Mohnish Pabrai: This will save you 10 years of bad investments

what percentage of americans who invest in stocks do you believe are good investors well under one percent the game we are playing is transfer wealth from the active to the inactive if you have that type of a temperament it is or orgasm activity okay if you are even a slightly above average investor you can't help but get rich over a lifetime what's the mistake that smart people are making many people die at twenty five and are buried at seventy five i saw charlie make investments six days before he died but this is like life advice disguised as investing advice yeah just quick reaction bullish bearish on s and p next right now bearish hey how do you think about it as an investor invest in the pickaxe makers because the alphabet and meta of the world playing a game they haven't played before so i wanna ask you the hardest question which is i feel like kangaroo rude world know i could be what i want to put at all in it like a days off on a road less travel never bag round three here we are elevated as always we're on the pitch what percentage of americans who invest in stocks do you believe are good investors well under one percent but the why is that but the good news is so a large number of investors invest in index funds right and index funds give you a great return without doing any work so you don't need to be a rock rocket scientist or understand businesses or any of that and you get a pretty good outcome are you counting them in the one percent or are you saying that's a separate i'm talking about the ones who are actually picking stocks right and so i'm just saying that you can take the approach of buying an index fund and you're gonna be ahead of ninety plus percent of the crowd right which is awesome right i mean just think about doing some activity which takes no brain cells and getting ahead of being in the top ten percent right but if you decide that you want to actually study businesses and then invest in them after studying them in that universe so people doing that there'll be a very small sliver who would do well with that yeah what's the mistake that smart people are making when it comes it's not a mistake it's the lack of patience so most of the nuances that would lead to a great investment result have to do with temperament they're not related to iq or other things but they have to do with temperament so it all comes back to watching pain a try right so when we make an investment in a company nothing may happen for three years or five years you know it's just just the nature of the beast is that it may it may not do a whole lot for a while and also sometimes you made it like many times you made an investment it's a mistake and you need to at some point reverse that mistake so so there is activity needed appropriately but basically the less the activity the better the outcomes you gave me one of the commandments one of the truths about investing which is thou shall enjoy watching paint dry yes i asked i called your daughter in research for this podcast because i knew you were very models and these frameworks of ways of thinking yeah that produce benefits i said what's one that he loves and he said she said the mistress is always hotter than the wife so expired i i didn't want to say that in front of my daughter but unfortunately i did that was the first one she invented yeah so what we own is the wife we live with her every day and what we don't own is the mistress right and the unknown has exciting attributes and so one of the things we have to keep in mind is the wife is someone we know extremely well and we may be discounting some great attribute she has the mistress is someone we don't know very well she just looks hot right we don't know all the other nuances about her you know temperament and other things and whatever else it's very tempting for an investor to say i own this company but i think this other company which i don't own is better and i should make a swap my friend guy peers says that he's very reluctant to take any actions on this portfolio and not being interested in taking action can give you a huge leg up so sometimes we do need to take action but in general you have to really be convinced pretty unequivocally right that the mistress is truly hotter right right and not just an appearance of being hotter that is a difficult nuance to actually master in real life the idea of the wife first of mistress is you have to have a very high bar for action it's not that there is no action yeah is that the bar needs to be very high to have the conviction level you need to become comfortable passing on everything below that bar yes and i think in general most of us would do well to raise our standards about all things in life the people that we're around the investments that we make exactly this is actually like life advice disguised as investing advice yeah right my dad used to say that to have a great life you need one good wife and one good friend mh and so less is more buffett says that if you hang out with people better than you you get better and if you hang out with people worse than you you get worse there's a gravitational pull either way so the good news is we don't need many of these but what we should be doing is we should be trying to make sure that our relationships are once with people we have deep bad admiration for mh people that can make us rise right and i i feel that you know i randomly stumbled onto investing i've never been in this field etcetera and remember so there's another mental model which is very powerful model alright let's take a quick break because they got a little freebie for you so if you're listening to this episode here i like what we just 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 find 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 could read that learn from it that's much better way to get more value out of these episodes it's in the show notes below just go download that and enjoy charlie should talk me about introduced randomness in your life introduce randomness in your life and just to tell you the impact that had which i didn't even understand this when it had the impact in ninety four i'm at heathrow airport my wife and i'm looking for something to read on the flight pack and i pick up one of peter lynch inches books one up on wall street and i'm never invested in a stock not really interested in investing don't even know much about it i read the book and loved it okay i'm an engineer running a it company right i said oh i wanna kinda read more of this right so there was another beetle book peter beating the street i read that and i love that too and then there's no no more peter books but in those two books in one of the two books he talks about buffett right and i never heard about buffett so then i said let me find out about this guy and i was very lucky the first couple of biographies on he had just come out the year before and then i read those then that led me to the books brochure letters the partnership letters huge world opened up right and then i started to invest using that approach so i've been doing the buffett investing and all that and really kinda overdosed on it and in ninety seven the thought came to me should i go to the annual meeting and i was saying you know the transcripts get published and all of that and i don't know anyone and i have young kids and all that so i was very much on the fence whether to go through the annual meeting or not right and i decided in the end let's go okay let's see what the hoop was all about the annual meeting opened up another big world right and now some of my best friends are folks i met in omaha right so reading the beetle inch book introduced randomness and one thing i i came to realize i tell people when they go into the annual meeting that when you're flying to omaha on a friday the two people sitting next to you are both going to omaha for the meeting as well and they're both above average humans so just start talking to them right right because it's not the average humans going there right pre filtered it and so when i look back now on my life so much of it has come from the whole buffett orbit right and the buffett orbit what i realized is when i got lo charlie mu and i started playing bridge with him i got to know charlie friends i used to have dinner with him and i one by one i met a bunch of his friends charlie friends was some of the highest quality people i've ever met they were much older but i worked on you know building those friendships and that was such an awesome thing right and literally every time when i talk to some of these guys and the way the conversation was as a wow you know hang out to people better than you introduce randomness so this is what mu calls the lattice work of mental model so when you start putting these things together and you start using them all at the same time that's when one plus one becomes eleven or if you put four models together it's one plus one plus one plus one is over one thousand that's when you start getting what charlie calls lu blues effects and so then that's when you get a huge leg up on humanity there are other people who may be a lot smarter other people who may work a lot harder let's take elon for example so i forget what he calls it the idiot factor or something but index idiot yeah they did index right that's right so what he says is they look at some part that they need and they'll say oh this part is you know five thousand dollars so elon test to them what are the materials that go into this part raw material raw materials and what is the price of the raw materials on the london metals exchange right okay and they'll calculate that and say it's two hundred seventy bucks so they said then they'll say we're gonna make it ourselves and we're gonna make it for five hundred bucks right right and so the thing is that none of his competitors think like that right none of them have this idiot index without that there's no tesla there's no spacex there's nothing there's no boring company in there so it's it's a one of those core right foundational models right but the other thing about humans is that boeing is aware of this model and all the car companies available aware of this model it's not in their dna right this is not how they think they're not going to adopt it so the other thing another mental model to understand is humans are very poor at cl they all understand that elon has kicked their ass they also understand why he kicked their ass yeah they know everything he's an open book okay you you talk to people literally published the book right and what you need to do is also known but after knowing all of that there is no movement towards that right there's no movement by the way we wouldn't be here right now if not for cl so the story of this set right now is that my friend chris chris williams said he did a podcast here he sent us a video like i'm doing this crazy shoot led wall three d i've got this film crew here blah blah blah sent us a video of it and i was like wow that looks cool but my first reaction was buddy it's a podcast what do you what are we doing why why do does anyone really care if it's in imax four k like does that really make a difference and you know that seems like a lot of effort a lot of cost and i sort of wrote it off so then it comes out first time i click and then i see not even before i click the video i see the thumbnail i'm like wow that looks different so i click because i'm a lizard brain human and if something is different interesting i click it before i even think and then i'm looking at it and i'm watching this thing and it's interesting and it's entertaining and so immediately i recognized oh a mistake on my part like i thought i thought this was not important turns out actually this is important so you had to travel a little bit in the sense that your first reaction was stay in your comfort zone right right but the second leap you made which is after seeing it you acted right so from ad it to acting it is a huge leap right it's like ninety percent of humans will not do that so sam walton