was trading at four percent of you know dollar bill for four cents but the second thing on top of what what this business had it had great assets these are these are really really good assets and incredible capital allocators the father-son team that run it who are really smart at how they allocate capital and so i bought the business i and i was surprised that i was able to get i own a third of the company now and i was able to buy a third of the company for seven million dollars which is great uh that business now is valued at in the market about 120 million or so it's moved up five six times but they have moved the value of the business to maybe eight or nine hundred million so what was a five or six hundred million dollar business is now about eight or nine hundred million and i know that they will keep moving it up so i still have a gap right i was twenty million to five six hundred now i'm 120 or 140 million to eight or nine hundred million and what i want them to keep doing is keep moving the top line higher and higher so i don't have any decision to make right because a classic graham investor would me would be we would say if it stayed at 500 million and this thing got to 400 million or 450 million let's move on right but what i want to do is i want to keep this forever and and so in my mind i think of myself as an owner of that business and i've decided that just don't bother with it even if the market even in the market cap goes to a billion today for example don't worry about it they're still allocating capital well it might be a little bit overvalued it's okay so we bring in a little bit of next sleep and we mix it in a little bit of gram and and the problem is you can't these are very rare this is exceptionally but but on the other side you don't need more than two or three of these in a lifetime you might even do well but even one in a lifetime so it it can work out really well and so that's the beauty of this business and the learning and the growth where i'm trying to say can i get the most better best of both worlds and can i uh try to learn from all these people and make it work the way it would work for monash and see what happens the biggest takeaway for me from this uh response of yours i think this ability to change the mind right with changing times right that that comes very rarely to people uh uh we we we are stuck in a status quo and we we keep on uh investing the way we invested 20 years back right so but i think that that's what differentiates people who do really well uh i have a question on on the current market right that is factoring in uh such unrealistic growth prospects uh and it has become actually virtually impossible for so many businesses to grow into the evaluation as you rightly said that such opportunities have become even rarer at this point of time and now we are also seeing uh businesses becoming more fragile because of uh rapidly changing technology there's endless amount of money that is being printed by central banks and and over that we have a new breed of robin hood investors that does not believe in downsides and instead willing to take all the investing rules to the cleaners right in this environment how does how does one maintain sanity right so what you advise in terms of maintaining sanity and practice detachment and live and invest with inner scorecard that you that you've talked about so often in the past right so basically my question is amidst all the hype and overvaluation what qualities you believe could help investors stand a better chance of making optimal decisions for the future yeah so i i actually don't think we have a mega bubble use i i think the the situation today is very different from 99 2000. 99 2000 you had everyone and their brother you know pumping all they could into this massive bubble um i remember in in uh march february or february january february of 2000 i was taking a cab ride in chicago and uh i used to live in chicago i was just downtown just condo cab there was the pakistani cab driver he says to me um okay and uh you know i'm i'm a network engineer right actually that's my specialty okay and cisco was actually it had become the most valuable company in the world you know there were there were three companies ge cisco and microsoft they were all sitting at more than 600 billion and there there was just no way to justify uh that valuation right and this is like the 1929 outside the stock market in new york stock exchange the shoe shine by boy is giving you stock tips you know so that's to me that that was a major red flag uh when when you know a cab driver is you know uh hot and heavy on cisco and uh and so uh what i see today i don't see that situation i see a little bit different situation i see a bubble in a very narrow set of assets uh 99 2000 was a very large bubble it was massive just like in the housing crisis we had a massive problem it's a very large part of the economy this is very narrow so for example in the us we have crazy pricing on gamestop we have crazy pricing on uh on amc on tesla uh maybe on bitcoin but you can't even i don't think you can even get to 10 or 15 names you know one because there are all of them are piled into the i mean if i look at to me gamestop is really funny you know because it's a ridiculously useless company it's completely obsolete they have no real estate they only have debt and they have leases they have long-term leases which have liability on them and everything in video games has gone digital so they have this huge kind of aircraft carrier that they have to keep feeding and paying there's no business and it's not even worth five dollars a share you know and so it's they've taken it they've taken it to crazy highs and uh if you can issue stock at those high prices and try to do something with it you can you might be able to make something over but it's very it's a very tough