how would I take 10K and turn it into a million what we're looking for is something that hits you in the head with like a 2x4 We don't need to know many things about many things We need to know a lot about a little Why do you think most people don't do that buffett always says the most important question to ask is and then what does he use Excel warren wouldn't be caught dead using Excel Okay Usually the best ideas when you finally figure them out they're very simple You should be able to explain your thesis of a stock in about four or five sentences to a 10-year-old Where do you even know where to look i'm going to lay it out for you It's going to be so easy All someone has to do is [Music] Okay here we go Anish welcome back Round two Sean it's always a pleasure So let's play a game You're my coach You're my investing coach let's say and I have $10,000 and I want to turn it into a million right podcast called My First Million I want to go from 10K to a million So that's a 100x How would I take 10K and turn it into a million the thing about investing is that opportunities are not going to show up just because you have the cash So I would make some tweaks to your thinking first about the 10K So I would say okay the 10K is a good starting point but I what I also want you to do separately from that is have a day job Yeah Okay And I want you to spend less than you're earning And I want you to take the 10K and I also want you to take your annual savings Maybe that's 5 10,000 a year or whatever it is And normally I would say put it into an index Right the index like the S&P is overheated M we can't go there right now Circa 2025 we cannot go into the S&P Okay Okay Maybe 2035 we can but not 2025 So what I would do is I would treat Berkshire Hathaway as the index So I would just say the default currently is you put it you know dollar cost average into the into Burkshire class B shares right and you keep doing that day in day out And if we did that you know the the math is really simple Even if we were doing 10% a year right i mean which I think is probably pretty reasonable for Burkshire Rule of 72 we would double every seven years Life is all about doubles Okay let's say we are a 20some guy with 10,000 and you go for 50 years or 49 years It's seven doubles right okay Seven doubles is um 128 Okay it's 128 times your money I gave you more than 100x right i gave you 128x in 49 years without having to genius without doing anything Right so this is just plan B right where we put the 10,000 in it becomes more than a million 1.33 million with no taxes paid There's no dividend there's no taxes there's nothing And we haven't even gotten to plan A yet right this is just sitting there Now the other thing is that every once in a while there'll be opportunities that show up and what we're looking for is something that hits you in the head with like a 2x4 So the best investments are ones that make no sense You cannot make sense of the numbers It's too good to be true It's just weird And all of those things So when when these kind of unusual things come together where things don't make sense right that's when we want to dive in Give me an example of a great investment is one that doesn't make any sense The numbers just seem wrong you know to you in the moment Well I'll I'll I'll give you one example where it was a money maker for me but I didn't make even 3% of the money I should have Okay you know I mean it it was like uh it was given to me on a platter and I blew it I still made money but you know usually the best ideas when you finally figure it out they're very simple So in in the year I think this was like around 2001 or 2002 uh I had encountered the this shipping company called Frontline And Frontline was a company that owned a fleet of about 75 WCC's very large crude carriers These are giant ships that transport crude from like Saudi Arabia to the US and they're just huge The entire global fleet at that time was 300 ships 300 VLCC's 75 of them were owned by Front Line 25% of the market The the guy who ran and was the founder of Front Line John Frederickson had put the entire fleet on the spot market So there are two ways he could have dealt with his fleet He could have done time charters kind of one year threeear deals where he's guaranteed cash flows per day and all that or be a gambler put it on the spot market and play it Whatever the price today is right I'll I'll take it So So he had put it on the spot market the entire fleet Now these VLCC's they have a cost with the crews and all of that of around $15,000 per day to break even And at that time we had like the Iraq war and different things going on So oil demand fell a lot and there wasn't enough need for VCC's So the shipping rates collapsed to the point they went to 7,000 per day Okay So now you have front line losing 8,000 per day times 75 ships Right Okay And they're levered Okay And so basically the stock got taken out back and shot okay like a 90% drop Okay And it most of it was valid because basically you know when we are making investments or when uh the uh equity markets look at a company they want to see consistency of cash flows They reward consistency of cash flows Here what we were seeing is consistency of losses Okay no one could tell you when these losses will abate So the the dynamics were the stock I think was down to like $3 per share And when I looked at it I noticed two things Okay the first thing I noticed is all their debt was nonreourse Their debt was tied to individual ships There was no debt at the parent right so basically if they defaulted on the debt of a ship the bank could just take the ship They couldn't really take the company could just take that ship They take a car loan Right Right And the second thing I noticed was that there's a very somewhat liquid market to buy and sell these ships So even when the rates went to 7,000 per day the ships had dropped in price by something like maybe a third 25 30% drop from where they used to be right so what I realiz is that if Front Line got into a crunch where they were having cash problems they could just sell three ships If they sold three ships paid off the debt they'd have enough cash left over to keep sustaining operations for six to nine months they could sell three more ships after that So I felt like there was really no way the company was a candidate for bankruptcy And there was really no way And the other thing is I could I could look at the entire company and say "Okay what if they sold all the ships?" If they sold all the ships paid off all the debt you would end up with like $9 or $10 a share you're at three bucks right okay So you you'd make three times your money if they just liquidated the whole business So they were the arbitrage between the price of the stock and the net price of the assets in a distress scenario right and uh so I said "Okay we really can't lose money here." So I put 10% of my fund into Front Line right because I just couldn't see a way that we could lose money After a few months the rates start improving The oil demand starts coming back up The rates go to 15,000 Then they go to 20,000 The stocks at 10 bucks Okay I sell my shares Well done Mish Okay Tripled my money Yeah In in like 8 months or something Okay And I said "Okay this was exactly what I thought." Right rates then go to 300,000 a day Okay at 300,000 a day they're making something like 285,000 a day times 75 ships Okay that number is like infinity Okay Yeah I was trying to do the math Just assume it's infinity The stock goes up in the next 3 years 80x Oh wow Okay Here's stupid monish okay patting himself on the back with the double and I didn't even get a double I got like 80% uh return on my money and that was that and so that was an example of where I did first order thinking but I did not do second order thinking M so the second order thinking was you know Buffett always says that the most important question to ask in investing is and then what if I had been so smart as to ask the question and then what so you see that rates are terrible you see the scrapping you see that that fleet's going to shrink so even if oil demand doesn't come back the way it was going to come into balance eventually that those losses are going to go away and then you do the next thing on 10 watt which is that when oil demand comes back it takes 3 to four years to build one of these things So when the rates went to 30,000 or 50,000 and all these guys can see this is a great business now Well when you go to the Korean shipyards who