not that smart guy okay very hard walmart yeah very hardworking all american but not that smart okay and no original ideas okay every single thing at walmart came from somewhere else okay everything was copied he goes to meet soul price who's the founder price club which is the predecessor costco and he meets soul price and he looks at price club and he says no brainer he sets up sam's club okay and price when she yourselves to costco and so now we have costco and sam's right and sam walton would tell you in ten lifetimes he could never come up with the concept of his sam's club right he could not come up with a concept of a walmart walmart came from kmart sam or said there is no human who has come before me who has stepped into more retail stores of my competitors than i have right and no human after me will ever beat that record okay so anytime he traveled anywhere he was going on vacation to his family and saw he's passing some retail he top his fam stop the car tell them hang on here go do his fifteen twenty minute tour of the place and come back and make notes of what he saw one time he takes a bunch of his managers into one of the neighboring competitor stores and they come out of the store and one of the managers says to him sam that was such a poorly run operation they could just see it just a mess compared to where walmart was and then sam says assume yes but did you see the candle display the candle display was fantastic the one golden nugget so sam said you can learn from anyone you can learn from the biggest idiot operator sam would go early morning at like five thirty in the morning to the walmart distribution center with donuts okay and he'd sit down to the drivers because the drivers were go to stores every day and he'd tell them what do you see when you go in and then there the drivers well such and such store i saw the garbage there were stuff thrown out that shouldn't be thrown out sam okay and sounds notes office this right and then he'd go and you know fix all this so but what i'm saying is that everything at walmart came from somewhere else right the reason cl works so well is no one willing to do it look at tesla's market cap and look at the market cap of the next car company i believe it's more than the next fifteen car companies combined all of them combined you can take the whole industry combined you know they won't they won't get there and on spacex so if you look at blue and you look at spacex they have completely different approaches to how they do things spacex want to blow up rockets their focus is to blow up rockets blue focuses on not blowing up and he's miles ahead right and in fact he's cl the industry you know the whole landing landing these things backwards and you know reusing them and all of that people laughed at him at that and he got it done i'll give you a story of two of your models combined as you said so introduced randomness there was a period of time after i sold my first company i was thinking about what to do next i kept shuffling through ideas couldn't figure out which one to do and i realized i'm sitting here in san francisco and i'm meeting the same people talking about the same things going to the same tech events over and over and over again and i've had this gut instinct of i need to introduce more randomness to my life so i hear about this event called farm con a farmer's conference in kansas city sign me up i'm going so i go and i'm the only tech guy and you know i look out of like a literally fish out of water dresses i'm dressing wrong i don't know anything about farming i even get there and like i don't know what the hell i got myself into i took bandwidth with me we're sitting there they're talking about soybean futures i don't even know what soybeans are and so i we're completely out of don't it but it wasn't a great way to just shake up the snow globe a little bit introduce randomness some serendipity when we're there we meet this guy and his name's kevin van trump but he was the guy who owned this conference i was how how'd you get all these people how'd you get so many farmers to come this four thousand farmers and they all love you how do they even know you and he said i've been writing this news newsletter for twenty years for farmers half of the thing is just memes just funny jokes because the farmers just wanna laugh in the morning and then half of it is his letter about like what's going on in the markets today for farmers and so we're sitting there and we we've essentially leave one of the conference rooms and we decide to clone because i met with you for the podcast and you had this great analogy of who's the dumbest guy in the world and we decided that the dumbest guy in the world is the guy with the gas station across the street from the more successful gas station and it's like you can be unsuccessful but if you're staring at the gas station across the street and he's winning and he's doing everything right and you're just not doing those things that's on you yeah and so i'm sitting here i'm watching kevin van trump and he's got his newsletter for farmers and i at this time crypto had just started becoming very interesting i said you know ben what if we created a a newsletter for crypto just like this guy's done for farming we'll do it for people who wanna keep up with the crypto news it'll be half memes said half news yeah and let's do this we'll just write the first edition tonight so we wrote the first edition while we were there and we named it something that was themed after the conference it was called the milk road like a dairy name and in one year we built the largest crypto newsletter in the world oh great and we sold it for millions of dollars and never hired an employ we had one employee like the the best business ever did at the time just in simplicity yeah and it was all because we strung together two of these models just introducing randomness and then cl on top of that i think that humans complicate things a lot but i think that if you alright let's take a quick break and i got a question for you when a buyer asks ai for a solution like yours does your business come up most companies have no idea and by the time they found out they've already lost the deal to another company that did hubspot has ae o which helps you show up in the moments when dragged by are looking for a company like yours before the first click before they fill in the form that is the moment hubspot ae is built for check out hubspot dot com the agent customer platform for growing businesses mcdonald's had this whole big department on figuring out where to put the next mcdonald's right location very important burger looking king had two guys they just looked at where the mcdonald's going right and they would look at where mcdonald's are going they put it across the street right right and that was their model phenomenal because all the world's already done right you know cl gives you a a huge advantage you now another bedrock model and i think no mental models work without this model which is take a simple idea and take it seriously right this is to me none of the other models cl or not using excel or anything else works unless you buy into this first model so you have to go on in right i made my first trip to turkey purely on a limb kinda like you going to the farmer's yeah conference just because it was screening cheap as i i wanna take a look at this market which is screening so cheap and that was in twenty eighteen what i learned is that the average turkish company public company cycles through its float every seventeen days which means like let's say a founder owns forty percent our company the other sixty percent shareholder base will just turn literally about four percent of the shares are trading every day okay and every seventeen days you got new set of shareholders okay buffett has a quote that the stock market is a mechanism to transfer wealth from the active to the inactive okay this is hyper active okay now if you look at something like berkshire hathaway and you look at how frequently its shareholder base changes it might be the slowest in the world mh it might be like ten years or something or more for the float right and here you have seventeen days okay and then i even looked at places like india right so i actually compared turkey and india and what i realized is in turkey almost all the investors are gambler and spec spectators they wanna buy ten o'clock they wanna sell at three o'clock and they wanna make ten percent that's their model okay whereas in india what i found is that out of five thousand public companies there's maybe hundred hundred and fifty companies with good governance that are invest and a lot of research has been done on those by a lot of smart people in india and they've pounded into those companies and they traded at strat valuations very expensive i would look at a coke bottle in india and i'd look at a or a pepsi bottle in india and i look at a coke bottle in turkey and the valuation differential were massive same business and i'd look at a airport operator in turkey airport operator in india huge valuation differences again because here everyone was looking for long term and all of that so you're picking like poker tables to say when you take the first model take a simple idea and take us seriously i said india zero we're not interested okay even though i'm indian turkey i'm going all in and so what i decided is to be an inch wide and a mile deep and so i said i understand the nuances of the turkish market i wanna study everything in here i wanna be the person who's this is my buddhist mad mh right go through every single thing right and what i found is whether it's a useless company in turkey or a great company in turkey they're all cheap so this is great we'll focus on great right and no one's interested you got all these people like buying and selling shares and so we were able to make some investments which we couldn't anywhere else in the world at valuations it couldn't have made you know just the simple thing of the take the first model and it gives you an edge so i think the the mental model just carries so much weight that it makes your journey very light right because they just carry that they do the heavy lifting right and all you have to do is not violate them so i wanna ask you about violating them because sometimes i could see a world where they clash yeah or that the definitions get fuzzy so for example one idea invest you know in your circle of competence but like with turkey it wasn't your circle comp you sort of made it your circle of competence so in that sense like how do you think about that like because it sounds like some of the best bets for you and others have been where you decide to go get smart about a space but you were a complete beginner in that space maybe six months prior well so like for example before i went to turkey i had already studied coke and pepsi bottle i'd studied the coke and pepsi business quite a bit just because buffett had made investment and the coke concentrate syrup business is phenomenal it's a software company you know it's just eighty percent margins it's a great business and the the bottle not as good to business go but they are oli off mh and most of them do really well as well i mean they have more capex and all that but it's a good business so when i'm looking at a coke or pest pepsi bottle anywhere in the world one of the things to keep in mind is they had to be approved to become a coke pepsi bottle and coke pepsi are ready anal know about who they're going to allow especially at this stage because it got global brands and all that so to me it was relatively easy that so when i went into for example the coke bottle in turkey it wasn't surprising to me that the management team was super high quality the management team was multinational they weren't turks like the cfo from ukraine right and he had worked in delhi before that and all of that so you could just see that this was the global team running this business and all of that so similar to the airport operator i looked at other airport operator so i started by using guard rails