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 1%. The game we are playing is transfer wealth from the active to the inactive. If you have that type of a temperament, it is orgasmic 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 25 and are buried at 75. I saw Charlie make investments 6 days before he died. This is like life advice disguised as investing advice. Yeah, just quick reaction bullish bearish on the S&P index right now. Bearish AI. How do you think about it as an investor? Invest in the pickaxe makers because the alphabets and metas of the world are playing a game they haven't played before. So, I want to ask you the hardest question which is This is Monish Pabry. He manages over a billion dollars in investments. He's friends with Warren Buffett and Charlie Mer. And he is a absolute sage, a wealth of wisdom when it comes to investing. And we're lucky enough to sit down with him and learn from him some of the best frameworks for investing. I call them the ten commandments of investing. Mones, round three. Here we are, elevated as always. We're on the pitch. Well under 1%. But the And 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 1% or are you saying that's a separate? No, 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 going to be ahead of 90 plus% 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 10%. Right? But if you decide that you want to actually study businesses and then invest in them after studying them in that universe of 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 to investing? 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 dry, right? So when we make an investment in a company, nothing may happen for 3 years or 5 years. you know, it's just just the nature of the beast is that it may um it may not do a whole lot for a while and also uh sometimes you made a in fact many times you made an investment it's a mistake and you need to at some point reverse that misage. So so there is activity needed appropriately uh but basically the less the activity the better the outcomes. M you gave me one of the commandments, one of the truths about investing, which is thou shalt uh enjoy watching paint dry. Yes. I asked I called your daughter in research for this podcast cuz I knew you were very into mental models and these frameworks of ways of thinking. Yeah. Uh 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 explain. I I I didn't want to say that in front of my daughter, but unfortunately I did. That was the first one she mentioned. Yeah. So um what we own is the wife. We live with her every day. And what we don't own is the mistress, And the unknown has uh 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, 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 Spear says that he's very reluctant to take any actions on his 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 uh pretty unequivocally right that the mistress is truly hotter. Right. Right. and uh not just an appearance of being hotter. That is a difficult nuance to actually master in real life. The idea of the wife versus the mistress is you have to have a very high bar for action. It's not that there is no action. It's that the bar needs to be very high to have the conviction level. You need to become comfortable passing on everything below that bar. 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. My dad used to say that to have a great life, you need one good wife and one good friend. 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 ones with people we have deep admiration for people that can make us rise and I I feel that you know I randomly stumbled onto investing. I'd never been in this field etc. And uh I remember so there's another mental model which is uh very powerful model. All right, let's take a quick break because I got a little freebie for you. So, if you're listening to this episode and you like what Manish is talking about, you might be like me. You're trying to take notes. You're trying to remember these principles that he's talking about because the dude is just a wealth of knowledge when it comes to investing. Well, the fine folks at HubSpot listen to this episode. They took the transcript. They put down the nine principles that he talks about as well as the examples that he have. And they put it all in a PDF for you. So, you don't need to take notes. They did it all for you. You can read that, learn from it. That's the much better way to get more value out of these episodes. It's in the show notes below. Just go download that and enjoy. Charlie used to talk to me about introduce randomness in your life. Introduce randomness in your life. And just to tell you the impact uh that had which I didn't even understand this when it had the impact in ' 94. I'm at Heithro airport my wife and I'm looking for something to read on the flight pack and I pick up one of Peter Lynch's 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, uh, oh, I want to kind of read more of this, right? So, there was another Peter Lynch book, Beatating the Street. I read that and I love that, too. And then there's no no more Peter Lynch 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 him had just come out the year And then I read those then that led me to the Burkshire letters the partnership letters huge world opened up right and uh then I started to invest using that approach so I'd been doing the Buffett investing and all that and really kind of overdosed on it and in 97 the thought came to me uh 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 to the annual meeting or not, right? And I decided in the end, let's go. Okay, let's see what the hoopla's all about. The annual meeting opened up another big world, right? And now some of my best friends are folks I met in Omaha, So reading the Peter Lynch 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? Because it's not the average humans going there, right? Prefiltered. And so when I look back now um 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 to know Charlie Mer and I started playing bridge with him. I got to know Charlie's friends. I used to have dinner with him and I one by one I met a bunch of his friends. Charlie's friends were some of the highest quality people I've ever met. they were much older but I uh worked on you know building those friendships and that was such an awesome thing and literally every time and I talked to some of these guys and the way the conversation goes I said wow you know hang out with people better than you introduce randomness so this is what mer calls the lattis 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 1 + 1 becomes 11. Or if you put four models together, it's 1 + 1 + 1 + 1 is over 1,000. That's when you start getting what Charlie calls Lula plooa 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 u idiot factor or something. Idiot index. Idiot. Yeah, the idiot 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, $5,000." So Elon says to them, "What are the materials that go into this part?" Raw materials. Raw materials. And what is the price of the raw materials on the London Metals Exchange? Okay. and they'll calculate that and say it's 270 bucks. So they said and then they'll say we're going to make it ourselves and we're going to make it for 500 bucks. 