are now inundated with orders they're going to say "Go to the back of the queue I'll give you a ship in 5 years." And by the way the ship is no longer 70 million The new price is 120 Right Okay Because I got more orders than I can handle Right So we had this dynamic if I had thought about it that once the demand became tight you really couldn't increase supply for at least 3 or 4 years So what's 285,000 * 75 * 1,000 days right that's the minimum number of time when that price is not going to come down It's only after 3 or 4 years more ships start getting delivered and you start getting more balance and all of that That's an insane amount of cash flow right so the thing is that there are always like you know our friend Jim Kramer says there's always a bull market somewhere Okay So basically if we if we are plan A burkshireathway plan B looking for anomalies right every so often not not very often every so often you will find something weird and we've got all the time in the world we can research something for 3 months it turns out it's not that great let it go right we got Burkshire still cranking okay so if you look at Warren Buffett you know in his 2022 letter he said that in 58 years of running Berkshire there have been 12 decisions that have moved the needle for Burkshire stock Now in 58 years he made more than three or 400 purchase decisions for stocks and businesses Okay Out of 300 if I take a conservative number it's actually more than that Only 12 were exceptional and he said there was one good idea on average every five years Okay this is Warren Buffett right with a 4% hit rate Okay so basically great investment ideas are rare We're not going to run into them every week or every month or every year So plan A stick it in the index plan B Keep running a geer counter over everything looking at different things and when something doesn't make sense drill down and every so often you're going to hit a motherload right and when you find something that's a mother lode you peel off 10 15% of what you have in Burkshire put it into that let it play out then put it back into Burkshire Right Right And just you keep doing that and now your 100x is going to show up in half the time or less All right let's take a quick break because I got a little freebie for you So if you're listening to this episode and you like what Manish is talking about you might be like me You're trying to take notes You're trying to remember these principles that he's talking about because the dude is just a wealth of knowledge when it comes to investing Well the fine folks at HubSpot listen to this episode They took the transcript They put down the nine principles that he talks about as well as the examples that he have And they put it all in a PDF for you So you don't need to take notes They did it all for you You can read that learn from it That's the much better way to get more value out of these episodes It's in the show notes below just go download that and enjoy So you you tell me the story about these ships and when you explain it I can see it just like you see it Oh that's the opportunity But the thing I don't get is why are you looking at crude oil ships how do I get to like how do I even know where to look and so is what is that process for you do you take do you pick one industry and look at 100 companies in it do you read books on 50 industries do you look at what other investors are doing and try to reverse engineer like where do you even know where to look i'm going to lay it out for you It's going to be so easy But but it takes a certain temperament Okay So first I want to talk about the temperament Okay So if we go back to Warren Buffett when he was a teenager he used to go to the racetrack in Omaha And one of the things he did at the racetrack he was like 14 years old or something is after all the races had been done he'd pick up all the tickets that people had left thrown on the ground Right these are mostly losing tickets right they just kind of toss them from the garbage cans He'd pull them on out Then he'd go home and one by one look at every ticket He would find now sometimes a horse would come in second and the ticket was for win or place It was actually a winning ticket but they didn't understand they were drunk or whatever So he'd always find a bunch of tickets which were actually in the money but they had been discarded So now he was underage She couldn't go to the counter to collect the money So he gave it all to his aunt Alice his favorite aunt she used to go to the counter collect the money and give it to him Okay so when Warren when Warren became older let's say when he was let's say 24 or 25 years old he went through the Moody's manual And what he was doing with the Moody's manual and you know uh for nostalgia I bought these on eBay and I wanted you to see the Moody's manual Okay So so this is uh Buffett was 23 years old This was his nighttime casual reading This was his So what he did now with the Moody's manual they were there were a number of these that came out So like in the year 1953 this is just railroads airlines shipping traction brass and truck I don't even know what this is Is this the earnings reports of So this is the value line of that day Okay Okay So if you if I open the Moody's manual to any random page Okay What what it's doing is it's got like um two or three companies per page You can see how fine the print is Yeah Okay All right It needs like a magnifying glass and it's basically giving you a summary of every company Right Now Buffett went through Now this is just one of them in 1953 for 1953 there were probably about seven or eight of these books that came out in 53 similar number in 54 55 so on so you're talking about a big stack of these right he went through the these books two or three times he went through what he did is he read each one page by page right and he was looking what he was looking for he was looking for anomalies So he used to host these MBA students and actually he brought he brought for them printouts from the Moody's manual to the ones that he made an investment in So he would find something like Western Insurance for example where the stock price was 15 and the earnings last year were 25 Okay the stock is $15 a share earnings are $25 a share book value is $80 a share right okay that's what we call an anomaly right hitting you by the head head with a 2x4 makes no sense right he would make a list of all these companies that made no sense in the positive direction Okay and then he'd study them and then he would make investments Right now in order for Warren to find Western insurance he would he might have had to spend 14 hours a day Okay non-stop reading these for three months before he finds one or two of them but he only needs very few of them And Warren's mind uh you know he's he's a prodigy so his mind was programmed to have this intense he the the work never bothered him just like no other teenagers were going and collecting all those tickets on the floor and then going through each one with the optimism that I am going to find something that is basically a free lunch Right Right And so he went through Mury's manual and basically started finding the anomalies and then started making investments in them and did well etc Now we have a shortcut you know because I know that your listeners are not going to do what Buffett did Okay I cannot do what Buffett did I do not have the wherewithal and the ferocious uh intensity that Warren does Almost no one does I think that he's just a extreme anomaly on that front So for example there's a website called value investors club Okay Now if you go to value investors club it's free You don't have to pay anything Whatever If you give them your email you can see all ideas that are 60 days or older Okay it's very difficult to become a member of value investors club posting ideas So it's like a curated website right okay the members have to submit two ideas a year which get a decent rating in order to keep their membership So you have what I have found is the value investors club has a lot of brain power It has brain power coming out of their ears Okay it's all free So all someone has to do is sit down and read the writeups on value investors club So there may be I don't know 6 or 700 800 writeups maybe 500 writeups in a year Each writeup may be around 10 15 pages max Then there's comments and whatever But what I'm saying is that uh it's much easier than the Moody's manual because someone is actually digesting the information for you And