right and i focused on the the simplest businesses which were ones that were the easiest to understand and and one of the things about investing to also understand the businesses that you spend the least amount of time studying tend to be the ones that make you the most money because they tend to be the simplest there obvious and all of that but yes you have to couple the circle of competence with the introduction of randomness right and so those two are not in conflict with each other the introduction of randomness is how you grow and that's how you may actually the circle is going to expand over time naturally gonna expand but you don't need to focus on expanding it in your book you have some great stories the one i remember is the american express the salad oil crisis salad oil crisis i didn't know about this a little bit before my time tell the story it's an amazing story american express at that time had they always had a number of different businesses that we don't think about one of their businesses was asset based lending business and there was kind of a a crooked guy he basically got them to finance his inventory of salad oil where he said i've got his warehouse warehouses is filled with salad it's not a finance a literal salad oil yeah salad right in barrels yeah and so they'd financed it and there wasn't any salad oil it was sea water okay so somebody figured this out how how did they know this was there was just sea water in the later it came out because basically when they went to collect you know the guy already taken the money he's a he's a crook is he's gone and when they went and got the asset and looked at it they found that they they were nothing like they basically had been dupe right and it was a very significant loss for am where big dent of the balance sheet so obviously when they when they reported it the stock collapsed and warren felt that the big value of am was in his brand his question was is confidence shaken in the credit cards so for example if if i'm a restaurant owner and i accept the am card in effect am owes me money mh right so what he did is he went to a number of different restaurants in omaha and just stood by the cash register and just wanted to see whether the restaurants had any concern about accepting the am card and he saw zero zero concern of any kind so he felt that the mo of am was unaffected and the trust and confidence in the brand wasn't unaffected and the stock on the other hand had collapsed right so he he actually put forty percent of his fund into am forty forty forty percent of a single straw it may have been about forty million thirty forty million of capital right so maybe like ten fifteen million or something went in the crisis ab awaited you know am started to kind of get their balance sheet kinda straightened down all of that and of course the stock eventually because these businesses are fantastic and their credit card business at that time was growing gang you know it was just on on our on a rocket ship eventually the talk and you know the interesting thing is he met walt disney once just before disney died and then he he he felt funny he went to see snow white he said i went to see snow white with by brief briefcase because he said everyone else is there with the kids i went to actually study the business okay study what snow snow it's all about i think he owned like five percent of disney and of course for him at that time there was no buy and hold it was just you know look for the next cheap thing so he he had a significant ownership in am significant ownership in disney he sold all of these at a good profit right but he could've just carried them on if he had kept him for twenty thirty years they would an extremely well i'm trying to piece together this puzzle of what are some of the the traits or some of the behaviors that can lead to great investing when i think of investor i think of finance strategy numbers excel spreadsheets that's where my brain goes that's the pic mental model the picture i had in my mind brain yeah when you're describing it's like he goes to the movie theater to observe he stands outside the restaurant he asked the guy a question and it these are not spreadsheet this is like journalism it's it's first firsthand research is maybe gut i guess for you do you do the same talk teach me about that one of my ten commandments so mental models is thou shall not use excel right and another model is that if you cannot explain your investing thesis to a ten year old in about four sentences so the ten year old can understand it it's a pass right right so basically at the end of the day every investment has to be very simple it starts off being this complex thing but when you've you know understood it it needs to get down to those four sentences right that to me is one of the most interesting parts of investing so i think the way it works is that we have fifty thousand stocks around the world so if you're just investing in public markets the dataset set is too large no one is ever gonna know fifty thousand companies a large number of those businesses something like ninety or ninety five percent or ninety eight percent of them should go into the two hard pile so buffett has a box on his desk which has too hard written on it right and i think one time and i visited his office i told him warren the too hard box is empty right and he always said ninety eight percent goes into two hard part right and he immediately he took a bunch of papers and put it there like oh he it's full it's all full in in his case he made the metaphor real right with the two hard pile so most businesses that we would encounter or look at usually there there'd be two problems it one is it's either outside my circle competence or it's too hard and this is an exercise and honesty inner our scorecard and all of that where you have to be honest with yourself and not be delusional that you know everything about everything so exercise and humility peter lynch used to say that when you're looking at businesses to invest in he said make a list of everything you use right what shoes do you wear right what clothes you wear you know what brands where do you go to eat so make a list of everything that you consume and study those companies because many of those companies are publicly traded because it's very difficult for a company to get even a dollar from you all of us as humans are very discerning about how you wanna spend our money and we make our choices and those choices are very specific so if you are already a consumer of the product you understand the product that gives you a basis to try to understand the business because you are a consumer of the product and then you can kinda go from there we are in a business which buffett says has no call strikes so if you're a baseball player three strikes you're out which means if the ball is within the strike zone you have to swing at it even if it's like not in the sweet spot you have to swing at it in investing we can let ten thousand balls go so it's only when we get the far pitch in the center of our sweet spot do we need to act and if those conditions are not satisfied just let it go what you mentioned is entrepreneurs are all about action investors are also all about action the action is below the surface mh so basically a person like warren is spending all his time studying businesses now usually not much comes out of it right because we only see the whale when it surfaces the whale is assuming all the time right and the activity that investors need to enjoy if they're going to you know be good to this field is just turning the pages one after the other after the other so there used to be a racetrack in nebraska called ak which is nebraska twelve backwards okay when i to first go for the books meeting in the nineties early two thousands the meeting used to be at the ex racetrack about ten thousand people but buffett used to go to that racetrack when he was eleven or twelve years old and what he used to do was he used to gather all the tickets that were lying on the floor or the trash cans that people are thrown away and he'd go home and study each ticket one by one and some drunk may have thrown away a winning ticket right they may not have to looked at it carefully some things in horse racing are difficult you know wind place showed it could be place or a show and could have still won and that sort of thing so he'd gather up the few tickets that he fined after sift through the whole mess they're actually winning tickets because he was twelve he couldn't go to the window to claim them because you had to be over eighteen he'd give it to his aunt aunt alice his aunt would go to the racetrack and collect on the tickets and then give give him the cash and when he wasn't in his early twenties he went through the moody's manuals and on ebay i bought one of these movies manuals because they don't publish them anymore but they're on very thin paper very small text and they have some financials about three or four companies on one page he went through all of them in the early fifties two or three times turning one pager at a time and what he was looking for is he was looking for anomalies and aj g jane made a calm this time at the berkshire meeting he says that you know when we hire these people in the insurance business the instructions i give them is whenever someone comes to you for any deal always say no say no to every single thing presented to you and then he says you'll see a deal that hits you in the head like a two by four and you can believe the deal right that's when you bring it to me and then we'll look at it okay and investing is the same way so when he was going through these moody's manuals he's looking to get hit in the head by the two with a two by four and he found his company for example western insurance the stock is at fifteen dollars they made twenty five dollars last year and like forty dollars of cash on the balance sheet okay that's hitting you in the head to wi four right right so he pulls that out invest in it you know looks at it goes and understand more with the company and all of that and then the next thousand companies nothing then he against find something recently last four five years he made the bet in the japanese trading company five japanese trading companies those came out of something like the moody's manual called the japan company handbook which is a english publication updated once a quarter two public japanese companies on every page is thick book right he's been going through the japan gum handbook for at least twenty years okay this is the first time after twenty years of going through that he made these these bets but it's a huge home run because again hit with a two by four so these japanese trading companies in this case what he did was all of them had a dividend of eight zero nine percent he borrowed the entire five billion that he put in these companies in japanese yen so it's hundred percent lever at half a percent a year the companies are paying eight or nine percent a year so he's getting seven and a half percent cash right just for holding these investments then in the next three four years they doubled in their dividends so now it's sixteen percent and the stocks doubled so the five billion became ten billion and the ten billion is paying eight hundred million a year okay and it was almost fully risk free right right so basically that is the nature of investing is that the game we are playing is there is continuous activity of a different kind than the way an entrepreneur but it is orgasm activity okay if you have that type of a temperament right right if you really enjoy looking for needles and haystack stacks right then the payoffs are huge at the berkshire meeting buffet had this line i loved to he said the stock market is like a church with a casino attached to it and he said seems like a lot of people that casinos getting crowded know it seems like a lot of people are visiting that casino you know nowadays and i'm curious what you think about that and especially in the context of you've got prediction markets and robinhood and options and two day