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. None of So it's it's a one of those core uh foundational models right but the other thing about humans is that Boeing is aware of this model and all the car companies avail this model it's not in their DNA 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 cloning they all understand that Elon has kicked their ass why he kicked their ass Yeah, they know everything. He's an open book. Okay, you you've talked to people literally published the book. Yeah. 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 cloning. So, the story of this set right now is that my friend Chris uh Chris Williamson said he did a podcast here. He sent us a video like, "Oh, I'm doing this crazy shoot, LED wall, 3D. I got this film crew here, blah blah blah." He 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 we What are we doing? Why why do you does anyone really care if it's in IMAX 4K? 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. But the second leap you made which is after seeing it you acted. So from admiring it to acting it is a huge leap. It's like 90% of humans will not do that. So Sam Walton not that smart a guy. Okay. Uh founder of 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. Uh he goes to meet uh Soul Price, who's the founder of Price Club, which is the predecessor to 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 eventually sells to Costco. And so now we have Costco and Sam's, right? And Sam Walton would tell you in 10 lifetimes he could never come up with the concept of a Sam's Club. He could not come up with a concept of a Walmart. Walmart came from Kmart. Sam Walden 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 with his family and saw he's passing some retail store, he'd stop his fam, stop the car, tell them, "Hang on here, go do his 15, 20 minute tour of the place and come back and make notes of what he saw." Right? 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 poorlyun operation." Because they could just see it was just a mess compared to where Walmart was. And then Sam says to him, "Yes, but did you see the candle display? The candle display was fantastic." Finding 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 5:30 in the morning to the Walmart distribution center with donuts, okay? And he'd sit down with the drivers because the drivers were going to the stores every day and he'd tell them, "What do you see when you go in?" And then there the drivers would tell, "Well, such and such store, I saw the garbage. There was stuff thrown out that shouldn't be thrown out, Sam." Okay. And Sam's making notes of all this, right? And then he'd go and, you know, fix all those. But what I'm saying is that everything at Walmart came from somewhere else, The reason cloning works so well is no one's 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 15 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 Origin and you look at SpaceX, they have completely different approaches to how they do things. SpaceX wants to blow up rockets. Their focus is to blow up rockets. Blue Origin focuses on not blowing up rockets and he's miles ahead, And in fact, he's clobbered the industry. You know, the whole landing landing these things backwards and you know, reusing them and all of them. People laughed at him at that and he got it done. I'll give you the 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. I'm, 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 I'm like, I don't know what the hell I got myself into. I took Ben with me and we're sitting there, they're talking about soybean futures. I don't even know what soybeans are. And so, I were completely out of water. It was 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, and he was the guy who owned this conference. I said, "How'd you get all these people? How'd you get so many farmers to come? There's 4,000 farmers here and they all love you. How do they even know you?" And he said, "Well, I've been writing this newsletter for 20 years for farmers." Half of the thing is just memes, just funny jokes because the farmers just want to 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 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 could 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. 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 want to keep up with the crypto news. It'll be half memes. It'll be half news. 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 uh 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. It's like the best business I ever did at the time just in simplicity. Um and it was all because we strung together two of these models, just introducing randomness and then cloning on top of that. I think that uh humans complicate things a lot. McDonald's had this whole big department on figuring out where to put the next McDonald's. Right. Location is very important. Burger King had two guys. They just looked at where's the McDonald's going, And they would look at where McDonald's are going. They'd put it across the street. Right. Right. And that was their model. Phenomenal. Because all the work's already done, right? You know, cloning gives you uh a huge advantage. Now another bedrock model I think no mental models work without this model which is take a simple idea and take it seriously right this is uh to me none of the other models cloning or not using Excel or anything else works unless you buy into this first model so you have to go allin right I made my first trip to Turkey purely on a limb kind of like you going to the farmers conference just because I was screening cheap. I said I just want to take a look at this market which is screening so cheap and that was in 2018. What I learned is that the average Turkish company, public company cycles through its float every 17 days, which means like let's say a founder owns 40% of the company. The other 60% the shareholder base will just turn over. Literally about 4% of the shares are trading every day. Okay? And every 17 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 hyperactive. Okay. Now, if you look at something like Burkshire Hathaway and you look at how frequently its shareholder base changes, it might be the slowest in the world. It might be like 10 years or something or more for the float, right? And here you have 17 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 gamblers and speculators. They want to buy at 10:00, they want to sell at 3:00 and they want to make 10%. That's their model. Okay. Whereas in India, what I found is that out of 5,000 public companies, there's maybe 100 150 