uphill battle so what i find now is that this complete disconnection from reality in a very small sliver of names right and all these guys who are on reddit and on robinhood and all of that they're all focused on those games and uh i i mean the other day i was talking to this lady and you know she's got some kind of a nursing business and such and she's just you know matter of fact telling me you know basically life is really simple i have a robin account and every month whatever money i get i put into the three stocks and i said which three stocks and you know it's gamestop amc and tesla they all go up and it's all great and everything's fine you know that's the portfolio okay so uh so i think that this bubble will pop all bubbles pop at some point but this bubble is very narrow it it is not clear to me that amazon is in bubble territory or microsoft is in public territory they could be overvalued but they're also exceptional businesses uh so they could even grow into that valuation if they don't have that value today so i'm i'm not of the i'm not in the camp which believes that uh everything is you know crazy or whatever i think that the craziness is very limited uh and probably i think in india it's similar it might we may not even have anything in you get you get these uh humans vacillated in fear and greed and so that's that's kind of the the norm with it but i forgot your your original question your original question was how do you keep sanity yeah how do you keep sanity and amidst all the noise how do you practice detachment right and especially for you like as a public market investor your every move is actually being publicized right or even for a normal investor right how do you detach from the from the fomo from the noise from from attention everything that people or or like buffett said right people want you to act that's right but you don't want to yeah but i i think that that for me is is really relatively easy because i think that it's uh i'm not particularly interested in winning popularity contests you know i'm not interested in people you know so the inner scorecard out of scorecard you brought up uh i i think that that has helped me a lot uh in terms of just framing things internally so uh for me the the hunt the hunt is all about finding ideally the like the business of our in turkey okay that's kind of where my attention is focused there uh my my attention is not focused on tesla and gamestop and whatever else is going on or and i i don't need to i don't need to figure out is demar overvalued undervalued okay it just doesn't fit what i'm looking for and it doesn't fit the valuation criteria that i'm looking for so it's fine and this is the beautiful part about this business is that you can let a lot of great balls go and you don't need to hit on every every ball that's coming at you and so uh so basically when things line up beautifully you can you can you know hit a six out the out of the stadium and the rest of the time you don't need to do anything so i think that that model i think is for me it's pretty easy because i just that's how i think i'm not really particularly concerned with how other people think or what they think i'm not concerned if people think i'm stupid or people think i'm smart or whatever else i think all that is not very relevant to me i think i think that's a great advice for people to take as well in general right uh here i want to bring in warren and charlie are two your two favorite people right so warren has called charlie uh uh the best 30-second mind he has ever seen and and if i'm not mistaken you also often ask this question while making decisions what would charlie do right in that light and if if not in 30 seconds what would you look at in a business as a potential investment if all you have is five minutes right so we talked about fragile companies economies right we're talking about disruption all those kind of things i missed all these changing scenarios right if you have five minutes to discard a company or choose a company for for a deeper study right what are those key factors that would help you make up your mind either way yeah i mean i think i think what you want to look for is first of all you want to it's pretty easy to tell if a business has great economics or not you know in equity just intrinsically does it does it fit in your head as a great business or not right so that's that's so i'll give you an example just i'll digress a little bit and come back right i've always had difficulty understanding amazon's business model in fact the business model never made any sense to me you know i order a box of band-aid which costs like four dollars or something and it's delivered to me next day at the four dollars with no shipping project the real cost of getting that to me has to be north of ten or twenty dollars you know there's a guy driving a truck and there's a warehouse somewhere and there's multiple warehouse i mean there's a whole back-end stuff going on to get that band-aid to me and and it shows up at the four dollar price and amazon has a one dollar margin on it 25 margin they have a one dollar margin on that and i think the last mile costs are ridiculous so to me it never made sense that this was a good business and i every time i look at amazon in about two minutes i'd say and then you know recently i was listening to jack ma uh alibaba and he says the exact same thing so he says this makes no sense to us right and so he is not willing jack ma has not taken uh ownership of the inventory and he doesn't control the distribution he controls the digital pipe and there's uh someone else doing the delivery than someone else who's you know taking the inventory risk and all of that and he's sitting in the middle of all that with the payments and the pipe and that model makes sense to me the amazon model doesn't make sense to me and jack ma said