options and you know leverage and there's so many ways to play the casino and i think all of that from my point of view makes it better for me the wealth transfer well exactly i mean the thing is the more hyper people get the better it is for me and i mean it is it is unfortunate because the stock market serves a very important function of allowing gifted leaders and entrepreneurs to get the capital to pursue their dreams i mean that's really the reason why we have capital markets right is basically to funnel capital to the best uses best users of the capital and of course the side effect of that is that you have all the casino activity that comes with the church and the interesting thing is that after the there was a big bubble in the in the uk the south sea bubble where there was a big speculation org and prices went crazy and then eventually a lot of people lost money the british government response to that was to ban public markets for two hundred years so interestingly like even when there were no public markets a number of great businesses we've got created in the uk and capital still found its way to them mh so it doesn't all always need to be through an auction driven market but the main purpose of the new york exchange and the hong kong exchange and so on is to funnel and allow the capital to go into the tesla of the world go into the spacex of the world and allow those businesses to improve a lot of humanity right and of course the side effect of that is there's all the casino activity going on and as we've seen red robin road and so on and so it's a negative for humanity and the more that becomes prevalent that's more negative it is but i when i look at it from an individual point of view like for my own self centered self interested point of view the more the mer you know that's just gonna be more helpful to someone like me i don't know if this fully accurate this new york times said this on poly market point one percent of the users have sixty percent of the profits right now and so they said some number like two thousand traders had made like half a billion dollars to year it's just two thousand yeah because so it was an immense wealth transfer from the yeah yeah casual gambler to what's likely an insider just sitting there who has more knowledge or a bit of a sharp who's being more selective well the simple the simple thing is so if you if you look at something like horse racing the track takes twenty one percent of every dollar because you know physically paying for horses to run is expensive whereas let's say if i go play blackjack at a great game in vegas the house has a point two percent a point three percent a point four percent ed so every time a gambler bets forty nine point five percent or always coming back to them right it's a forty nine point five percent odds that they will win that bet it's a pretty decent whereas in horse racing you've already lost the twenty percent is gone already but the thing is that there are people who make a livelihood only betting on horses mh and the way they make the money is the same as what's happening in poly markets which is they watch all the horses and all the races and they pick the one where the odds make no sense right so they they know the horses know the races and because the odds are set based on how much is being bet right just like the stock market or or the way betting against the other better yeah you're betting against the other better right and and this that's what's happening in poly markets as well right i was looking through all the stories you've done and one of the craziest ones is that you paid six hundred and fifty thousand dollars to have lunch with warren buffett was it worth it so what happened is in two thousand seven my net worth hit i think eighty four million and most of it was because of the intellectual property of warren buffett which i had paid nothing for right right and i felt like i wanted to thank him and just look him in the eye and just say how great fly was now when buffett does these lunches his agenda is that whatever someone paid they should feel like they got a bargain and so from his point of view he just wants to make sure that there's tremendous value delivered right so before we met for the lunch there was about a kinda one year gap between the time at won and we actually sat down for lunch so his assistant had asked for bios of everyone who was attending and he studied all of those so when he got there he basically told us my entire afternoon is free so whenever you guys get sick and tired of me just let me know in i'll leave what was the one thing you took away now twenty years later yeah i made some notes after the lunch and i think we had a total between everyone and about over fifty questions that we asked him and of course you know warren has his great skill of taking lemon questions and converting them to lemonade so sometimes i asked him questions which were just oc questions just an update like i asked him for example what happened to rick go explain who rick is so warren and charlie charlie bunker were partners for decades several decades originally there were three of them there was warren charlie and go and in the sixties did a bunch of stuff together early seventies and then rick gordon disappeared off the radar i mean we never heard from him so i i just wanna know what happened rick you know so i asked weren't and he converted that question so he said charlie and i always knew we were going to be rich but we were not in a hurry and rick was in a hurry so then he talked about how rick was always lever he always had margin loans and when the downturn of seventy three and seventy four games seventy three seventy four was a very severe stock market correction were a crash and slow motion basically the markets went done more than fifty percent over the two year period rick got a number of margin calls and warren said that he bought rick's berkshire shares from him for forty bucks a share i mean those shares are over seven hundred thousand now right and he then said if you are even a slightly above average investor and spend less than you are and do not use leverage you can't help but get rich over a lifetime right so he wanted to communicate the message about the ill and qualities of leverage but i i felt there were there were so many lessons there was another important thing he talked about he said that there are two ways you can live your life you can live your life with an outer scorecard which is what people think of you and react to that or you can live your life with an inner scorecard which is you measure yourself with internal metrics not with external metrics and he said that would you prefer to be the greatest lover in the world but known as the worst or the worst lover in the world but known as the greatest so he said if you know how to answer that question you've got it made so i think this inner and out scorecard is really to me it's a really fundamental model you have to be true to yourself right because we can be swayed easily swayed by external imports external stimuli it'll keep it centered is awesome i've thought about that one a lot i think i read in his biography i think he called that the most important lesson his father taught him was to live life with the inner scorecard how does one do that how do you go from going from the outer scorecard to enter you got critics who are very harsh right who wanna pull you down and taking you below where you know reality is mh so one of the things i frequently run into is i've i've met people who criticized gandhi a lot criticized buffett a lot criticize some folks that i think have lived remarkable lives right and they nit pick at right oh what about this what about that and so the way i look at it is i say okay if they can criticize gandhi then amp a game okay so you know just understand that the gandhi of the world being criticized and so you're shocked when you're when you anytime you have any kind of a public presence or anything else you are going to get all of the above berkshire has something like almost what four hundred billion in cash yeah three eighty yeah what are they doing what are they waiting for well i mean i think that this has been their history of berkshire where the cash will build up and then they'll find opportunities and they'll put it to work they're not suffering right now because treasury is the playing pretty well so they're they're making decent money but the second is that we get dislocations and we don't know when these dislocations come we had dislocations during covid we had dislocations the financial crisis if i were to make a guess i would say that five years from now the cash maybe half or less of what it is today mh berkshire used to be run by a great capital all now it is run by a great operator and a pretty good capital allocate allocation mh berkshire gonna get phone calls and warren you should say that when they call you on a saturday that's when you know you're gonna make a great deal you said the saturday calls are the best because it's the most desperate call because usually they knew at it we need the deal done before tokyo opens on sunday night us time yeah so when there is a crisis and berkshire is a little better known now than it used to be greg will get the call and you know the investing game is interesting because you need extreme patience with extreme decisive charlie used to say it's like standing by a stream with a spear looking for salmon going by and he says you know you might be there for a while but then suddenly a juicy salmon go comes in and when a juicy salmon is passing by you have to act fast you can't start contemplating your naval at that point right right so you have to be very patient where you have the spear and you don't know if it happens in the next five minutes or the next five hours or the next twelve hours but you're ready right in your whole investing career what one investment has been the best for you so i i had two more than hundred bag investments it went up more than a hundred x before i started the funds so i started investing on my own in ninety four or ninety five and then by the time i got to two thousand i had two businesses the one went up hundred and forty x and the other went up about a hundred x and in one case i had invested about ten million no ten thousand i had a million dollars in about in ninety four so i i invested just ten thousand one business it became one point four million but there was another business i invested in which became more than ten million and so these two were the outliers so of the original million became like fourteen million or something but it was driven by these two investments more recently the company in in turkey that we bought at three percent liquidation value it's just about hitting a hundred x now which one is that that's that's the warehouse yeah the warehouse i operator okay i mean so what happened there is that we were buying a company i think when we first started buying over the fifteen sixteen million dollar market cap liquidation value was about eight hundred million and what was the big misunderstanding like you know you've told me these words before i like for what's hated and un loved or where people have confused risk with uncertainty or was it something else in the turkish market why was it trading would you say three percent of liquidation value that means the price of the business there's thirty x that in just the assets that it owns if it had to liquidate everything so you know thirty thirty three percent or whatever the he was and even still is in such a weird state that it's hard to believe so for example at that time the company was trading at what what should have happened with a company like that was that the owners should have taken a private right and the owner of the business did not have a good understanding of buy backs and taking it private they they have very good operators and they went to the public markets to raise capital so they could grow right they got the capital they were growing they never care about the stock price they've actually never even now even today