companies with good governance that are investable 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 trade at stratospheric valuations very expensive. I would look at a Coke bottler in India and I'd look at at a or a Pepsi bottler in India and I'd look at a Coke bottler in Turkey and the valuation differentials 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 sit at. So when you take the first model, take a simple idea and take it 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 want to study everything in here. I want to be the person who who's this is my Moody's manual, 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 have made anywhere else in the world at valuations we 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 because they just carry the they do the heavy lifting and all you have to do is not violate them. So I wanted to 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 is invest you know in your circle of competence. But like with Turkey it wasn't your circle of comp you sort of made it your circle of competence. So in that sense like how do you think about that? like cuz 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 6 months prior. Well, so like for example before I went to Turkey I had already studied Coke and Pepsi bottlers. I studied the Coke and Pepsi business quite a bit just because Buffett had made the investment and the Coke concentrate syrup business is phenomenal. It's a software company, you know, it's just 80% margin. It's a great business. And the the bottlers not as good a business go, but they are oligopies 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 a Coke or Pep Pepsi bottler anywhere in the world, one of the things to keep in mind is they had to be approved to become a Coke or Pepsi bottler. And Coke and Pepsi are very anal about who they're going to allow, especially at this stage because they've got global brands and all that. So to me it was relatively easy that so when I went into for example the coke bottler 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 CFOs from Ukraine and he had worked in Delhi before that and all of that so you could just see that this was a global team running this business and all of that so similar to the airport operator I looked at other airport operators I started by using guard rails, right? And I focused on the the simplest businesses which were ones that were uh 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. They're obvious and all of that. But yes, you have to couple the circle of competence with the introduction of randomness, 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 going to expand, but you don't need to focus on expanding. Hey, real quick. If you're watching this episode and you like it, I have only one ask for you. This podcast is entirely free. We never charge anyone anything. But there is one thing you do have to do, and that is what we call the gentleman's agreement. You must go ahead, hit subscribe, like the video, leave a comment. That's all we ask. The gentleman's agreement. We'll hold you to 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. It's a little bit before my time. Tell the story. It's an amazing story. American Express at that time had they've always had number of different businesses that we don't think about. One of their businesses was assetbased l 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 is filled with salad oil. This is not a finance literal salad oil. Yeah. Salad oil. Right. In barrels. Yeah. And so they financed it and there wasn't any salad oil. It was sea water. Okay. So somebody figured this out. How did they know this was there was just sea water in the Well, later it came out because basically when they went to collect, you know, the guy has already taken the money, he's a he's a crook. It's gone. And when they went and uh got the asset and looked at it, they found that they they got nothing. Like they basically had been duped, right? And it was a very significant loss for AMX where a big dent on the balance sheet. So obviously when they when they reported it the stock uh collapsed and Warren felt that the big value of MX was in its 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 AMX card, in effect AMX owes me money, 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 AMX card and he saw zero zero concern of any kind. So he felt that the moat of AMX was unaffected and the trust and confidence in the brand was unaffected and the stock on the other hand had collapsed right so he he actually put 40% of his fund into MX 40 40 40% of a single stock it may have been about uh 40 million 30 40 million of capital u so maybe like 10 15 million or something went in the crisis abated, you know, AMX started to kind of get their balance sheet kind of straightened out and all of that. And of course, the stock eventually because these businesses were fantastic and their credit card business at that time was growing gang busters. You know, it was just on on a on a rocket ship, eventually the stock 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 my briefcase." because he said everyone else is there with their kids. I went to actually study the business. Okay. Study what Snow White Snow White's all about. I think he owned like 5% 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 MX significant ownership in Disney. He sold all of these at a good profit right? But he could have just carried them on. if he had kept them for 20 30 years, they would have done 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 p mental model, the picture I had in my brain. When you're describing, it's like he goes to the movie theater to observe. He stands outside the restaurant. and he asked the guy a question and it's these are not spreadsheet this is like journalism it's re it's firsthand research it's maybe gut I guess for you do you do the same uh tell teach me about that one of my ten commandments or mental models is thou shalt not use excel right and another model is that if you cannot explain your investing thesis to a 10-year-old in about four sentences so the 10-year-old can understand it it's a pass 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 50,000 stocks around the world. So if you're just investing in public markets the data set is too large. No one is ever going to know 50,000 companies. A large number of those businesses, something like 90 or 95% or 98% 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 when I visited his his office, I told him, uh, Warren, the two hard box is empty, right? And he always said 98% goes in the two hard box. and he immediately took a bunch of papers and put it there like over it's full it's all full. Um 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 with it. One is it's either outside my circle of competence or it's too hard. And this is an exercise in honesty, inner 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 in 