you could do one of those a day You could easily do one of one of those a day is pathetic I'm saying even but even you said if there's 300 total Yeah But I'm just saying it would be easy for someone without getting putting too much work into it to read four or five ideas a day I mean they could have a full-time job and easily do that That's not a difficult thing to do And you don't need to read the whole idea What I would say is you read the first few paragraphs and see if this is something that's interesting to you or not or something that's grabbing you or not Right and what I do is I look at every idea that's posted right and I don't I don't care to really look at them right when they're posted because they actually uh those ideas will work even 5 years from now Uh like recently I started uh investing in a in a company where the original write up was in 2021 Okay it's 2025 still valid Okay now what you still have to do is you should use it only as an input to ideas Just like the Moody's manual is not telling you what to buy and sell Once you see the idea you do all your own work Do your research Do everything Make sure it's something you understand well Make sure it's within your circle of competence Uh whether you buy into the idea or not etc And Buffett Buffett is still doing this So his Japanese bets So there's a there's another uh book called the Japan Company Handbook Okay And and I'm gonna bring the Japan company hand Okay Okay All right Here we have it And I'm excited about this because you hear a lot about Buffett's you know Seas Candy Coke Geico like those kind of well-known Buffett's best bets Yeah But as I understand it Buffett made some incredible investments in Japan So let me explain how no-brainer the total no-brainer nature of that bet right okay So these uh five Japanese trading companies had a 8% dividend yield Okay So they were paying a 8% dividend It was very cheap Japan has the index has not gone anywhere for like 30 years And Warren actually um got a insane return on these So what he did is he borrowed the entire amount in yen at half a percent a year and it was not a small amount It was like 5 billion Yeah Yeah He put 5 billion but he borrowed the 5 billion at half a percent The whole thing in yen in Japan Right So now he's bought a Japanese company paying dividends in yen which he's bought in yen Right the dividend coverage is 16 times his interest payment So he put no equity right and he's instantly making 7 12% on 5 billion which is like you know what about uh 350 400 million out of nothing right it's just coming to him Now what happens is because these companies are so cheap in about 3 or 4 years they all doubled in price right so now the 5 billion has become 10 billion Okay The equity that went in is nothing So it's infinite return They all raise the dividend The dividend based on the original purchase price is about 15% Okay So basically and then after that what he did is he increased the bet So he was he was under 5% of all of them He's now approaching 10% on all of them And anyone could have looked at the Japan company handbook Basically I think it's it's a matter of how hungry are you It's the same as any entrepreneur right i mean basically uh anyone who starts a business or whatever they've they got to go all in you know intense passion 18 hours a day all in very strong belief It's the same thing here If you truly are focused on it you can do very well I mean the universe is going to conspire to help you with whatever your passion is And it's just a matter of whether you want it By the way does he use Excel well uh no he does not use Excel for sure Okay He uses his computer now Now he uses Google and all that but he uses his computer mainly to play bridge I mean Warren wouldn't be caught dead using Excel Okay And um well because the thing is that he's looking for things that hit you in the head with a 2x4 right so when he's going through the Japan company handbook or the Moody's manual there is no Excel needed What what what will Excel help you with when the earnings are $25 a share and the stock is $15 you don't need Excel right okay When when the dividend deal is 8% and you're borrowing at half% You don't need Excel right okay In fact if you need Excel it's an automatic pass because it means that there's something complicated there which is not fitting in Did I need Excel for front line no I didn't need Excel for front line I mean I look up the liquidation price of the ships I look up the where the ships are at I look at all I mean the thing is all these things are very basic numbers You don't need Excel for it right you know uh recently I was talking to a friend of mine looking he's looking at some international stock exchange Okay this international stock exchange uh trades at a trailing PE of like 30 Okay it's growing at 15 20% a year Very rapid growth Okay 60% of revenue is profit Okay and as they grow that 60% might become 70% because they got operating leverage So if you just forward two or three years the P becomes less than 10 Okay there is no need for Excel right you can just do it all in your head Okay it's got $10 of hurings today is going to have $12 a year from now $14 $15 2 years from now maybe 17 or $18 3 years from now stocks at $30 Now when you're at 18 you're already at a 15 multiple right you already cut it in half but it's growing By that time it may be trading it should be trading at even more than 30 times earnings So the stock may be at like you know 6 or 700 by then right it's just just just the math of all of that So what I'm saying is that if you can't do the math in your head it's an automatic pass because that means there's something complicated So another important thing is you should be able to explain your thesis of a stock in about four or five sentences to a 10-year-old Okay and if you can't do that it's a pass You can't sit down with a 10-year-old with an Excel spreadsheet Okay they're not going to like you and they're not going to be interested Right einstein used to say there's like four levels of intelligence Smart intelligent genius simple Okay The highest level of in intellect is simplicity Right and the other thing about investing is that you have to have conviction It's very difficult to have conviction if you keep needing to go back and look at your Excel model right you need it in your head So Buffett never needs to go anywhere It's in his head He knows what the dividend yield is He knows what he paid He knows what the yen is He knows all of that It's pre-programmed right so we have uh don't use Excel Don't over complicate it is really what that means And the second is leverage So don't overleverage And I think the the story here that I like is there should be a third bust on this on this uh table next to us Somebody's missing that was an original partner with them Yeah Can you tell that story i think his name is Rick So actually uh Warren Charlie and Rick Guran used to do deals together and uh they were all independent doing their thing but they used to share ideas and sometimes they'd go in together Rick found blue chip stamps for them and I think he also might have been the guy sees candy contacted and so on After the early '7s we never heard about Rick He kind of fell off the radar So when I met Warren for lunch I asked him just a very innocent question I said "Warren what happened to Rick you know used to be three of you." And then we never heard from him after that And Warren said that Charlie and I knew that we would get very rich and we were not in a hurry And he said Rick was in a hurry And uh so Rick was always using some leverage Uh and then when the 7374 downturn came uh that was a very intense that was a crash in slow motion basically Okay Uh over a 2-year period you the stocks went down like more than 40 50% It was a big uh big draw down and Rick got margin calls and uh and Warren said that when he got the margin calls I bought his Burkshire Hathaway for $40 a share the stock that's now 700,000 Right So Rick was forced to sell it at a time when it was probably the worst time to sell Right Right And so then Warren actually went one step further because he's always trying to add value of these lunches and all that So he says he says to me and Guy he said if you're even a slightly above average investor and you spend less than you earn and you use no leverage you cannot help but get rich in a lifetime Tell me about the difference between risk and uncertainty Yeah Well that's an important concept to understand uh because Wall