they don't really calculate their kind of wealth by the stock price they calculated it based on what they think the business is worth they don't really care about the stock price which is actually a good way to your scorecard card yeah great great will run but actually you really want the business to trade near the stock price near the value so that anyone entering or exiting is getting a fair deal that's what buffett tries to he wants to make sure that berkshire value is always around what it's worth but there were other businesses like i remember the first company i visited in turkey was trading at a pe of zero point one not heard of that not not one zero point one which means that the market cap was equal to one month's earnings okay and i remember my friend had sent me a list to the businesses that we were gonna visit and i did no work on these companies i said i wanted to work on them after i visit them because i don't know waste time if i don't like them or whatever else so as we are driving to the company i start asking questions so i'm just somewhat intelligent in the meeting so i said okay so what's going on here he said well mona it's a p of zero point one i said zero point one and it's one of the largest banks in turkey i said what's going on he said are they violated some un sanctions they were doing some wire transfers with iran that were not supposed to do and what happened with that company was that the cfo of the business who didn't have anything to do with this craziness went to the us to vacation with his family at disney world and when he landed in new york the southern district of new york folks picked him up at the airport and put him in r prison in violation of the sanctions and they told him the rest of family can continue on to a enjoyed disneyland anyway so so when that news hit the street i mean that's like you know they you wouldn't be cut off of the swift swift system the us can put sanctions on you i mean you could just you know knee at the bank and erdogan at that time was calling trump in his first term saying can you please release the guy yeah he didn't do anything and trump said it's new york state and so all of this was playing out while i'm going to see the company and actually the the business was a well run bank and i told my friend it's too much hair even for me i'm not going there okay so turkey then and even now has some cra priced assets which is why i decided take a simple idea seriously i said okay this is a situation where half the winners of the sa racetrack have thrown away william and winning tickets right instead of one in a thousand or one in five hundred it's fifty out of a hundred of throw away winning tickets so basically it's it's going back to the mental model you take a simple idea you take it seriously you know i remember when this company was fifteen million turkish talks are allowed to go up ten percent a day they were limited in a day it's company you know so i was concerned how much stock i can buy so i told the broker buy every share available don't worry about the volumes take out all the asks you know the the stocks at fifteen someone's willing need to buy sell at sixteen or seventeen whatever i said all the asks that for ten percent just take them all out if anything more shows up take it out right i say just take everything you can get right so the guy calls me the broker called me and says i have five percent of the company being offered by temple and fund the us fund in turkey temple trans is offering five percent of the company for a million dollars okay so twenty million market cap basically one million i said why are you calling me take it right and so now this is not a turkish investor right these are not people who are data traders right somebody in new york made a decision i'm out of turkey and the reason he they were going out of turkey is the currency was very unstable and inflation was rampant and they were right about that so two things that were bothering investors a lot which can be very detrimental to making an investment days an unstable currency and high inflation and other mental models came in to help me so one of the things that i think i discussed with charlie is let's say there's a thermal nuclear event global thermal nuclear event ninety nine percent of humans are dead so we've gone to seventy million humans left out of seven or eight billion and everything's destroyed the seventy million human humans are left someone is gonna start producing coke concentrate and someone is going to resurrect a coke bottling plant because there's seventy million humans and there's no currencies anymore but humans will be willing to trade fifteen minutes labor for a coke so a company like coke is not dependent on inflation it's not dependent on exchange rates it's not dependent anything there is a benefit it gives so it doesn't matter whether you're trading coke cans in seashell or dollars or l or whatever there is an exchange that would take place so i said to myself when i was looking at this warehouse company i said what is a warehouse it's land paint cement and steel okay all four are inflation index if the currency goes crazy all of these prices are gonna go up so i don't care about the currency and then the exchange rate also didn't matter because these are prime assets in a prime city people need those assets just like they need to have a coke so i only looked at investments in turkey which were naturally immune to the whole inflation or whatever so going on and what happened in turkey is when we were buying this company it was five liter to the dollar okay that was exchange rate seven years later it's forty five liter to the dollar okay the l has collapsed by ninety percent in dollars i'm up ninety x okay in dollars in l i'm up infinity right cares okay i don't care about that i i i'm just looking at in dollars and the reason we went up in dollars ninety x is exactly so there were there was a another mental model where i said alright big news we just hit three hundred thousand subscribers on spotify thank you to everett you subscribe if you're not go there and watch on spotify it's the best place to watch our podcast there are many businesses in turkey that will get hurt by inflation we're not interested in those so there was another company there are called ta airports all their revenue is in euros everything is in euros right okay they're listed on the istanbul stock exchange with all the gambler okay now airport operators these are phenomenal businesses and normally you look at an airport operator like look at one in india the trailing field sell at is seventy times fifty times patrol monopoly right monopoly very desirable everyone wants in and so it's just over inflated and all of that in in turkey it's sitting at like four times three times you know it's sitting at nothing like basically so and in this case in the case of tab airport the current she's not relevant they're not even then in fact what is happening is their revenue was in l in in euros and their cost sign l so in fact what's happening is the employees are getting poorer every year right and so basically it was just using a few models take a simple idea take it seriously active versus passive understanding that thermo nuclear event people want coke and let's look at assets where the currency is not relevant right and when i was able to look at those four things there was no one else on the planet applying those four models at that same time in that market right that's it how how difficult was that so i wanna ask you the hardest question i think i think the hardest question let me tell you how i arrive here i love the idea of studying businesses because i love business and i love studying put them together i'm happy i enjoy it i think it's a great intellectual sport and i it and i picked some stocks and i have some index and you know i combined the two at the same time it seems like most people lose money doing this even smart people lose money doing this and for example i had cathy wood on the podcast i said cathy you know she's super popular i think she's really smart i even agree with her about many of her theories and thesis about where the world is going at the same time i told i was like look if i look at their last one year two years five years you haven't beat the s and p but you're taking huge fees on your money the way her model works is is that and i said look i think you're honest person like would asked with the question i said would you invest in someone with your track record and she said you know she had a great answer like i actually i really appreciate you giving me the chance to answer that and so she gave me you know a good answer but i'm curious you know same thing how hard is it to beat the market really and how do you feel because in some years you do and some you don't i don't know exactly because you funds and you have the etfs it's hard to even piece together fully yeah but i guess give me two answers one is what is your track record you manage something like a billion dollars so what is your track record compared to just blindly put in the index and secondly how do you feel about that you know as a sort of smart honest person who's studied this game and trying their best to do the best they can yeah so the the track record it depends on the fund because we've we've got different funds and so but if you look at our oldest fund which is now what it's twenty more than twenty seven years old every dollar is turned into about thirty dollars so dollar become about thirty dollars in the oldest fund and i think the s and p is every dollar is less than seven approximately six zero seven dollars that fund is done done well if i take the newest one which is our etf for example which is got about two and a half years of history if you if i look at the entire two and a half years we are behind the s and p because i think the s and p is done like nineteen percent since on average per year in the last two and a half years then we've done like fifteen sixteen percent but this year we are ahead so if you look at three months we are ahead six months one year and even eighteen months we are ahead and i think in the last one year for example we are beating the and b by more than twenty points pretty significant so in this in the etf case i think it took us some time to get properly invested because i only can find like couple of things in a year and i would i would say that i would expect that in the fullness of time if we look at after five or ten years we should be ahead of the s and p right also the s and p has it's a handicap situation for the s and p because it's valued you know it's sitting kinda elevated in in valuations and such and so at some point the stock market becomes a weighing machine and so i i think that in general the index broad index over the s and p may not do that well for the next decade just because there didn't so much growth yeah into the future in the last decade so i think we'll be fine yeah yeah i guess do you do you feel like the question i think i'm trying to ask is more like how hard is it to beat the index well so yeah so so if you look at the entire us stock market over the last ninety years four percent of companies have basically delivered the market return so the the return we're getting in the market has come from four percent of businesses the other ninety six percent have just shredded water and if you look at warren buffett for example and he said this himself that twelve investments he made over sixty years is what has created berkshire hathaway he has made more than three or four hundred investments so again his successor is three to four percent and this is the reason why indices do well because the index is too dumb to know that it owns nvidia and it's too dumb to sell it okay it's too dumb to know that it owns ts c and it's too dumb to sell it whereas an individual investor or or portfolio manager will look at and say oh it's over valued or this and that or whatever else or the mistress looks hard or whatever else and make that change so this is the reason why index investing does well because