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, What clothes do 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 we want to 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 kind of go from there. We are in a business which Buffett says has no called 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 10,000 balls go. So, it's only when we get the fairest 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. So basically a person like Warren is spending all his time studying businesses. Now usually not much comes out of it, right? Because uh we only see the whale when it surfaces. The whale is swimming all the time, right? And the activity that investors need to enjoy if they're going to, you know, be good at this field is just turning the pages one after the other after the other. So there used to be a racetrack in Nebraska called Axarban, which is Nebraska spelled backwards. Okay. When I used to first go for the Burkshire meeting in the '9s, early 2000s, the meeting used to be at the Axarban racetrack about 10,000 people. But Buffett used to go to that racetrack when he was 11 or 12 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 had 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 looked at it carefully. Some things in horse racing are difficult. You know, win, play, show. it could be a place or a show and could have still won and that sort of thing. So, he'd gather up the few tickets that he'd find after sifting through this whole mess that actually winning tickets because he was 12, he couldn't go to the window to claim them because you had to be over 18. He'd give it to his aunt, aunt Alice. His aunt Alice would go to the racetrack and collect on those tickets and then give give him the cash. And when he was in his early 20s, he went through the Moody's manuals and on eBay, I bought one of these Moody's manuals because they don't publish them anymore, but they are on very thin paper, very small text, and they have uh some financials about three or four companies on one page. He went through all of them in the early 50s two or three times, turning one page at a time. And what he was looking for is he was looking for anomalies and Ajit Jane made a comment 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 2x4 and you can't believe the deal." 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 2x4. And he found this company, for example, Western Insurance. The stock is at $15. They made $25 last year and they $40 of cash on the balance sheet. Okay, that's hitting you in the head with a 2x4, right? So, he pulls that out, invests in it, you know, looks at it, goes and understands more of the company and all of that. And then the next thousand companies, nothing. Then he again finds something. Recently, last four or five years, he made the bet in the Japanese trading companies. 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 company handbook for at least 20 years okay this is the first time after 20 years of going through it that he made these these bets but it was a huge home run because again hit with a 2x4 so these Japanese trading companies. In this case, what he did was all of them had a dividend of 8 or 9%. He borrowed the entire 5 billion that he put into these companies in Japanese yen. So, it's 100% levered at half a percent a year. The companies are paying 8 or 9% a year. So, he's getting 7 and 12% cash, right, just for holding these investments. Then, in the next 3 4 years, they double their in their dividends. So, now it's 16%. and the stocks doubled. So the 5 billion became 10 billion and the 10 billion is paying 800 million a year. Okay. And it was almost fully risk-f free. 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 orgasmic activity. Okay, if you have that type of a temperament, right? Right. If you really enjoy looking for needles and hay stacks, then the payoffs are huge. At the Berkshire meeting, Buffett had this line that I loved. He he said, "The stock market is like a church with a casino attached to it." And he said, "Seems like a lot of pe that casino is getting crowded. Seems like a lot of people are visiting that casino, uh, you know, nowadays." And I'm curious what you think about that. And especially in the context of you've got prediction markets and Robin Hood 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 hyperactive 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 uses 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 uh where there was a big speculation orgy and prices went crazy and then eventually a lot of people lost money. The British government's response to that was to ban public markets for 200 years. So interestingly like even when there were no public markets a number of great businesses got created in the UK and capital still found its way to them. So it doesn't all always need to be through an auction-driven market, but the main purpose of the New York Stock Exchange and the Hong Kong Stock Exchange and so on is to funnel and allow the capital to go into the Teslas of the world, go into the SpaceXes of the world and allow those businesses to improve the 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 with Robin Hood and so on. And so it's a negative uh 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 from my own self-centered self-interested point of view the more the marrier you know that's just going to be more helpful to someone like me I don't know if this is fully accurate but this New York Times said this on poly market.1% of the users have 60% of the profits right now and so they said some number like 2,000 traders had made like half a billion dollars this year in just 2000. So, it was an immense wealth transfer from the 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 21%. 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 2% or 3% or 4% edge. So, every time a gambler bets, 49.5% or more is coming back to them, right? It's a 49.5% odds that they uh will win that bet. It's a pretty decent. Whereas in horse racing, you've already lost. The 20% is gone already. But the thing is that there are people who make a livelihood only betting on horses. Mhm. 