Street gets confused between the two and in fact when Wall Street get confused between the two is where the greatest opportunities lie Okay So we talked about frontline Frontline was an example of a situation where uncertainty was extremely high and risk was very low Right what Wall Street is looking for is certainty Okay So if we look at a company like ADP you know the process payroll right i don't know they've had some like 50 years of non-stop growth because you know your payroll your running payrolls is going to keep going up Your cash flow is going to go up It's all in a straight line That's beautiful And Wall Street will reward you extremely well for that right and it's priced accurately It'll be priced for euphoria It'll be overpriced Okay Because they love that That's what they're looking for On the other hand that's their type Yeah I mean that's that's uh that's music to the ears On the other hand if a company exhibits high uncertainty it will be taken out back and shot right and those are where the opportunity lies So one of the cues to look for is is this a business with low risk and high uncertainty combination of the two And when you get to the combination of the two low risk plus high uncertainty equals high rewards I was looking at your portfolio and you have this uh company invested in Turkey that's like a Coke bottling uh company Would you say that's a good example of of kind of the risk and uncertainty mismatch yeah we we actually um made money on it but we exited Okay And the reason I exited is that uh so the Coke bottler basically had a parent company which was the dominant beer bottler in Turkey and several other countries Their largest operations were in Russia where they had uh their number one market share uh 50-50 joint venture with Amimebev and Russia has effectively nationalized that business I see And I think they did it because they were somewhat upset with Erdogan about something So they went and did that uh about his support for Ukraine or something And when that happened it became went in a too hard pile for us Explain the two hard pile That's something I stole from you last time I was here Well it's it's a it's a warrant thing We'll get to that in a second but basically uh it was something I couldn't handicap Sure So we were sitting at a gain and we have this event take place I get to get my bet back with some added return and we close it I said "Where do I sign?" Right Right I can go find something else to play with But the two hard pile is uh actually a physical box on Warren's desk Okay And so actually if you Google it if you just Google Warren Buffett too hard the image will probably pop up Okay so he has a box on his desk which he calls too hard And he says that 99% or more of investment ideas that you encounter should go into that box because we're not going to be able to figure it out So one of the things to understand is that if there's 50,000 stocks in the world we are not really going to understand more than a few hundred of them at the most after quite a while of studying them So most companies that we would encounter should go into that box Okay So it's the one of the important things in investing is humility humility to understand I mean Warren has no issues with the humility to know that he doesn't know most things right that most things are not going to be able to be figured out or handicapped or any of that And we don't need to If you can understand a very small sliver of things and you know when those things get overpriced and underpriced that's all you need right you don't need anything else There's um a a guy who owns a bunch of real estate but like in a very small area right that's John Ariga Yeah What's his story because it sounds like it's it's a good example of this A very thin kind of circle of competence but he knew the pricing and was able to So John Ariga was a billionaire He passed away maybe like two three years ago pretty recent And his daughter's married to Mark Andrea That's right Yeah You know so it's billionaire to the power of billionaire Okay So um anyway uh John Ariga uh basically had a very narrow circle of competence He didn't understand most things but he only invested in real estate within 2 milesi of the Stanford campus Okay that's all you usually just write around the campus And if you walked with him around the campus every single building he could tell you the full history of the building when it was built what the current value was what the rents were who the owners were and what the history was right he knew that about every building And you know so he was a he was a inch wide and a mile deep And that is a really good trait for an investor is to be very narrowly focused Right Right Now what John Arriga did is he ran generally speaking a very underlevered portfolio He his portfolio always not much not much debt When the downturns came he aggressively bought because all these distressed properties around I mean this is the most prime real estate you can think of other than Park Avenue or something Okay And so he would just buy these things up when everyone was getting foreclosed and bankrupt and go to the banks and buy it from them and all of that And then you know get them all leased and fair value and all of that again take the leverage down and again next down cycle again the same thing and he he stuck to that So the thing is he didn't wander into oh let me go to Mountain View and do it right okay or let me go to Irwan California and do it He didn't do all that I mean he's basically oh let me invest in tech or something He didn't do any of that He stuck to real estate That's all he did and he did it extremely well and he died a billionaire We don't need to know many things about many things We need to know a lot about a little and that's the important thing right know a lot about a little right so like for example if I'm looking at frontline I should learn everything I can about shipping I should learn everything I can about oil shipping about tankers about the history who makes them and every nuance about him Right The deeper I go the better it's going to be for me Right Okay I shouldn't be spending time next week on airplanes Okay Just leave it alone like one by one by one right why do you think most people don't do that because you when I hear that I think ah there's a blueprint to just say I'm going to go deep and in this 2-m radius I need to become super knowledgeable and I don't need to get distracted by everything else and I'll hold forever Right like that's a blueprint if you think about it I think it was Nick Sleep who has this this quote He said the best investors are entrepreneurs who never sold So if you think about entrepreneurs that's what they are They are John Ariga right so if I look at Sam Walton Sam Walton is John Arriga All he did was retail All he did was visit competitor stores He never bothered or anything else So Sam Walton founder of Walmart Yeah What do you mean tell tell me more about him We can Well so Sam Walton uh I mean he said that there is there is no human who has ever lived or ever will live who has spent more time in competitor stores than me Okay whenever he'd go on vacation with his family and they were passing a retail store so he said I'll be back in 20 minutes and he go and what is he doing in there what did he do so I'll give you I'll give you an example one time he went into the store and his manager says to him that was such a badly operation and Sam says to him yes but did you see the candle display did you see how fantastic that candle display was so his perspective was I can learn from losers Okay I want to learn the spark that's there in something that's a total loser right so he was going in Now one time uh in Brazil in this this uh retail store they find this older guy flat on the ground They call the paramedics It turns out it's Sam Walton And what he was doing is he was measuring the space between the aisles and he didn't have a tape measure with his body So he laid down he laid and you know the space between the aisles is a very important data point for a retailer because you're going to either waste square footage or be too narrow and the people want to enjoy the experience So you have to get that right Right And so he was in Brazil saying how are they doing it am I 3 in too wide in Walmart am I 3 in too narrow what am I what's going on here right So that was this was a game of inches That's who Sam Walton was And in fact Walmart has not innovated at all For at least for the first 20 