it includes that four percent so you don't need to think about it you have captured the four percent right and you will get a market return which is very good when i look at what i'm doing i don't think i would have the wealth i i've had and i don't think my investors would have had what they have done if we had indexed we've done better than the index the way the way i look at it is that every year that goes by i'm getting to be a better investor so i think that if i were playing a game like basketball i would start declining right and one get to my thirties and forty them gone basically but investing is a game where you can keep getting better and you keep seeing more patterns you expand your circle you get better at looking at different things so experience is a huge plus and all of this accumulates and also you get to ride the winners if you will so the important thing in investing is not the mistakes you make it's not selling the winners the four percent bets of berkshire that work the other ninety six percent whatever buffett did with them did not matter mh it didn't matter whether they sold them bought them liquidate liquidity them whatever else that didn't really move the needle what what mattered was not selling coke not selling apple having greg able will run mid american energy having a g run the insurance and not firing a g and not getting rid of him those were the important your circle the wagon concept circle to the wagon so so the thing is that we we have to understand that capitalism is brutal and almost every business will eventually go to zero because of the competitive destruction forces but there's a sliver of businesses that what happens is that a brand gets built or tastes happen like a business like mcdonald's it starts off with no moat right but now it has a brand you know there'll be high a sign of the highway saying mcdonald's eight miles ahead right you see that sign and say that's where i'm going right right and even if sean's berger shack yeah exactly one mile away exactly that's that's the most that's the most right and so it's actually accidental for the most part how and when mo get built but once a mo gets built some of these mo become enduring for very long time like if you look at something like fico for example the fico scores i mean that business just print cash right but it started off with no more than as more and more people start using that score and now there's some movement where people are talking about other things but people don't wanna move away from fico it's too entrenched right and so we as investors have the advantage of buying into existing modes right and so if i look at for example the largest bet we have which is the turkish warehouse operator they have prime warehouses extremely well built in prime parts of istanbul okay and that's a very important city it's a big city it needs it it's it's fundamental i don't think that's going away in fact the demand for warehouses increases in an e commerce word right because you need in fact what they were building quarter a million square foot warehouses are now becoming million square foot warehouses because all the nuances is happening with e commerce so we we want to look at businesses where the mo have staying power for a long time an airport operator a coke bottle you know it's gonna go on right so we want to look at these enduring more eventually we want to own parts to the than doing mo i wanna actually you about some new things so what you know was very interesting to look at the kind of investments of maybe early days buffett and just things that are around for a hundred years but then there's new things that might be around for a hundred years from now or or might not i'm i'm curious your opinion on this so i'm gonna throw four kind topics at you that you you can rapid fire give me just your kind of where you're at mentally on these jobs so first is ai i don't think you could be an investor in the world and not have ai thoughts whether you think it's gonna disrupt certain businesses or create new industries or really be huge tailwind or headwind invest in the pickaxe makers so i think i think that the alphabet and matters of the world playing a game they haven't played before mh which is having businesses very high capex may work may won't work i don't know but what i do know is they have to pass through some toll bridges they all have to pass through ts c they have to pass through asm they probably have to pass through micron right so i have no bets in any of these areas because it's either goes in the two hard pile or it goes in outside circle competence or it's too expensive mh so if i'm not making a bet it doesn't matter with them right or wrong right so what i'm saying is that there's no way i'm going to sell the turkish warehouses right to buy t because that that trade makes no sense to me right the mistress looks much than the wife yeah and there's no boy call evaluation yeah yeah you when not when i came to your house once you were telling me about your investments in coal and you've talked about how you look for things that are hated and un love yeah it's a clue for you to go go spend some time yeah because you think that there might be opportunity there i feel like the right now in my world the hated and un loved bucket is saas companies vertical saas companies i saw you invested in constellation yeah so i'm curious and i've been thinking about those too there's you know a lot of great businesses are on sale right now so so that was an area that was an area where things fell within circle competence okay and it made sense so the idea that betsy and hr is going to fire up some ai software or whatever and develop her own software and get rid of workday or whatever else they're using in hr is just a pipe dream yeah also so i think what is not understood well by the market is that software is not coding okay coding is automated and we'll get even faster and whatever but it may be at most one fifth of the pie and so just because you can get something coded quickly doesn't mean that adobe is going out of business or you don't need photoshop and you don't need all the products that they have and and so i actually feel the market has got it wrong so in in my view the advantage will go to the incumbents so and adobe will be able to reduce his costs because i mean microsoft's laying of people they're all laying of people right because they don't need so many because they again they can automate it so all of these incumbents are gonna reduce their cost now they may also end up reducing price right but i don't really see they may not even need to reduce price okay depending on the you know how much the moat is i don't see their cash flows going down and and so if you drop the price in half and the cash flow is not going down you know where do i sign you know and and i specifically only invested in the mark leonard universe of businesses because he has unique mouse so the reason why i invested in m is mark leonard no one else has ever cloned constellation and no one else ever will be able to clone constellation right explain who he is because he's this mysterious guy there's no like there's like two photos of this guy on the internet mark is a highly highly unusual leader okay there's no other person like mark let's put it that way what he's built at constellation is very unique so there are probably seventy to a hundred thousand vertical software companies private companies in the us they have a team biz team that touches all these companies twice a year with a phone call and twice a year with an email okay and in fact the funny thing is i was in omaha at the berkshire meeting and a guy comes up to me and says mona i'm a huge fan of yours i'm in the constellation m and a t i said don't go anywhere need to talk to you right so tell me what's going on and you i tried to get a conversation going because you know constitution such a black box right but anyway they have this large m and a team they buy a company like every they bought or something yeah they bought they bought like two hundred companies last year for example right and they bought more than a thousand companies and they don't use bankers right and so they didn't doing direct deals and now i think paying they might be paying five times cash flow or something or maybe six times cash flow but then almost immediately within a year or two the effective price becomes like three or four times cash flow because they bump up the revenue a little bit they bump up the license fees is about twenty percent whatever and then they've got all these best practices that they built up now they don't tell the companies do this and that but they say look you're in this business here's you know eighty other companies we have like this and this is what we've learned so this is what we suggest right and you do your thing and whatever you want so they actually extract right more efficiency out of their engine so on an organic basis that they were not buying anything they'd be growing about three percent a year so these companies they're buying are not dying on average they're are still growing right so if you think of a if you think about buying a business that's growing three percent a year and you know interest rates the way they are you would be fine paying fifteen times cash flow mh that would probably be proud where the deal should be done somewhere we expect what's the math there i'm i don't know the math there is that a business is doing ten million in in sales and let's say they're putting one million to the bottom line okay and that one million is going up three percent a year k now let's say you were buying that company for ten million okay your alternative is put it in treasuries you put it in treasuries you're gonna get four hundred thousand a year right okay you put it here you're getting a million a year right and the million is growing but but it has more risk than treasury so you won't pay exactly what a treasury is playing so that's the math is you know the the risk free rate effectively makes it that if you knew business is growing at three percent a year you would be willing to pay in a low interest rate environment ten fifteen times cash flow whatever and so they're they're effectively buying it for three or four times because they get these efficiency right so now you're taking the cash flow the business is generating and you're reinvest it at a twenty five percent rate right i mean that's and then you're continuously doing that right so nobody else has the patience to put in the engine to touch the seventy thousand twice a year and also the more difficult part is integrating them right so the culture to say let's do this in that in many ways constellation is superior to berkshire hathaway berkshire hathaway buys businesses of all kinds these guys buy only one kind of business right and they're buying one kind of business and and they're buying it in a delegated manner now because the people doing the deals are not even at headquarters they don't even need an approval for they've been told any business up to twenty million you can just do your deal and as those teams have keep keep doing that and have a track record they bump up how much they will need so so it's actually a delegated bottle now at this point and so for my point of view you've basically got a mouse scrap that's growing cash flows at twenty twenty five percent a year what should you pay for a mouse strap that's growing cash flows twenty five percent a year you'd would be paying forty times if you knew that was gonna continue forever right you'd easily pay forty fifty times it went down to teens multiple right and it came down to a point where even from like mona is a cheap kid like mona got interested and and the thing is so i i think that the dna he has is very very special and this universe of companies that he's going after is too small for private equity right private equity hates doing these deals right right and the second is they don't wanna bind and hold them so he's buy and hold these come these guys want to flip so the friction costs of buying a tiny company