look i have 25 000 people this is a few years back if i go to the amazon model i need 10 million people he said i'm having difficulty managing 25 000 i don't know how i can manage 10 million so i'm not going to go there so it was two very different approaches right it's too now amazon has made it work eventually basically they made it work and alibaba has never gone there the negative with alibaba's approach is the link to the customer is not as strong the amazon approach is you're just locked in we love amazon you know and so so there is a kind of ebb and flow there right so but for me the thing is if i was looking at amazon 30 seconds i would just not be interested because it intrinsically doesn't make sense if i looked at something like mastercard it would very quickly make sense because they get you know a certain percentage of every transaction and it's a bunch of servers you know so you you i mean it's going to be 80 margin business because you know after you have scale every incremental transaction almost has no cost so very quickly you can you can tell very quickly if a business has great economics or not that doesn't take much time what does take more more time is the durability so you can tell whether business is a good business or not the second question is it durable that's a much harder question and and you have to run through in your head if you if you're going through the 30 seconds you have to run through in your head all kinds of things about your ability and the the easy way so you know i'm reading a book by this guy terry smith uh terry smith runs fun smith in the uk i think 30 billion whatever under management so his his answer is he said look i don't want to pick winners okay he said picking winners very hard i want to call the winner after the race is ended okay so he says that basically once the race has ended we know who the winner is and that's who i want to invest with so what he means by that is he says he has no interest in any companies which don't have a very long history so he's he's interested in nestle with 150 year history where i think there was one quarter they lost money or something or like call gate for palmolive and and so on right or microsoft or whatever so he's he's saying these companies already won okay nestle has one microsoft has one all these companies are one so i just want to look at all the winners and then just pick from those right so his approach is we know the return equity is high we know that they have durability because they've already shown they're durable who's going to who's going to take nestle out right who's going to take unilever out so his approach to that is i'm going to answer the question in a simple way which is it's already the race is already over right so i think that if you if you use those two models if you just have the durability and the return on equity though the only things you looked at you could pretty much in 30 seconds get there with a lot of businesses i'm sure i think that's a great insider about durability about that um yeah you you've had a hugely successful career but i'm sure uh like all investors you also have you you must have also had higher chances your your your moments of failures right mistakes right uh in an interaction with your friend guy uh spear in 2014 you mentioned you you've actually found failure to be to be your driver of growth and that you thought that you are a much better investor because of a whole bunch of different stumbles uh so here i i uh want to ask you specifically about this company called digital disruptors that not many people may know of but it was a company that you start in 99 and and as you mentioned somewhere you quickly lost like 1.8 million dollars of your own money and around two and a half million dollars of outside investors investors money in that company right and somewhere you also called it as as the biggest investing mistake of your life so take us through the lessons you learned from that failure and and that actually set set you up for future success yeah so actually uh digital disruptors was a when i look back it was a wonderful experience and actually in the end it ended up being extremely valuable for me so this is a private business that i had founded i think in 98 and the you know i was i was making all these tech investments i was able to see uh the first time i went on the internet i think was in 94. uh whitehall whitehouse.gov was the first website i saw in 94. and and it was very clear to me as the 90s went on that the internet was transformational so one of the reasons why that bubble became such a big bubble because all bubbles at the core have a kernel of truth you know there is a kernel of truth at the core and and there was a kernel of truth here which is that this amazing internet technology was going to be transformational it would change a lot of things in a lot of industries that was actually a true statement we're actually seeing it unfold even now but the thing is at that time it was the blind leaving the blind right so it didn't have the trend marks of what's going to work and how how things will change and so on so digital disruptors was a was an endeavor which was trying to take uh old line businesses to create a new new line business in effect it was using clayton christensen's uh disruptive innovation uh model which said that you know established businesses will eventually die and they will get disrupted by some you know small scrummy business that looks useless kind of like when japanese cars came into the us they were not that good in quality they were much they were they were thought a lot much inferior to the general mode of american cars but over time what happened is that the japanese improved their quality and they stuck to small cars and consumers switched to small cars and gm was never able to adapt to that and they ended so the disrupter