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, they know the races and because the odds are set based on how much is being bet, Just like the stock market or all the way you're betting against the other bettors. Yeah, you're betting against the other bearsers, right? and and that's what's happening in poly markets as well, I was looking through all the stories you've done and one of the craziest ones is that you paid $650,000 to have lunch with Warren Buffett. Was it worth it? So, what happened is in uh 2007 my net worth hit I think $84 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 uh I wanted to thank him and just look him in the eye and just say how grateful I 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 kind of one-year gap between the time I won and we actually sat down for lunch. Uh 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 and I'll leave." What was the one thing you took away now 20 years later? Yeah, I made some notes after the lunch and I think we had a total between everyone about over 50 questions that we asked him. And of course, you know, Warren has this great skill of taking lemon questions and converting them to lemonade. So sometimes I asked him questions which were just innocuous questions, just an update. Like I asked him for example, what happened to Rick Goran? Explain who Rick is for Warren and Charlie. Charlie Bunger were partners for decades, several decades. Originally, there were three of them. There was Warren, Charlie, and Rick Goran. And in the 60s, they did a bunch of stuff together, early '7s, and then Rick Goran disappeared off the radar. I mean, we never heard from him. So, I I just wanted to know what happened to Rick, you know, so I asked Warren, and uh he converted that question. And so he said, "Charlie and I always knew we were going to be rich, but we were not in a hurry and uh Rick was in a hurry." So then uh he talked about how Rick was always levered. He always had margin loans. And when the downturn of 73 and 74 came, 73 74 was a very severe stock market correction. It was a crash in slow motion. M basically the markets went down more than 50% over that 2-year period. Rick got a number of margin calls and uh Warren said that he bought Rick's Berkshire shares from him for 40 bucks a share. I mean those shares are over 700,000 now, right? And he then said if you are um even a slightly above average investor and spend less than you earn 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 ills and follyies 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 uh 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 outer scorecard is a really uh to me it's a really fundamental mental model. You have to be true to yourself, Because we can be swayed, easily swayed by external inputs, external stimuli. So to 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 inner? You've got critics who are very harsh, right? who want to pull you down and taking you below where you know reality is. So, one of the things I uh frequently run into is I've I've met people who criticize Gandhi a lot, criticize Buffett a lot, criticize some folks that I think have lived remarkable lives, right? And they nitpick at 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 I'm fair game. Okay. So you know just understand that the Gandhis of the world being criticized and so don't be shocked when you are when you're anytime you have any kind of public presence or anything else you are going to get all of the above. Berkshire has something like almost what 400 billion in cash. Yeah. 380. Yeah. What are they doing? What are they waiting for? Well, I mean, I think that this has been the history of Berkshire where the cash will build up and then they'll find opportunities and they'll put it to work. Uh they're not suffering right now because treasuries are 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 in the financial crisis. If I were to make a guess, I would say that 5 years from now, the cash may be half or less of what it is today. Berkshire used to be run by a great capital allocator. Now it is run by a great operator and a pretty good capital allocator. Burkshire is going to get phone calls and Warren used to say that when they call you on a Saturday, that's when you know you're going to make a great deal. He said the Saturday calls are the best because it's the most desperate call because usually they need it. They need the deal done before Tokyo opens on Sunday night US time. Yeah. So when there is a crisis and Burkshire is a little better known now than it used to be, Greg will get the call. And um you know the investing game is interesting because you need extreme patience with extreme decisiveness. 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 navl at that point. Right? So you have to be very patient where you have the spear and you don't know whether it happens in the next 5 minutes or the next 5 hours or the next 12 hours, but you're ready, In your whole investing career, what one investment has been the best for you? So um I I had uh two more than 100 bagger investments which went up more than 100x before I started the funds. Uh so I started investing on my own in '94 or 95 and then um by the time I got to 2000 I had two businesses. The one went up uh 140x and the other went up about 100x. And in one case I had uh invested about uh 10 million uh no 10,000 uh I had a million dollars in about in '94. So I I invested just 10,000 one business it became 1.4 million but there was another business I invested in which uh became uh more than 10 million and so these two were the outliers. So the original million became like 14 million or something but it was driven by these two investments. More recently uh the company in in Turkey that we bought at u uh 3% liquidation value it's just about hitting 100x now. Which one is that? That's RAS. That's the warehouse or Yeah, the warehouse operator. Okay. Uh I mean so what happened there is that we were buying a company I think when we first started buying it was a 15-16 million market cap liquidation value was about 800 million and what was the big misunderstanding like you know you've told me these words before I look for what's hated and unloved or where people have confused risk with uncertainty or was it something else in the Turkish market why was it trading when you say 3% of liquidation value that means the price of the business there's 30x that in just the assets that it owns if it had to liquidate everything. So, you know, 33% or whatever. Turkey 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 it private, right? And uh the owners of the business did not have a good understanding of buybacks and taking it private. They they have very good operators and they went to the public markets to raise capital so they could grow, 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 u wealth by the stock price. They calculate 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 score card. Yeah, a great great way to run, but actually you really want the business to trade near the stock price uh near the value so that anyone entering or exiting is getting a fair deal. That's what Buffett tries to do. He wants to make sure that Burkshire's 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 P of 0.1. Never heard of that. not not one 0.1 which means that the market cap was equal to 1 month's earnings. Okay. And I remember my friend had sent me a list of the businesses we were going to visit and I did no work on these companies. I said I'm going to do work on them after I visit them because I don't want to waste time if I don't like them or whatever else. So as we were driving to the company I start asking him questions. So I'm just somewhat intelligent in the