and then try to find another buyer and all that there's too much nonsense so quite frankly the only competition they would have would be if someone decided i want to do everything exactly the same and the market could tolerate three constellation right it's large enough for three or four constellation but they are none there's only one right so that's why we are in and and now the thing is that we don't need you have to understand the four percent rule of buffett right only four percent of your bets work so if you look at my bets like you know airports coal warehouses constellation if all of them work now if i if you ask me about each one i'll give you a case wide it works right all of them not gonna work because that there's no way if i if i were doing if all of them work we're doing a hundred percent a year right okay that's not gonna happen but if half of them work we have a home run right even if forty percent work we have a home run so this is a very forgiving business right and so that's where this is which is i don't know which half works i wish i need if you knew yeah your phone i don't know which happens so like like i know that our cold bets for example there are things that can cause that bet to fail they are low probability but they could happen right so maybe those things happen maybe they don't happen i don't know right constellation maybe clone arise right i don't know maybe the dna of the company deteriorate after mark is gone i don't know right so there are these unknowns but it's a favorable bet it's not a hundred percent bet it's a favorable bet and as long as we keep making these favorable bets we're okay so howard marx came on the podcast oh very wonderful he was he he laid out a why the s and p might be a bad bet for the next ten years at his take was basically if you look at the current pe ratio of the s and p it was like twenty three or something point like that that the forward tenure year return had vastly between negative two and two percent anytime that had happened yeah and so i just wanna give you kind of like a just quick reaction bullish bearish on on the s and p index right now if you to to be an investor bearish bearish same reason yeah i i i don't i howard is very pretty smart i don't disagree with that yeah gl ones so it's amazing we have them we have a the nestle sliced bread exactly and it put sliced bread out of business i a stat that the gl one drugs oz and and the others they're currently generated double the revenue of the ai of the ai companies it's like seventy nine billion a year versus yeah forty billion we are embryonic right now and we're early and also i think the the science is gonna get a lot better yeah so like giving your how you're thinking about that right now whether from an investor point of view or just well i think i think from my investor point of view to for me it goes a too hard pile and reason goes there too hard pile is industries with rapid change at the enemy of the investor according to warren so we go we was king then mon became king and then now they're talking about some of these tablets tablets are gonna have a hard time because they're have to go through the liver and all that but basically to me i i think that this trajectory is gonna continue but given the valuations and given where this headed it's there are too many name right coal is simpler a few years ago when i was at your house i asked you about bitcoin and you similarly were like somewhat bearish on it but you said you know ultimately too hard pile for yeah it's also too hard pile out outside call has anything changed in your opinion because the more time goes by in a way like all money is a confidence game as you know right every currency a go every gold bar is a confidence that this will this will last i'm curious if anything had changed over time for you with bitcoin i i i prefer gold to bitcoin it's not used by a bunch of scammers and you know ran some seekers and whatever else so to me the whole thing is in the two hard pile but i would just say that given that we already have gold why do we need bitcoin okay i want to debate you that of your four hour pockets yeah there's a couple of life models i wanted to ask you about because i asked you had many of the investing truths yeah but then some of yours i feel like maybe are related to investing but probably not one was don't die at twenty five and get buried at seventy five yes what do you mean so that's a quote by ben franklin as you know i have no original ideas so ben franklin said that many people die at twenty five and are buried at seventy five and basically what's that saying is that you've stopped growing and you've stopped kinda of doing things and you're kinda just costing you know i i had discussed a stock with charlie in my last meeting with him and he was buying that stock six days before he died okay he was ninety nine point nine years old he didn't know he was gonna die in six days but when you have a ninety nine point nine year age you know life expectancy efficiency is not twenty years right or ten years okay but he was i saw charlie make investments and bets and decisions ignoring his mortality mh like like he was twenty five he was making the bets out he was he was twenty five and so i think that living till the very end truly living is really important so we we we want to be pursuing our passions we want to be getting our music out we want to be doing the things that we wanna do for this very finite time we have here what does that i mean get your music out i saw that on your your list but i didn't know what meant well all of us have music in us and it's different you know for the musicians it is actual music that they but but the but the thing is we have to understand who we are and understanding who we are is not easy but we have to understand who who we are and we have to understand what would be something we want to bring to this world that makes the world better and makes us feel a sense of accomplishment for doing that right so we we all have special talents and there are there's no person who's got nothing if you will they everyone has something special we have to get that out because that's gonna be a fulfill life september twenty eighth twenty seventy five apparently that's the date i'm gonna die alright one of your pieces of advice is and i quote ask god google when you are going to die and act accordingly last night i googled when i would die i gave it all my info i told her it i i'm a non smoker this years old i've done this etcetera etcetera and it gave me a hey prop here's a range yeah and here's the most likely date september twenty eighth twenty seventy five awesome alright now what do i do you freaked me out now what do i do so contrary seneca life is short and gandhi has a court he says live as if you were to die tomorrow learn as if you were to live forever right and even steve jobs said that if he spent two three four days doing not what he really wanted to do or love doing he would make a change right so i think that twenty seventy five seems a real really long ways away you know like forty nine years or whatever but it's not that far away and i think that there's a buddhist saying about living in the moment and living in the moment is fantastic so i think that treating every day as of it's your last and living it to the fullest for the full forty nine years that's what you wanna be doing mh so i think you know people say oh i'm gonna graduate and i'm gonna work three years at mckinsey then i'm gonna get some experience and i'm gonna start my business you know buffett would say to that that's like saving sex fold old age not a good idea okay so don't make a lot of long term plans we have to enjoy today yeah don't wait to live we have to enjoy every day so i think getting the music out doing what we love to do working with people we like admire and trust and pursuing our passions we have to do that all the time right those are sort of like the eat clean exercise get good sleep what those are to health yeah i feel like what you're describing is to like living life well absolutely yeah you know one of the things that it i think is your part of your music you get out is that not only do you study investing and studied companies to invest in but you study the investors mh and my favorite learnings from you have actually been the stories that the insights you have having studied all the great investors i wanna ask you about a couple of names i didn't ask you about in previous ones the first is at like help me about ed what do we learn from ed the first time i met at thor i was naked so on so just to give you the long form answer so ed thor mit trained phd mathematician very smart he actually worked with claude shannon and if you study shannon this podcast on him and all that but shannon is you know probably one of the smartest humans around ever lived but ed thought basically used mit mainframe computer to figure out how to optimally play blackjack right and he came up with what we now call basic strategy and at that time in the early sixties when he when he did this casinos in vegas and reno etcetera played single deck blackjack to the end of the end of the deck and blackjack is a game where every time a car is played the odds change and so if a deck gets you know filled with more races and tens or whatever else than you're basically as a as a player gonna it's in your favor and smaller cards it's against you so he's counting cards is easy to do and when the deck got loaded he'd increases bed bed and not loaded it reduces his bed and he cleaned the casino was out and at that time the casino mob brown and so they basically showed him a baseball bat and said don't ever come back okay and so even know what he was doing or they just said they we don't need to know they knew that they were losing money they didn't know why they were losing money and that's all they cared about that they were losing money right and so he went back and he's a you know very meek timid guys said well this is like like they might actually like you know kill me or something so he said i'm not going back but to get back at them he wrote a book called beat the dealer mh which sold millions of copies which basically says here's how we beat the casinos okay and the casinos freaked out because they said now we've got like ten thousand head tops are coming at us and so blackjack became a game from then till now which where the rules have continuously changed where they started not playing to the end of the shoe they introduce multiple multiple decks and all these different all the different you know rule changes and everything else to keep up with all of that and it's been kind of and you know the movie twenty one where the mit kids went in with all of that so anyway he did well he he he wrote beat the dealer and then he realized that there was a better casino than vegas which was a new york stock exchange and there's something known as the black sc formula okay which is the way how options are priced so the guys who came up with their black sc and another guy they got the no nobel price for that basically it it tells you if you've got a stock with whatever volatility how to price the options the call options whatever else on that ant cracked how options were priced before black sc but decided instead of getting a nobel prize he was gonna make money off it okay so his choice he he set up entity called princeton newport partners and they killed it like twenty five thirty percent a year and no down years and any of that and did that for a while became very wealthy he moved to newport beach became professor at uci and then someone introduces him just think about this is like a kind of forest comes through someone introduces him to ken griffin you know senator as founder while while he's at harvard you know training out of the dorm room ken asked because ed was not using his all his algorithms and everything else he retired ken asked if he would give it to to him ed talked to ken realize he's very unusual and said you can have it all and i wanna invest with you and so he becomes one of the early investors in