killed the incumbent and so the idea was that we could go to a bank and say look you have your banking model and you're running it but let's set up a digital bank right and let's keep the digital bank separate from the mothership and let this grow on its own and so i think the model had some uh relevance but i think we had we were trying to do too many things in too many industries at the same time and at the same time while we were doing all of that uh the the whole whole dynamic of everything was shifting you know uh the bubble was about to crest and go on and uh these models would take a long time to get cash flow positive and and so you needed deep pockets and and also we found that we don't have the capital we don't have the runway we don't there were a lot of issues coming up so uh i had raised venture capital i had funded the company myself so you know i had a million dollars in 94 it had become what 13 million so i put some of that money into into digital disruptors the 1.8 million that went in and then outside investors venture capitalists came in as well and then i think by late 99 uh we just realized it's not going to work and so i just tried to salvage and close and help people get get jobs and most most of the team landed on their feet and all that so that was fine and but what was really helpful with that whole experience was i was able to see around the curve a few months before the public markets could see it because i was dealing with this stuff uh right at the ground level and so when popeye funds started it completely sidestepped the entire bubble because because of the digital disruptive experience i understood what the problems of these models were much better than most people understood them and so i went in a different direction and uh so in the end it actually worked out uh much better because pablo iphones had a lot more capital eventually uh and this was a painful lesson but a great lesson and i think every time for everyone we don't grow with success it uh it is the failures that help us grow the success success really doesn't teach you anything you just feel good and life is great but you don't really grow as a person with success so i'm always grateful for the failures uh the rough times the tough times they are the ones that really in the long run give you a lot of difference and so we we should be very grateful for all the failures and stumbles that we have uh was it uh that time after digital disruptors that you wrote that letter to warren buffett uh asking to work for free for him yeah so i i wrote that letter in early 99 okay and at that time i was very clear that i was leaving my i.t business i didn't have an interest in that digital disrupters that was still going on uh but i was just trying to figure out what am i doing next and where am i going and i could see that it might come to an end and so when i talk to my friends and they quiz me i said the only thing i'm really excited about doing is i want to go work for work and i don't need money i can work for free and so i wrote him a letter and and i got uh you know it went by regular mail and within seven days i had a response back from him which said thanks but no thanks and uh i work alone and then he said in case you think that charlie works with me he said that's actually not true because he's in l.a and i'm in omaha so good luck he his final thing was he said good luck reorganizing your life i am not the answer so if i if i may you were to ask right how did you pitch yourself when you wrote that letter to warren what did you say that that he should have hired you well i i just wrote a very candid letter to warren which just gave him a very very quick synopsis of my background you know uh immigrant and i started this this business and i had grown the business and i had then learned about him and i had followed his approach and i wanted to just keep that learning growing and i think i thought that the learning and growth would be tremendous and i thought i could also add some value for him and i told him i'm not looking for a job description i'm not looking for a title i'm not looking for a paycheck um you can pretty much ask me to scrub the flows in omaha that's fine and uh i just want to learn right and uh so that's that's basically i just i just wrote him a very candid letter based on what i wanted to do and uh and i think he was thoughtful about it in terms of it wasn't a form letter that came back uh he was thoughtful about i think he went through everything i sent him and uh and then uh that's how he responded uh continuing with warren uh uh you've experienced him uh from much closer quarters and for much longer time than most other people have and what are those things that people miss out when they read or learn or think about him and only find out when they observe him or talk to him in person right or to or to put it other way what are your biggest learnings from him that are not so obvious to people who read or study him from far yeah so i think i think the thing about warren is that uh you know like one time uh someone at an annual meeting asked him he said mr buffett there are 50 000 stocks in the world how am i supposed to study them all right how am i supposed to you know and his answer was start with the a's okay and actually it wasn't a it wasn't just a you know kind of gimmicky answer if you will or just being a smart aleck that's exactly what he he did so in the 50s when he was running the buffett partnership he went through the moody's manuals and i actually bought one of the moody's manuals from ebay just for nostalgia steak they don't they don't publish them anymore and it's pretty thick book and it has maybe 20 000 stocks and very fine print and has maybe three four stocks on a page and it has the salient kind of financial information on each company and he went through all those manuals like twice