meeting. So I said okay so what's going on here? He said well Monish it's a P 0.1. I said 0.1 and it's one of the largest banks in Turkey. I said what's going on? He said 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 uh the CFO of the business uh 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 um Southern District of New York uh folks picked him up at the airport and put him in Riker's prison in violation of the sanctions and then told him the rest of the family can continue on to enjoy Disneyland. So, so when that news hit the street, I mean that's like, you know, they you're going to be cut off from the Swift system. the US can put sanctions on you. I mean, you could just, you know, kneecap the bank. And Erdoggon at that time was calling Trump in his first term saying, "Can you please release the guy?" And 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 crazily priced assets which is why I decided take a simple idea take it seriously. I said okay this is the situation where half the winners of the racetrack have thrown away winning tickets right instead of one in a thousand or one in 500 it's 50 out of 100 have thrown 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 15 million, Turkish talks are allowed to go up 10% a day. They were limit that in a day 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 15, someone's willing to buy sell at 16 or 17, whatever. I said all the asks up to 10%. Just take them all out. If anything more shows up, take it out. I said just take everything you can get. So the guy calls me, the broker calls me and says, I have 5% of the company being offered by Templeton Fund. This is a US fund in Turkey. Templeton Trund is offering 5% of the company for a million dollars. Okay. So 20 million market cap basically 1 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 day traders. Somebody in New York made a decision, I'm out of Turkey. And the reason 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 is 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 thermonuclear event, global thermonuclear event. 99% of humans are dead. So, we've gone to 70 million humans left out of 7 or8 billion and everything's destroyed. the 70 million human humans that are left, someone is going to start producing coke concentrate and someone is going to resurrect a coke bottling plant because there's 70 million humans and there's no currencies anymore. But humans will be willing to trade 15 minutes labor for a coke. So a company like KO 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 seashells or dollars or lra 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 indexed. If the currency goes crazy, all of these prices are going to 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 was going on. And what happened in Turkey is when we were buying this company, it was five LRA to the dollar. Okay, that was the exchange rate. 7 years later, it's 45 LRA to the dollar. Okay, the LRA has collapsed by 90%. In dollars, I'm up 90x. Okay, in dollars. In LRA, I'm up infinity. Who cares? Okay, I don't care about that. I I I'm just looking at it in dollars. And the reason we went up in dollars 90x is ex Exactly. So there was there was a another mental model where I said that there are many businesses in Turkey that will get hurt by inflation. We're not interested in those. So there was another company there called TAV airports. All their revenue is in euros. Everything is in euros, right? Okay. They're listed on the Istanbul Stock Exchange with all the gamblers. Okay. Now airport operators, these are phenomenal businesses. And normally you look at an airport operator like you look at one in India the trailing P it'll sell at is 70 times 50 times like a natural monopoly right natural 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 TA airports the currency is not relevant they're not even They're not in fact what was happening is their revenue was in lera uh in do in euros and their costs are in lera. So in fact what's happening is the employees are getting poorer every year and so basically it was just using a few models take a simple idea take it seriously active versus passive understanding that thermonuclear 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 those four things there was no one else on the planet applying buying those four models at that same time in that market, That's it. How how difficult was that? question. I think I think the hardest question, let me tell you how I arrived here. I love the idea of studying businesses cuz 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 do it. I pick some stocks and I have some index and you know, I combine 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 Kathy Wood on the podcast. I said, Kathy, you know, she's super popular. I think she's really smart. I even agree with her about many of her the theories and thesis about where the world is going. At the same time, I told her, I was like, "Look, if I look at the last one year, two years, 5 years, you haven't beat the S&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 an honest person. Like, would" I asked her the question. I said, "Would you invest in someone with your track record?" And she said, you know, she had a great answer. Like, actually, I really appreciate you giving me the chance to answer that. And so, she gave me 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? Cuz in some years, you do and some you don't. I don't know exactly because you have funds and you have the ETFs. It's hard to even piece together fully. 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 uh it depends on the fund because we've we've got different funds and so on. But if you look at our oldest fund which is now um uh what it's uh 20 more than 27 years old every dollar is turned into about $30. Uh so a dollar has become about $30 in the oldest fund and I think the S&P is uh every dollar is less than seven approximately $6 or $7. That fund has done done well. Uh if I take the newest one which is our ETF for example which is uh got about 2 and 1/2 years of history. If you if I look at the entire two and a half years, we are behind the S&P because I think the S&P has done like 19% since uh on average per year in the last 2 and a half years and we've done like 15 16%. But uh this year we are ahead uh so if you look at 3 months we are ahead 6 months one year and even 18 months we are ahead. uh and I think in the last one year for example we are uh beating the S&P by more than 20 points uh 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 10 years uh we should be ahead of the S&P also the S&P has um it's a handicap situation for the S&P because it's overvalued you know it's sitting kind of 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 of the S&P may not do that well for the next decade just because there've been so much growth into the future in the last decade. So u I think we'll be fine. Yeah. Yeah. I guess do 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 90 years, 4% of companies have basically delivered the market return. So the the return we're getting in the market has come from 4% of businesses. The other 96% have just treaded water. And if you look at Warren Buffett for example and he said this himself that 12 investments he made over 60 years is what has created Burkshshire Hathaway. He has made more than three or 400 investments. So again his success rate is 3 to 4%. 