25 years that Walmart ran everything came from somebody else who was already a competitor They took a lot from Sears They took a lot from Kmart and then they killed them And they kept learning from one competitor after another Sam Walton actually used to say "I'm not the smartest tool in the toolbox I'm not a smart guy but I'm a learning machine I'm going to keep at this and what others have become So you know uh it's very funny He goes and visits soul price the founder of price club which eventually leads to Costco right and he looks at uh price club and he says this is fantastic and he creates creates Sam's Club right and Costco was also taken from Price Club So both Sam's Club and Costco they would not have So Sam's Club is Sam Walton I didn't I didn't even know that It's part of Walmart Oh I didn't even know that Oh yeah It's part of Walmart and it was it was completely cloned from Price Price Club which was a predecessor to Costco Right So Soul Price who was an incredible entrepreneur uh someone goes to him and says you know uh no one has had more impact on retailing than Soul Price because Soul Price influenced Sam Walton in a major way and he influenced Jim Synagal the founder of Costco in a major way I mean these are the the the pillars and then these two companies uh influenced Amazon Right Right So it's all coming from soul price So someone told Soul Price you know you are like the father of retailing in the US and actually globally What do you think of that he said I wish I'd worn a condom That's too good That's amazing So So Sam Walton is Yeah But I just want to say that you know this book uh u this is a very good book and it's out of print and it's hard to find but I think that it's one of the best uh books on retailing right and so for example some of the things that Costco does Costco pays 50% more than Walmart pays its employees so the entry-level people are making 50% more okay hasn't hasn't hurt their profitability in soul prices view was similar to Henry Ford's view that I want the people who work in my stores to be able to shop in my stores just like Henry Ford said I want my workers to be able to buy my cars you know at that time the cars were automobiles were for the rich right and uh Henry Ford said no I want them for everyone right so he wanted to drop the price and and uh so um I think at at Costco the lowest wage is like 20 bucks an hour you know like when you're starting out whatever And then they have tuition reimbursement all kinds of other things And uh they get a lot of productivity out of their people Yeah Because of that you've got these books here and we're sitting in your We're at your house We're in your library You've got I How many books do you think you have in here this is a thousand books A few thousand A few thousand books I mean just to set the scene so that your office your computer's over there Yeah We're surrounded by a cave of of books on every topic So I see I see some business books over here I see investing books You got you just brought a retail a book about Soul Price the founder of Price Club from over there There's science I think on that wall This What does this door go to what What is this that's my bedroom That's a bedroom Okay So you you live in the library essentially And you nap every day I think Absolutely Yeah So we're both nappers I've been I've been so used to napping that if I don't nap my productivity goes down And so I I actually don't like to work if I'm not productive And and what I find is that even if I you know lay down for half an hour 45 minutes it's I'm re-energized right and I think for the work I do I need to be all in Yeah So I can't I actually can't do this work if I'm tired you know yeah There's a this athlete um Conor McGregor and they asked him about his training schedule and he said you know one of the big mistakes I made is that I was always trying to train all the time time I wanted to come to the gym three times four times a day I thought that's how you win And the his coach was basically like you're like a light that's always just dimly flickering because you never turn off and therefore you can never turn on and be as bright and as effective as you could be And this flickering dim light it's not doing you any justice And so I've used that in my own model of like where's my light right now and if I need to just shut it down briefly 30 minutes an hour whatever it is to come back full brightness That's that's the way well Jeff Bezos you know he said all decisions important decisions in the morning and he's very particular he needs a solid 8 hours at night right and he he leaves work at a normal time right but he says that they don't do these important decisions in the afternoon right it's the first thing in the morning because he wants the highest energy levels and in fact what I also try I find my best work is in the morning I'm curious about your style because I came over to your house once and you were you were very calm You weren't like it didn't seem like you were on the clock You're moving from one meeting to the next Uh didn't there was not a big bustling team of analysts and junior people and and it didn't seem you seem like you keep a pretty clear calendar Um is that intentional do you think that's is that just what you like or is that effective well in the business I'm in if I can find a couple of things to buy in a year in the case of Buffett one thing to buy every five years right i'm doing well And so this is not a a situation where having some packed schedule or whatever I think the thing is that um this is a this is a case where you're taking in a lot of information but there's not much action right and so you're basically trying to improve your metal models You're trying to understand more about the businesses that you already own And uh I'm going through like you know value investors club and sum zero and that sort of thing and just looking at what else is there right and and sometimes I find a a amazing idea whatever and then now then there's a deep dive right and then that might take a while I was reading something interesting so in our first episode we talked about your how you got started you were actually an entrepreneur first and then basically you said this great thing you go I realized that as an entrepreneur maybe 3 to 5% of my brain power was on strategic decisions really clear thinking um you know coming up with the right answer and then 95% of my time was blocking and tackling And you're like as an investor it's great cuz that 3% becomes 95% Uh I'm just it's just about clear thinking and making the right strategic move and not uh I don't have to busy myself But one thing I thought was cool was uh I read that you took some personality test or you got some analysis done on you that basically helped you you know they sort of told you your temperament is for single player games What what is this i I didn't understand what what you did Yeah So uh this was kind of accidental that happened and I think it turned out to be one of those great things that happened in my life is that in in uh 1999 actually I was at a crossroads where it was very clear to me that the business that I had built my IT business I had lost interest in it and I had become a lot more interested in investing and it was a difficult time because I had like 170 people in the company who thought I'm motivated and I can't fake it you know And uh so very accidentally I was with these two industrial psychologists and they basically did a 360 on me So they had me take a bunch of tests they talked to my um direct reports they talked to my friends family spouse so on and they built a kind of 360 view of who I was And then they gave me what I call my owner's manual And I think everyone should have their owner's manual like it comes with a appliance you bought Yeah I mean it's it's we show up we don't have a owner's manual and each one each one of us is programmed differently So what they said is look the way a human is his traits likes dislikes and what passions they are that is hardcoded at the age of five and that is not going to change from the age of five to the age of 95 Okay You might try to so so you cannot change traits You can try to change behaviors but you cannot change traits The traits are between your genetics in the first 5 years of life hardcoded Now the problem most humans have which I had is we don't know what those traits are Uh what most of us try to do is we do what what they call mirroring We look at what the world considers