okay like it was a lot of that's that's pretty intense work it would be and pretty much he would be upstairs at home before we moved to the office that pretty much from seven a.m in the morning to maybe midnight other than for meals he's just going stock by stock by stock okay and one out of a thousand or two out of thousand he'd find something that looked interesting then he would drill down some more right and so sometimes you would find the company's market cap is 15 million dollars and they made 27 million last year for example you know so he'd find these quirky anomalies then he'd drill down on them and then he made some investments based on that right so the thing about him that people don't understand is how intense he is about the work he puts in and how uh how obsessive compulsive he is when he does that and he still does that like you know recently when i visited all his office there was a book on his desk called the japan company handbook and the japan company handbook has half a page on every japanese company okay and when you go through things like the japan company handbook or the moody's manual you are not uh looking for great businesses okay because you're not going to be able to find a great business based on the numbers you will you will you will just find gram type stuff when you look at the numbers and so the gram in him is still alive okay and even though he understands that i need to buy great businesses he also spends a lot of time on this weird stuff right and so i think what people don't understand about buffett is how how intensely he studies stuff and how deep his knowledge is on like for example um uh there's a there's a friend of mine who used to work at this uh illinois illinois national bank in rockford illinois uh berkshire had bought that bank in 68 or 69 and then they were forced to divest it i think in 1980 or something so he was an intern at the time when warren owned the bank and once a month warren would show up at the bank in rockford illinois and he said that two or three days before warren was coming the whole bank was like upside down getting ready for his visit uh because they knew that he's going to ask questions and you know someone else said that warren never forgets a number and he's so they wanted to be fluent on all the questions he's going to ask right that was an exceptional bank they never had a single dollar in nba or they never had any bad debts i mean literally the most extreme well-run bank you could imagine and uh so there is no banking analyst on the planet today who is better than warren and banking and and the reason is that he's been at it for 50 years and he owned a bank and he studied the hell out of that bank and and so i mean his his track record on banking is 100 there's no bank he's ever invested in that has not worked out and in fact many of them have worked out except extremely well so so i think what people don't understand about now he also has made a lot of bets in retail that have blown up for him so his retail record is terrible uh his banking record is exceptional and uh and so i think he he's continuously living and learning trying to do things you know he made a mistake with ibm for example he made a mistake with tesco in the uk uh he made a lot of mistakes with buying these retailers uh but he's he's uh i think what i what i find that people may not fully understand about him is that he's the opposite end of someone who says okay oh amc is going up let me go buy it he's the complete other end of it talking about guy spear who's been your friend for 15 years right he's written this wonderful book called the education of a value investor uh when he has actually dedicated a chapter to you and and what he's learned from you over the years being friends with you right he's a great investor and a human being as as we come as we come across reading his book right what what according to you have been your biggest learnings from guy over the years yeah no i think guy has been a wonderful friend and we have a lot of fun when we're together and uh i think i think the thing i find amazing about guy is how little he touches his portfolio you know he he says it's a great year when no changes are made and uh and so for example like you know this is something that i've always um that has always kind of bothered me and i have a lot of discussions with him about it so for example guy has owned nestle forever okay and i tell him guys there's no meat on that board they're like you know 30 analysts tracking this talk and it's you know it's price to perfection and you know it's you know whatever uh juice there was has been extracted uh so i would just i would just tell him look uh yes you know nestle is a great business it'll be around even 50 years from now it's it's great but what if we look at uh the turkish company right so i said you can't even compare the two right so guy just says to me there's no way in helmonish that i'm ever putting a dollar into turkey okay end of end of story right he says i i just don't want to go there okay so the thing is that what i admire about him is that he's he wants to be extremely comfortable in what he owns he it doesn't bother him if it's suboptimal which would bother me something suboptimal would bother me uh it doesn't bother him and so i actually have a lot to learn from him because he leaves these things alone for a long time and i think that's the key is businesses take a while you know i think i think to have real change in a business and change in value and growth and all that is decades it takes a long time and uh and uh he's very well suited for that so uh i i admire uh very deeply his uh his degree of conviction on these companies like nestle for example and uh and the willingness to hold them thick and thick or thin he just holds them that's wonderful i have a lot to learn from that the learning still