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 TSMC and it's too dumb to sell it. Whereas an individual investor or or a portfolio manager will look at it and say, "Oh, it's overvalued or this and that or whatever else or the mistress looks hot or whatever else and make that change." So this is the reason why index investing does well because it includes that 4%. So you don't need to think about it. You have captured the 4% 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 have 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 when I get to my 30s and 40s, I'm 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 uh 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 4% bets of Burkshire that worked. The other 96% whatever Buffett did with them did not matter. It didn't matter whether he sold them, bought them, uh liquidated them, whatever else that didn't really move the needle. What what mattered was not selling Coke, not selling Apple, having Greg Ael run Mid-American Energy, having Ajet Jane run the insurance and not firing Ajet and not getting rid of him. Those were the important things. This is your circle the wagons concept. Circle the wagons. 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. Um, there'll be a sign on the highway saying McDonald's 8 miles ahead. Right. You see that sign and say that's where I'm going. Right. Right. And even if Sean's Burger Shack is one mile away. Exactly. And that's the that's the moat. Right. And so it's actually for the most part how and when moes get built. But once a mode gets built, some of these modes become enduring for a very long time. Like if you look at something like FICO for example, the FICO scores, I mean that business just prints cash, right? But it started off with no more. Then 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 want to 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 uh 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 world, right? Because you need uh in fact what they were building uh quarter million square foot warehouses are now becoming million square foot warehouses because all the nuances happening with e-commerce. So we we want to look at businesses where the moes have staying power for a long time. an airport operator, a coke bottler, you know, it's going to go on, right? So, we want to look at these enduring morts. Eventually, we want to own parts of those enduring modes. I want to ask 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 100 years, but then there's new things that might be around for 100 years from now or or might not. I'm curious your opinion on these. So, I'm going to throw four um kind of topics at you that in rapid fire. Give me just your kind of where you're at mentally on these different things. 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 going to disrupt certain businesses or create new industries or really be huge tailwinds or headwinds. Invest in the pickaxe makers. So I think I think that the alphabets and metas of the world are playing a game they haven't played before which is having businesses very high capex may work may not 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 TSMC uh they have to pass through ASML they probably have to pass through Micron so I have no bets in any of these areas because um it's either goes in the too hard pile or it goes in outside circle of competence or it's too expensive. Mhm. So if I'm not making a bet, it doesn't matter whether I'm right or wrong. Right. So what I'm saying is that um there's no way I'm going to sell the Turkish warehouses, to buy TSMC because that that trade makes no sense to me. The mistress looks much uglier than the wife. Yeah. And there's no bonus points for valuation. Um you when I when I came to your house once, you were telling me about your investments in coal and you talked about how you look for things that are hated and unloved. It's a clue for you to go go spend some time because you think that there might be opportunity there. I feel like the right now in my world, the hated and unloved bucket is SAS companies, vertical SAS companies. And I saw you invested in Constellation. Yes. So I'm curious and I've been thinking about this 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 of competence. Okay. And it made sense. So the idea that Betsy in HR is going to fire up some AI AI software 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. So I think what is not understood well by the market is that software is not coding. Okay. Coding is automated and will get even faster and whatever but it may be at most 1/5if of the pie. Mhm. 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 off people. They all laying off people, right? Because they don't need so many because they can they can automate it. So, all of these incumbents are going to reduce their cost. Now, they may also end up reducing price, But I don't really see uh 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, uh you know, where do I sign, you know, and and I specifically only invested in the Mark Leonard universe of businesses because he has a unique mouse. So the reason why I invested in M uh is Mark Leonard is no one else has ever cloned constellation and no one else ever will be able to clone constellation. Explain who he is cuz 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 70 to 100,000 vertical model software companies, private companies in the US. They have a team, a bisdev 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 Burkshire meeting and a guy comes up to me and says, "Uh, Monish, I'm a huge fan of yours. I'm in the Constellation M&A team." I said, "Don't go anywhere. Need to talk to you." Right. So, tell me what's going on. And, you know, I try to get a conversation going because, you know, Constellation is such a black box. But anyway, they have this large M&A team and they buy a company like every 30 days or something. Yeah. They bought they bought like 200 companies last year for example, right? and they've bought more than a thousand companies and they don't use bankers, right? And so they're 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 uh the effective price becomes like three or four times cash flow because they bump up the revenues a little bit. They bump up the license fees about 20% 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 80 other companies we have like this and this is what we've learned so this is what we suggest and you do your thing and whatever