citadel so that engine just keeps going oh my god and then also he meets buffett for bridge i think in the seventies and realize this is the guy and he puts a bunch of money with him so you know he's invested with ken griffin with warren buffett with himself princeton newport partners and the casino all the above right legend now i'm in i'm in irvine california i'm at this club where a go play racket ball and i'm getting ready for my racket ball game so as i'm getting ready i'm naked and this guy older guy is looking at me and they're the wall street journal next to my and he says to me what do you do i said oh i'm i run a hedge fund right and he's starts talking me and i forget that i'm naked okay and then he says i'm at to and i get so excited as oh my god had talk and i go up to him and i'm not talk and then i realized mona as you're naked you know this is not a purpose i said ed can we just meet for lunch you know i said i i i promise you i won't show up way okay and he said absolutely right and so then i met him for lunch and got to know him in fact i just got a christmas card for him and he wrote me a nice note but it is fantastic i think that's a great guy you know he's i think ninety great health and he you should get him on the podcast he also beat wet too did you not yeah he had a he had a device by which they could i forget there's something where they were shoe or something yeah they had something they were which would kind of tell them what is going on with the relentless yeah that is an unbelievable story you you mentioned ken griffin i've heard someone that kinda ken griffin lore what do you know about him and and what kinda made him special and why maybe ed initially spotted that this guy might be a little bit different so i met ken around two thousand or so i was running it company and someone i knew said that they were looking for consultants and my wife went in as a consultant to citadel okay so she's actually at citadel ken is like there might be like ten people i said at that time and she'd come home every evening with a whole bunch of ken stories like he said she'd tell me this guy is very unusual and the place is very unusual everything's very unusual so he he had hired some whiz bang russian mathematician phd post doc whatever who's is working with the algorithms and everyone at citadel would come to this russian guy with their problems and ken didn't want anyone coming to him he just wanted him to crank without anyone bothering him so my wife told me that there's a temp that was hired and ken told the temp that here's your desk here's you here's a mathematician no one crosses so the attempt says oh what do i do nothing your whole job is to make sure no one crosses no one talks to him so she's just looking at this temp and the pe herself within shock someone's paying me like you know file my nails so yeah ken is a very intense guy but i think i think he's very smart i think he found all the different nooks and cra built a tremendous business and so i a all respect for him awesome did a great job yeah i'm i feel like ken griffin intensity stories is something that that i can binge john i've heard you know when ron was going out of business to hear the story yeah they all went in and then they he we bought all got all the train all the spark guys out yeah like a rescue mission i just read the other day that they had made an offer to some guy at harvard whatever was a mu grad and can asked him so let's say you made ten million in a year what would you do he said oh i'd quit i'd go prime the tallest peaks this and that whatever so ken says to him please reject our job offer you know we've already made the job for you we can't res send it but please don't accept it because we really don't want someone like you right yeah we we we don't want someone at ten million who dies at twenty five right you know you've done podcasts like these before with million and others i i think our podcast together more than five million people have listened however the sad part of that is i bet if i talk to those five million and i say would you really take away would you what you remember what was the thing that you you took i'm not sure how many would have something that clicks so i wanna make it easy for them this time what's the thing that they can't miss out of this one because i don't want people to just listen be entertained and go back to doing things exactly how the way they were lead and aligned life mh so who we are is hard coded at the age of five so between our genetics and what happens till in the first five years how old are you kids i have a six year old five year old and a two year old okay so you've got some work you can do for the two year old but the sixth and five year old date the cake is already baked okay and especially after they're about twelve after their twelve the only thing you can do for them is control who their peers are what happens with us humans is we show up in this world without an owner's value okay we don't know what our calling is the calling is pre predetermined at the age of five if we don't follow that calling this is our inner our inner map and this is how we are externally mh we are misaligned and to have a great life it needs to be like this now to get from here to here means you have to understand who you are and there are clues to understanding who you are so what you have to do is whenever you do any activity you have to ask yourself how much did i like that even when you meet someone how much did i like meeting that person and so you have to try to get to the point where the glove fits so you may be a lawyer but you were meant to be an artist or you may be a musician and you meant to be running back mh okay so i mean i found it out by going through these industrial psychologist who we did all this work with and all that and you know i was able to get to what my calling is when i was thirty four or thirty five years old till then i was wandering the wilderness completely lost right and then it life became a lot better getting to an aligned life is the most important thing it's not being a great investor or you know finding great investments or any of that i think the thing is you have to get your music out and you have to understand what that music is and you have to live in an aligned life and it's worth the pursuit how painful it may be to understand that as early as you can in life mh the shortcut is you could go through psychological tests with a psychiatrist what will you asking them for are you what are you asking them to is there a name for this is just yeah you're you're gonna tell them that i want to understand who i am and what is my calling in life what am i supposed to be doing now you could go to my guy you can go to him yeah who's your guy his name is jack keen i've bet i've met jack okay yeah alright yeah he does the kind of full life three sixty sort of analysis yeah so so you can go to jack and jack can only do like twenty a years or something okay so we can do it at scale but he may know others right and so that's a pretty full proof way to get there other than that i think you have to feel your way if you don't not willing to do that then you have to look at what you like what you don't like you'll have to look at whether doing something energizes you or doesn't energize you that sort of thing right and so you have to find what you love doing and if you only do what you love doing you'll do it very well and what do you think most would don't do that it's because the world tells us what we are supposed to do and we think that what the world tells us what we're supposed to do is what we're actually supposed to for example the human brain is set up optimally to start specializing after the age of eleven and from the age angel eleven to twenty is a window to specialize that is the exact window when the education system makes you a jack of all traits so like michel angelo you know he was doing his cultures and paintings and all that ten eleven buffett picking stocks right gates coding at eleven or twelve right so you have to try to within the context of a world that wants to be a jack of wall trades start getting to what is your calling like the way buffett engaged it they were in a world of jack of wall trades but within that world gates spent an inordinate amount of time doing coding he would slip out of his parents home at night and cold all night and come back and sleep and whatever and so he got ten twenty a thousand hours of coding experience by the time he was in his early twenties right and nobody could touch him after that so yes we have to at that age that's your job with the parent make sure the kids at eleven or twelve you're trying to figure out what they're good at and trying to increase the time that they get for that well i don't know what my calling is just yet actually if i look back at that age i was doing something very similar to this the two things i really love to do back at the time was i love to play any kind of game where there was a score i was playing online poker at a very young age of things that related to business and and money and then the other was i was doing improv all the time i loved it and what's a podcast but an improv session i just did this for whatever three hours and it was no problem right and i could've have known that signal at a younger age i think you're if you're not there you're damn close yeah wanna leave you with one thing i have a a a gift for you in this envelope once you take a look we asked somebody who knows you well to write a letter and it's your friend guy speak oh wow and guy wrote this letter for you he knew you're here today alright so let me just start reading it because i really like to deleted it later at leisure whether that's so that's awesome so the title is what i did not learn at hp von per b taught me everything i need needed to succeed in business dear mona this is one dear i met you some years after my mba but the truth was despite the degree i knew next to nothing about business my real education didn't begin until we met for dinner at the rest restaurant at the del hotel in greenwich connecticut i remember that evening vividly i came away from that one dinner with more ideas than i had in two years at harvard books i'd never heard of and ideas i never thought of you introduced me to powell was forced by david hawkins and to gandhi these auto the story of my experiments with truth we discussed robert geraldine influence the psychology of persuasion but what struck me was that you had not merely read about these ideas you had put them into practice in your own life in a way that i did not even know was possible sitting opposite you i realized that i was a conventional thinker you on the other hand had a very unusual mind someone who knew how to get things done in the real world and translate ideas into action i myself was very misaligned at the time i'm deep deeply grateful that you are willing to become my friend that allowed me over time to un ent some of the misaligned elements in my personality alignment you couldn't give me a better gift this is very special yeah thank you so much well i wanna thank guy for doing it we we called him last and i said you know who knows him better excellent my thanks for doing this okay awesome i feel like i could rude where i know i could be what i want to put at all in it like a days off on a travel never look hey let's take a quick break i wanna tell you about a podcast that you could check out it is called the science of scaling by mark robe he was the founding ceo of hubspot and he's a guest lecturer at harvard business school the guy smart and he sits down every week with different sales leaders from cool companies like cla y and van and open ai and he's asking about their strategies their tactics and how they're growing their companies as you know head of sales or chief revenue officer if you're looking at to scale a company up if you're a cro or a head of sales just look at to level up in your career i think a podcast like this could be great for you listen to the science of scaling wherever you get your podcast