acceptable and we adapt our behaviors so that we kind of fit in But that can be a big disservice Okay So so basically um what they were able to tell me is they said look uh you you are a person they said when we look at the company you're running and we look at who you are We don't even know how you can go to work how you're functioning Yeah We don't know And actually I was in pain I was in a lot of pain And the the the thing was that I loved that business when it was just me And I loved the business as it was growing until we got to the first 10 15 people And then as it started growing beyond that my life became and my job description became HR I'm just hurting cats I'm not a cat herder Okay that's not who I am Okay so uh what they said is that uh that business that you have you need to get rid of it in some way as soon as you can And I was just thinking at that time this was in March or April of 1999 I was just thinking of starting PBR funds right they looked at it and they said "This is perfect for you This is going to work extremely well for you." In fact one of them invested He's one of the first investors who came in He was so he put his skin in the game And I told him listen you know I'm paying you guys 2,000 to do this You're giving me a h 100,000 I really don't want to lose your money They said I don't have any doubts Monish You're going to do very well So I don't see any risk here Right And he did extremely well Uh and so uh they were actually right because now it's been 26 years since I've been running it and I haven't gotten bored So what did your owner's manual say so I said "Don't like that." My owner's manual basically said that um well first of all they said that I had very high horsepower right and they said that I was one of the smartest guys they had come across etc which was great but they said that you are a guy who likes to play single player games uh you are not the kind of guy who would be happy being in a soccer team for example where you're one of the forwards or whatever and your performance depends on the team right they say you do they say you seek out games which are single player games where you think you have some edge and when you think you have some edge and it's that sort of game you will kill it and actually what I've noticed is like so for example I got banned in Vegas playing blackjack right okay I I got to know this story I I figured out a system which basically beat them okay counting cards what were you doing and actually did it without counting cards Right And and in fact it it took the casino almost a year of watching me So I used to go every like 6 weeks or something and they played those tapes over and over because uh the markers that they look for were not there and uh but we'll talk about that in a second Okay So what I'm saying is that so what are the games I like I I like blackjack I like bridge I like investing and even duana for example the dua foundation that's also a game right these are that's your philanthropy yeah but they're all mathematical games even duana is a mathematical game because what I'm looking at is input output ratios people think people think I'm doing all this good in the world and all that what they don't understand is I'm a game player okay and what I'm trying to do with duana is how much money is going in and what's coming out right and that's the only thing I'm focused on is what's going on what and what what ended up happening with a entity like Duina is you know Warren Buffett wrote me a letter saying that this is the best right I mean like he took the time to write the letter like this is the best okay never done that for any philanthropy that he's uh looked at and the reason is because there's a game player who's not focused on you know name and lights or bunch of fancy pictures in the annual report we have no pictures in the annual report you know just like the Burkshire report right but it's it's about an honest input throughout singular So what I did is every year that we ran duana well explain what it is I don't even know if you take a step back and say okay I want to give money away to make the world a better place so the natural second step you would get to with that is I want very high returns on the money I'm putting out right so social return on invested capital should be extremely high now most nonprofits don't even think this way they all heart there's a homeless guy let me help the guy right they don't really do an analysis of okay what is going in and what is coming out so I ran into this model this guy was running in I think in 2006 I ran into it where um he was taking 30 kids who were very very poor in India in in Bihar and most of these kids were coming from illiterate parents etc but they have very high IQ's and he prepped them for about 10 months and he had them take the IIT entrance exam The IIT are the you know the they're the best uh uh technical institutes in the world And uh now the thing about the IITs is that there's about 1.3 million uh kids applying for 16,000 seats It's about a 1.3% admit rate Okay Princeton is about a 5% admit rate Harvard is about 5 or 6% This is 1.3% And if you get into the IITs it's basically free to attend The government subsidizes it So if you're a very poor person and you get into the IITs well now Microsoft will hire you Google will hire you anyone will hire you right and but getting in is expensive because the coaching is expensive So what this guy had done is he had made the coaching free for these very poor kids And now what was happening is you had a family that was making $60 a month let's say and the kid graduates and Google hires him for $120,000 a year Okay i mean you know the the transformation in 5 years the guy is making 300,000 a year right and so the just that that and he was spending $800 per kid on the training the the whole so you spend $800 and you take a family from $60 a month to $10,000 a month right okay I mean what's the ROI on that and you're going to do that for this whole lifetime and you're going to reset the extended family and all of that It's a the ROI is off the charts right so when I saw that I said "Wow this is the holy grail." So I went to the guy and I said "I'd like to fund you right?" He said "I don't want to scale I do 30 kids I don't want even 31 kids I don't want to take outside money None of that So I'm the shameless cloner." So I told him "Do you mind if I clone your model?" He said "No this is a very good thing I think you should clone it It'd be great I'll help you in any way I can." So I took his model and that's what Duina is So we we are spending Dakshina spends about three or4 million a year Just imagine what the output of that is right you know when when you look at it from each family and then you and we're doing 3 4 million We've been doing it for 17 years So basically what we get out of $3 million a year a lot of other nonprofits would not get out of even a hundred million a year Right So we actually uh you know have a footprint that is much larger than what it should be in terms of impact right and to take it back it's a math game right so basically we we had two or three things that were important and that's how I looked at this the first was the yield so the IITs accept 1.3% of the kids who apply they accept 70% % of our kids That's amazing So now what I'm doing is I have a game which puts two models together So one day before I die I want to have $10,000 left Okay So basically inheritances just don't do much right i mean my kids already have they're doing well Yeah What is your philosophy on that in general large inheritances are going to do more harm than good And you know basically you don't want a person to be on an IV drip for their whole life I mean that's just the worst thing you can do somewhere And so uh Buffett has a great quote He says I want to give my kids enough money for them to do anything they want but not enough to do nothing Okay Okay So because I am investing for a living and we have this kind of compounding going uh I'm going to end up with more than I need I mean basically I don't need to spend any more than I'm spending I could not increase happiness by spending more So there's no point to spending more I mean I'm very happy with the with the lifestyle and everything else right so everything else basically needs to get recycled but it needs to get recycled at high returns So on one hand I have a compounding engine and a net worth that's growing On the other hand I have to give it away So God Google told me that