continues sure uh so you you've mentioned in one of your talks that uh passing on your wealth to your kids is a disservice to them because the fun is in the journey having limited resources carving your own path and figuring it all out right so if not your wealth i'm sure you must have passed on some some very important lessons to your daughters on how to live a good life so what has been your advice to them and and what are some of the key work and life skills that that they or or for example any any young person should learn and hone to do well over the next few decades yeah so i think that's a good question and i think your kids are not going to learn from what you tell them your kids are going to learn by observing you so basically we are host because we can't tell them listen i know what is right or wrong don't look at me this is what you should do okay but they're not going to listen to that okay so uh so i think that kids are too smart uh kids are too smart to really you know sit down and just take a bunch of lessons from their parents what we have learned from our parents has been by observation and what our kids are going to learn from us uh is by observation that's really kind of i mean the actions actions speak louder than words and so how you have interacted with them how you interact with others how you uh conduct your affairs all these things so i'll give you an example my my daughter has a startup she just started a company that a few other um few other co-founders and um there was there was some um thing that they wanted to do [Music] where she was uh questioning the ethics she was she was not sure whether it's uh it's the right thing to do or the wrong thing to do and she was a so um so she came to talk to me about it right and uh she described the situation and she said you know some people are feeling one way and some people are feeling the other way and and then she herself brought up the the example which i didn't realize had had a huge impact on her so when when dakshina first started i made a i made an internal uh kind of line in the sand and what i said is that under no circumstances will dakshina ever give a one rupee bribe ever to anyone no matter what the circumstances and the and if we ever hit a brick wall where we can't go without paying we will shut down all operations and back up but we are not going to do things like greater good or anything like that it's a it's a hard line right and uh in 2009 we were running uh a hostel in faridabad in india and uh so we had taken this uh this place it was uh and we had kind of transformed it we put our classroom in the basement whatever the place needed a higher power connection to satisfy all our because we had air conditioners running and all of that so whatever power was coming there it needed to be upgraded right and so we went to the electric company and we said that we need the power upgraded right so the guy came and he showed like a tariff card you know if you want so much power it so much so and the tariff car which looked like a tariff card was actually not a tariff card it was a bribe card okay so the the guy said look what we have done in our department if we just we just streamlined it so we don't want someone x pays one bribe and y pays another bribe we have made it so all the bribes are the same based on what you are asking for so if you ask for a lot of power if the bribe is higher if you ask for less power so we told them that we are a non-profit we're trying to help these poor kids and you know we need this power and this is not uh some you know commercial enterprise so please you know give us our power so he said no there's there's no such thing as giving the power you have to pay and the bribe was very small the bride was less than like 15 000 rupees it was not a big bribe for us we could have paid the bribe nobody would have ever known that we had even paid the bribe right if we had wanted to do that so uh we were not going to pay that bribe obviously because you know it's part of our core but i also need kind of infrastructure that works for us right so we could put diesel generators to run the place and it would give us our electricity and would give us all our stuff the the monthly cost so we put the diesel generators in there was they created a big racket in the front it looked ugly were a lot of problems with it environmentally very negative and it was costing us uh 50 000 a month in fuel charge to run that diesel generator it did not bother us at all so we that hostel ran for a year we happily paid the 50 000. that power guy came three four times after that to tell us hey listen what are you doing here this is much cheaper this is that but we never did that so my daughter was actually familiar with that story and she she brought up she when she was looking at this dilemma she said the dakshina power thing you know she said that's the gold standard and she said i want to live at that at that level right so i said yeah if you want to live at that level then you can't do what you want these what what if there's even a small question here then you you can't do this right and so it made it it made it very the reason she was feeling uncomfortable is because of that example the others in her team had never seen something like that so they didn't have a reference point you know and and and whatever whatever their life experience had been but for her it was very clear so for her it was a very clear line in the sand that it has to be a certain way or she can't be part of it you know and uh so i i would just say that i i would have had zero impact on my kids if i told them please be honest please don't give bribes none of that means anything so you know so i think i think you have to actually uh practice it and the amazing thing is that i didn't expect that she'll be aware of that issue and that it is like out of all the