you want. So they actually extract uh more efficiency out of their engine. So on an organic basis if they were not buying anything they'd be growing about 3% a year. So these companies they're buying are not dying on average they are still growing right. So if you think of a if you think about buying a business that's growing 3% a year and you know interest rates are where they are you would be fine paying 15 times cash flow. That would probably be about where the deal should be done somewhere between explain what's the math there I don't understand the math there is that a business is doing 10 million in in sales and let's say they're putting 1 million to the bottom line. Okay. And that 1 million is going up 3% a year. Now, let's say you were buying that company for 10 million. Okay. Your alternative is put it in treasuries. You put it in treasuries, you're going to get 400,000 a year, 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 uh the risk-free rate effectively makes it that if you knew a business was growing at 3% a year, you would be willing to pay in a low interest rate environment 10 15 times cash flow, whatever. And so they they're effectively buying it for three or four times because they get these efficiencies. So now you're taking the cash flow the business is generating and you're reinvesting it at a 25% rate, right? I mean that's and then you're continuously doing that. So nobody else has the patience to put in the engine to touch the 70,000 twice a year and also the more difficult part is integrating them right so the culture to say let's do this and that in many ways constellation is superior to Burkshshire Hathway Burkshshire Hathway 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 it. They've been told any business up to 20 million you can just do your deal. And as those teams have keep doing that and have the track record, they bump up how much they're willing to. So, so it's actually a delegated model now at this point. And so from my point of view, you've basically got a mousetrap that's growing cash flows at 20 25% a year. What should you pay for a mousetrap that's growing cash flows 25% a year? You would be paying 40 times. If you knew that was going to continue forever, you'd easily pay 40 50 times. It went down to teens multiple, And it came down to a point where even someone like Monish, a cheapkit like Mones got interested. And uh 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, Private equity hates doing these itty bitty deals, right? And the second is they don't want to buy and hold them. So he's buy and hold these come these guys want to flip. So the frictional cost of buying a tiny company and then trying to find another buyer and all that. There's too much nonsense involved. 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 constellations. Right? It's large enough for three or four constellations, but there are none. There's only one. So that's why we are in and now the thing is that we don't need you have to understand the 4% rule of Buffett, right? Only 4% of his bets work. So if you look at my bets like you know uh airports, coal, uh warehouses, constellation, if all of them work now, if I if you ask me about each one, I'll give you a case why it works. right? All of them not going to work because that there's no way if if I were doing if all of them work, we're doing 100% a year. Okay, that's not going to happen. But if half of them work, we have a home run, Even if 40% work, we have a home run. So this is a very forgiving business, And so that's where this is, which is I don't know which half works. I wish I knew. Yeah, if you knew. If only. But I don't know which half. So like like I know that our coal bets for example there are things that can cause that bet to fail. They are low probability but they could happen. So maybe those things happen, maybe they don't happen. I don't know. Constellation, maybe cloners arrive. I don't know. Maybe the DNA of the company deteriorates after Mark is gone. I don't know. Right? So there are these unknowns, but it's a favorable bet. It's not a 100% bet. It's a favorable bet. And as long as we keep making these favorable bets, we're okay. So Howard Mars came on the podcast. Oh, wonderful. He was um he he laid out why the S&P might be a bad bet for the next 10 years. And his take was basically if you look at the current PE ratio of the S&P, I think it was like 23 or something like that, that the forward 10-year return had vacasillated between -2 and 2%. Anytime that had happened. Uh and so I'm just want to give you kind of like a just quick reaction bullish bearish on uh on the S&P index right now if you were to to be an investor. Bearish. Bearish. Same reason. Yeah. I I I don't I Howard is very very smart. I don't disagree with that. Yeah. GLP once. So it's amazing. We have a we have a the best things in sliced bread. Yeah. Exactly. And it put sliced bread out of business. Um I read a stat that the GLP1 drugs uh OMIC and and the others they're currently generated double the revenue of the AI of the AI companies. So it's like 79 billion a year versus you know 40 billion. We are embriionic right now and we're early stage and also I think the the science is going to get a lot better. Yeah. So like give me your how you're thinking about that right now whether from an investor point of view or just well I think I think from an investor point of view to for me it goes in a two hard pile and reason it goes in a too hard pile is industries with rapid change are the enemy of the investor according to Warren. So we go was king then MARO became king and then now they're talking about some of these tablets. So tableabolis are going to have a hard time because they have to go through the liver and all that. But basically to me uh I I think that this trajectory is going to continue but given the valuations and given where it's headed it's there are too many 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 me. Yeah it's also too hard pile out outside comments. Has anything changed in your opinion? cuz the more time goes by in a way like all money is a confidence game as you know right every currency go every gold bar is a confidence that this will this will last I was 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 ransom seekers and whatever else uh 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 won't debate you on that. It would be a 4-hour podcast. Yeah. There's um a couple of life models I wanted to ask you about cuz I asked you 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 25 and get buried at 75. What do you mean? So that's a quote by Ben Franklin. As you know, I have no original ideas. So Ben Franklin uh said that many people die at 25 and are buried at 75. And basically what that's saying is that you've stopped growing and you've stopped kind of doing things and you're kind of just coasting. You know…

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