on June 11th 2054 I'll be leaving planet Earth Okay So you asked AI what what did you do if you if you average if you if you go to God Google and just say hey I'm you know 52 years old and tell me when I'm going to die He will tell you Okay And now that we have the date so you know my birthday is June 12th just to make it poetic I had made it June 11th Okay Okay So we have an exact number So basically uh 204 means I've got like 29 years and change left right um and at any kind of compounding rate it's a ridiculous amount of you know uh assets that get built over the time But I want to end on June 10th with $10,000 Okay So there's one game which is to give it away and the other game is to make it And we need the two curves to be where the giving away becomes probably in the next few years needs to become very much more dominant So like the 3 million a year needs to go to 5 10 15 eventually and so on And so for me you know it's the same as playing blackjack It's just a math game These are both math games right and yeah there are a lot of families getting helped and my investors are happy and so then that's fine Okay So what was your blackjack system i'm I'm skeptical So the the blackjack system it would destroy the casino They would have to either change the game or something but basically I'll give you I'll give you some pointers of kind of what's what's going on here There's a publication called BJ21 BJ21.com Okay if you go to bj21.com and you give them a hundred bucks they're going to give you a PDF It gives you the odds of every blackjack table in North America Okay So for example if I go to uh the win Las Vegas right the win Las Vegas has a bunch of different blackjack games Single deck double deck six decks whatever else Every single one of those it gives you the odds if you play perfect blackjack And these odds vary depending on how competitive So if I'm going to some you know riverboard in Indiana I'm not going to get the same odds as Vegas Vegas strip is going to be more more efficient because it's more comparative So usually the house will end up with something like a 3.4% all the way to like 2% edge edge over the over the better which means every bet you're making if you make a $100 bet every bet you're making you're losing your 50 cents or whatever So there's a casino in Vegas called the Elcortez And the LCortez is a small casino So in order to kind of induce people to come they kind of improve the odds Okay Still in their favor but the single deck game at the Elcortez has the thinnest house edge of any blackjack table on the planet Okay the house edge is.18% Okay So if you look at that BJ21 if you look at all all of the they have the edges of every table this one is a is the lowest right so this is a very thin and and I have a system which took them a long time to figure out They play single deck blackjack right but they only deal half the deck right then they shuffle So the reason they deal half the deck is so that they they can uh just make it difficult for the counters because you may be counting cards the deck becomes very favorable but then they shuffle Right Right So you the the high cards at the back but they never get dealt Right So the counters get screwed Right Uh so I I had a system where it basically relied on the fact that blackjack occasionally has streaks It has streaks where you may win six or seven or eight hands in a row or you may lose six seven or eight hands in a row And what I did in the betting was that usually when I was losing it was always the minimum bet and when I was winning the bets were increasing So with the variance of that what happened is I was able to overcome the8 right so I don't want to give more than that that gives it enough and what I'm going to do is when the cameras turn off I'll explain it to you great so when you go to next time when you go to all cort but but now what happens is so what happened with them what what really confused them which they had never dealt with before is normally what the counters do is on a brand new shoe it's a low bet Minimum bet Yeah In my case there was a brand new shoe There's a high bet So they said "We just shuffled." Right The whole deck is there There's no odds edge he has on that deck because the entire deck is there He has a high bet Did they ever figure it out or did they figure it out it took them So what happened is I'm playing blackjack The general manager who's very friendly to me comes and sits around next to me and tells the dealer "Stop dealing." Okay So she's in the middle of a hand She just continued dealing She He says he screams at her "Stop dealing now." You should never heard that before Okay Like literally middle of the night she said she said "Shuffle." Right we're done We're not dealing anymore Then he tells me that Mr Priy uh I like you Okay I read your book I watched your videos and you have a system that we cannot beat Right so I said I I told him I said you know you know I'm not counting cards He said that's what threw us off He said we know you're not counting cards and we know you'll beat us and so you can come to this casino anytime you want but you cannot sit down at a blackjack table Then I'm thinking why would I come here okay to the hel if I'm not going to play blackjack And so that was but you know whenever I like I go someplace to talk or something and you know they're introducing me I always tell them listen just say that I have a lifetime ban in Vegas Yeah I mean street cred through the roof I really don't care about everything else on my CV that's really irrelevant and that's what's relevant It's just like if you uh you get into Harvard Wow that's impressive You're a Harvard dropout That's the higher status signal And so you're good at blackjack Made money in blackjack I was banned from a casino That is the highest status Yeah So I I I mean I I took them for like about 150,000 or something And and you know this was a very low table limit The table limit was only 2,000 but at 2,000 I took them So they they said "Okay we're done." You know I love it You you've run into all these characters So we've talked about Warren we've talked about Charlie but I want to know about some of the other characters Your stories are amazing I could listen to your stories all day So uh Michael Bur one of my favorite movies is The Big Short and Michael Bur is this kind of mis mysterious character Did you ever meet Michael Bur what you're going to end up when we finish this conversation is you're going to know that my middle name is Forest Gump Okay that's really where we're going to end up So you know I always tell people that God loves me He loves me more than other people And I'll explain why right in 2008 Okay so the financial crisis is not yet happened It's like March or April of 2008 right so things are getting topsyturvy right and uh I was visiting San Jose for some something I was going to San Jose and I knew Michael Bur had an office in San Jose and I didn't know him but I sent him an email saying you know Mr Bur I'm I uh like you admire you etc and uh would love to visit you So he he was kind of wellknown or he was not very wellknown but he was he was like posting on value investors club and things that he was like he was there a little bit and and I liked the way he thought you know and uh he said oh yeah stop by Okay So um I I go to I go to his office in um in San Jose and there's um a few kind of analysts sitting outside It's a very kind of a seems like a very depressing place Okay there a few it's kind of a little dark and there's a few analysts there and then I go into the office and there's huge piles of paper everywhere and he immediately launches into CDS's okay and he says look Mish I want to tell you something about something that's going to make you extremely wealthy okay and he then downloads to me at 1 million miles an hour I've never heard of a CDS okay and he's talking about housing crash and the coming implosion and all this stuff you know and housing's never crashed okay in the US None of that And 80% 90% of what he said went straight over my head okay like he was just he just gave me a full core dump in half an hour My subhuman intelligence couldn't handle it okay i couldn't And you know so I come out of the meeting my head is spinning and I say "Okay well that was interesting." Okay And then you know of course he rides off into the sunset right and then the movie comes out right and then he's exactly like they show in the movie right that's how he is right and um so I felt like okay you