because you know we've had so many instances in india with dakshina with bribes uh that you know and and it's a and the team knows that everyone knows that we deal with it we deal with all the hurdles that come you know but but we've never paid a bribe you know that's pretty pretty cut and dry and we deal with whatever consequences come out of that and uh and and and it's okay so i think that's the important thing with your kids i think i think uh they they are observing you when you think you're not being observed and uh and they know everything about everything that you're doing so it's it's uh you know you're fully exposed i'm sure i'm sure i think uh that's a great lesson in parenting i'm sure uh so moving from from from the advice that you would want to give your kids to the advice that you received from your parents i think i was reading the investor again and you you've talked about how your father uh started 15 different companies and bankrupted them all in all different 15 different sectors industries right and you also mentioned that by the time you were 18 since your father was taking you on sales calls and everything you you already completed many mbas right so what what core lessons did you learn at that if i may call it the business school that have really uh stood the test of time and that you're still applying with success today so that's one thing about your father about your mother my question is you've you've talked about her back of the envelope accounting things that she was doing right in those days right so any lessons from there as well would be helpful of how you apply them today yeah so i think i did not realize this till much later in life but you know the human brain is optimally set up to specialize between the age of like let's say 12 and 19. it in that window of time actually so the brain is the fastest growing organ after we are born uh it grows faster than any other organ for the first five years of life because the birth canal is too narrow so the brain is the most underdeveloped uh kind of organ we have when we're born and it goes through very rapid change in the first five years and massive expansion from 12 to 19 actually those neuron connect connections get cut it's actually cutting a lot of stuff and it's driving willing to give a large part of the brain to one act one area one activity uh so if you have a interest or specialty in that window um the brain is just perfectly set up and that window starts closing once you pass 20 or so on so the way our education system is set up we are forced to be jack of all trades till we have passed 18 you know then you can start specializing in india at least maybe after 16 you can start specializing but basically that window is gone okay nothing happened so you know michelangelo he started when he was like nine or ten and buffett buffett said that you know he was wasting his time till he was 11 when he bought his first stock and bill gates was programming when he was 11 or 12. and you can see a lot of examples of people done really well where they had a lot of experience in their in their teen years and so i was going through an education system which makes me a jack of all trades but in that window of time uh my my father was running these small businesses they would get into trouble and he had nobody there was literally nobody to talk to and so he he would sit down my brother and me after the age of 12 or 13 and he would go through you know the issues the business was having and we had to come up with how to make it survive for one more day okay all the walls are caving in everything is collapsing you know the creditors are coming everything is like booing the and the ship is sinking how do we make it work one more day and then we make it work make it work for one more day and again at night we said how to make it work for one more day okay so when you are going through those types of discussions you are completing many mbas every week okay because everything under the sun is being looked at sales is looked at payroll is looked at receivables cash bank overdrafts everything gets looked at and then i think uh after i was like 15 or 16 he would he would take take us on sales calls and one of us would actually run the business other one my brother we would go back and forth and and i was able to observe how he's going into these businesses like he was literally cold calling you walk into a shop and say do you want this jewelry this and that whatever right they didn't know him nothing right and i saw how he built those relationships and they became customers and then they became friends and you know just that whole uh transformation and how many doors just get slammed on your face right they're not interested so i think that the the thing is that it's it's a really it was really powerful uh lesson that i didn't realize other people didn't have uh because i think i think a lot of people in investing uh they've never run a business and they you know look at things through a spreadsheet you really have no idea what's going on then i mean you're like you're floating on some vaporware and uh and even when you uh when i was running my when i when i started running my first business and such those lessons were so uh transformational because i understood very well um what area needs the most work so the the thing that these startup businesses need a lot of expertise is is on the front end to bring in the sales the marketing and the sales you can cover everything else after that is going on uh so but a lot of people what they do is they focus so much on what they like to do build a product or this and that and they don't want to deal with the sales and because it's very frustrating a lot of failure right so they just don't want to deal with that and then you're done you didn't never going to go anywhere so i think there was there were tremendous