know God who loves me so much takes me to the epicenter of the epicenter of what would have been the best place to be right the best teacher to have and the idiot Monish blew it Okay but that's the way it is you know that's I mean what uh where does that rank in terms of like you know sort of the the best calls or or uh you know foresight in terms of that you've seen in your career was well I think I think this has happened to me a lot I mean in the sense that like I said you know we put 98 99% or two hard pile right even now I think it was right of me to not do anything with it because I couldn't understand it right even after the financial crisis it took me a while to understand the CDS's right and all these tanches and how they were like doing all this stuff and all that I mean that took me a while to like really get my arms around it and even after knowing all that I would have been skeptical about making that bet so hats off to him right I mean he figured it out a few people figured it out but it was a very small number of people who figured it out right you know um tell me about the greatest investor from India Who is the greatest investor from India well the greatest investor from India would be Rakkesh Junjunwala I I never met Rakkesh I mean I I know his friends uh quite well Guy actually met him Guy actually went to his office and and uh and met him Uh wonderful guy died relatively young few years back But uh Rakkesh was a very interesting kind of split brain in the sense that he'd have like three or four Bloomberg screens in front of him and he had all these charts and everything going on rapid fire trading going on But on the other hand he had these two or three stocks that he never touched So he had I mean I I don't know anyone like that who's okay who's and he was great at both but the ones that he never touched I mean they just went through the roof like the the there's a company in India called uh Titan Industries and Titan Industries uh does uh branded jewelry Branded jewelry basically didn't exist in India you know it was all mom and pop Yeah Uh and there was a trust deficit right so you go to a jeweler in India and in India they have like 22 karat gold right and you're buying the gold You don't know whether it's half gold 80% gold or what the hell is going on right the jeweler knows but you don't right uh the the that Titan brand is owned by the Tatas who have very high integrity So basically they were able to take uh a sector which had a huge trust deficient uh deficiency and um I mean they've I think Titan is still in its infancy right and I think Rakkesh made a huge huge I mean Rakkesh I think compounded at north of 40% a year for several decades It's unbelievable and you know he started with like uh $10,000 borrowed you know didn't didn't even have that on his own someone lent him the money What made him great was he a brilliant mathematical mind was he you know cuz what was the trait that really helped him i think what so he was a trained uh CPA India is the equivalent of CPA charted accountant So he obviously understood numbers well and just before he died so he had figured out that uh Indigo which is a lowcost carrier in India they have like something like 70% market share growing really rapidly It might become the largest aine in the world I mean they've got like thousand planes on order or something Okay So they they're growing very fast He had done well as an investor in Indigo but then he took the next step and he set up a clone of Indigo I mean just think about the the guts you need to set up bloody airline okay from being a passive investor And while he was dying you know he was like in bad shape in hospital and all of that and that uh airlines up and running and cranking and all of that and uh doing great So if he had lived longer I think he would have gone not just as an investor but also shown that he could be an operator You said something like if he had lived longer this idea of like runway and how early you start Yes matters a ton Yes Um even Buffett I think you've said that if had he not been giving away so much money along the way he'd be the wealthiest guy Yeah He'd be the wealthiest guy in the in the world right now And um you know I guess when you think when you go talk to people are you just sort of like you know you should have started 30 years ago Is that the number one message what we started our conversation with right i think the important thing is that if there's a young person listening it's really important that they start you know uh the funny thing is that if you look at the rules for a IRA or a Roth IRA there's no minimum age Um you could be 6 months old and have have an IRA right the only rule is that you can only put in wages that you earn And I was just reading in the Wall Street Journal there's some entrepreneur who's hired his kids who are like four years old and like 6 years old to do like different things in the business because he's putting like 6,000 7,000 into their Roth IAS right which is equal to their W2 earnings right probably stretching the limits of what he can get away with with the IRS That's beautiful I mean the thing is that uh but but even if you're not doing that if you start at 22 I mean that's the important thing is that when you when you start earning at 22 a small amount saved at 22 is more important than a larger amount saved at 32 right because you get started earlier right so it's really important to have the whole spend less than you earn and put it into Berkshire set it and forget it right uh yeah because then then if you start at 22 and you're 22 today you're going to live over 100 right you know you're going to go to 100 110 by the time you know because all the advances taking place that's a 90-year runway I mean a 90-year runway is something I mean if you're talking about even a 10% return uh we are only going to look at doubles right so every seven years that's 2 ^ 13 2 the^ 10 is a th000 that's 22 that's 8,000x okay the first 10,000 you invested is at 8 million right the second th 10,000 is another 8 8 million you know so the thing is it's a mind-blowing amount of money if you start early So the length of the runway is really important Do you pay attention to the macro because you know my head starts to spin It's interest rates and then there's wars and there's all these different factors that you could pay attention to and there are some people who really pay attention to that Do you pay attention to the No because I can't handicap and uh I wouldn't know what to do with the information So I always try to keep the bet simple I need to be able to explain to a 10-year-old in five sentences right i'm not going to be able to figure out the macro That's why I couldn't make that CDS bet right you know it was like so much stuff going on about housing's going to crash this is going to happen that's going to happen I mean I just couldn't get my arms around it You know in my world everybody's talking about AI Do you think about AI at all the the problem is I bring nothing to that party and I'm probably going to get my head handed to me if I try to participate It's not in the no-brainer category It's not something where I have an edge Of course I do believe that it's transformational But you know I knew the internet was transformational Uh we've known electricity is transformational We've known the app store is transformational But in investing you can do extremely well without understanding all these things We go back to John Arriga you know doesn't understand any of these things or even Warren Buffett and and you know Apple is in the rear view They sold most of it Yeah They might have sold all of it by now But uh but basically uh that was a one and done But basically yeah I think that we don't need to understand flavor of the day We don't need to understand Nvidia We don't need to understand AI Uh if you understand it more power to you That's awesome And if you know how to leverage that understanding into dollars you can make that's even better But that's not me So we all have to play to our strengths Yeah Okay Well Manish this is uh been incredible part two Uh I'm happy with it This is I I asked you at the beginning I said "Is this like one of those Hollywood sequels where the first one was incredible and the second one uh they just they just did it." But no I think we did a good job I think the the sequel was if not better at least as good No I it was fun I enjoyed it It was awesome Awesome Thanks for doing it Okay Thank you [Music]