lessons that came from my dad uh and i don't think he was trying to do this in this way maybe he was i'm not i'm not sure but uh it was definitely i mean my life trajectory would be vastly inferior uh without that and then my my mom has too many good qualities to to list i mean i think that uh yeah she was very quick on the the high level math and you know just the motor his heart type stuff and uh and i think this i think the main lessons i learned from her is that just her the way she dealt with people and relatives and friends and she just had a very large circle of people who had extreme goodwill for her uh so very benevolent very very generous person uh so there were there were tremendous lessons from both of them quite a blessed situation to have two of them in my life sure i'm sure right uh what is the single best piece of advice you ever got so this is like a this is like a rapid fire what is the single best piece of advice you've ever got um i'll have to think about that let me come back to that sure go to the next one sure what's the single worst piece of advice you ever got i mean i i think you get a lot of uh a lot of uh negative advice from people right you know you want to do something they'll tell you not to do it and this and that so there's a hundred different things you hear from people which uh so worth advice comes all the time right thank you sure uh i think they should be simple maybe if you have to keep just one book with you and give away all others permanently which one book would you keep and why uh poor charlie's almanac okay uh i would keep that and uh and and uh but but keep going go ahead yeah so uh uh i have one final closing question have you thought about the best advice that you ever got yeah the best advice actually i was going to say that the best advice i ever got was from my dad uh when i was working uh i i was working in the in the job my only only job i had and he said it's time to quit you know and i said uh he said it's time to quit and start your own business so i had decided actually before i um when i started my career that i would never be an entrepreneur i just seen too much turmoil with being an entrepreneur so i i told him that uh i have a very good job i have a good savings rate 401k all that and it's a great trajectory for the next 40 years don't need to rock the board uh so you say no you need to quit you know and and i realized uh after several weeks that he was right so so and and when i told him that have you forgotten what we went through he said yeah but that's what makes life's life interesting you know you just said that's if we didn't have that it would be so boring that's true that's true that's true uh uh someone shares my closing question to you uh most of the time most of us have no idea who we are and like you said in a past talk we we do not have an owner's manual that guides us in how we should live and most of our life is spent actually conforming to how others think we should live right so just as a thought experiment if you desig if you were designated by god to design an owner's manual about how humans should live their life generally and based on all you've learned from warren charlie and through your own experiences what would you put on that owner's manual what i would what i would put in the owner's manual first of all it's it's it it would be different for each person right that's the whole point we're all very different but what i would what i would tell people uh what i'll put in the owner's manual is pay very close attention to what excites you and what irritates you and what upsets you and what you know energizes you things that give you a lot of energy you want to increase that big time in your life and things that are draining you you want to get rid of that so don't worry about you know the world the world doesn't need another painter or doesn't need another poet or whatever else just pursue what gives you uh the most the most joy and satisfaction and growth and and and be very deliberate when things happen when you do something go back and look at how you feel about that experience so i think if you continue to do that as you went through life so if you're sampling a lot of things uh then you're going to find that some things really resonate and a lot of things don't and so just keep going deeper and deeper into the areas that resonate with you and that's basically the owner's manual without without spending ten thousand dollars with jack skein the other the better answer is to go do it with jack skiing so uh i think with that uh thank you so much manish for being a great teacher all these years right and and i must congratulate you and thank you for the wonderful work that you and your team are doing at dakshina right bringing up so many lives positively uh thank you so much it has been an insightful conversation thank you so much for everything we shall always uh enjoy enjoy the way you interact with the joe public and make them into better investors i i feel very sad when i look at most people uh just don't have the basics they're smart people they're good people they want to get there and it through all the learnings that they went through this piece is basically missing so you're you're filling a great void which is wonderful and thanks manisha you're wearing a great looking shirt oh yeah thanks for the gift i i should mention it again i think this this is the dakshina shirt which manisha sent so i'm highly grateful and it fits me well all right that's great somehow we got your eyes right that's right that's it great great so thank you all right sounds good thank you thank you [Music] you

Channel: Vishal Khandelwal

Views: 62,899

Keywords: one percent show, mohnish pabrai, vishal khandelwal, warren buffett, dhandho investor, safal niveshak

Id: NfcGzvXAw6M

Length: 78min 42sec (4722 seconds)

Published: Fri Jul 23 2021