In investing, we want to be unreasonable. We want extreme unreasonableness where things just don't make sense. >> What would be the subheadings of your investment strategy? >> This is a endeavor which is looking for needles in haystacks. There are haystacks that are rich with needles. >> Our guest today, managing partner of Pabrai Investment Funds. >> Need no introduction. >> Monish. >> Monish Pabrai. >> Where do people most frequently go wrong? >> Even a guy like Warren Buffett, he made more than three or 400 investments. Only 12 of them moved the needle. The hit rate was like 3 4%. The biggest mistake I've had in my career is >> So, Monish, for the next hour, I would really like to nail down your personal investing strategy. I know last time we spoke a few months ago, you said your strategy is infrequent big bets. Do you have like a set of steps that you go through? What would be the subheadings of your investment strategy? >> Yeah, I'll I'll go through that in a second, but I I want to just give a caveat. >> Okay. >> And that is that the dollar cost averaging indexing and spending less than you earn is probably the correct way for more than 99% of the population. >> Right. >> We're going to spend our time on everything else but that today. >> Right. >> The point 0.001. >> for the 1% or less. >> Yeah. >> But I would just say that just like you can't become a surgeon by listening to a 1-hour masterclass >> Mhm. >> or you can't become a lawyer or a CPA >> Mhm. >> there are there are many kind of background things that become fundamental. For example, I took accounting in high school. Right? So, that's just kind of like a base layer, right? And we're not going to talk about that a whole lot. So, there are a lot of pieces about intrinsic understanding of businesses, intrinsic understanding of accounting, intrinsic understanding of kind of sniffing out where value is, and those sorts of things, which take a while. And that may be other videos we might do. >> Okay, sounds good. So, if we That's a good disclaimer. >> Yeah. >> With that disclaimer, what are the broad subheadings of your investment strategy? >> Yeah, so this is this is a endeavor which is looking for needles in haystacks. Right? That's what we're we're doing here. And there are there are haystacks that are rich with needles. Right? Not just one needle, there's many needles. And so, the idea like like Charlie says, you fish where the fish are. And so, there are there are places where it is likely that you would find interesting ideas, asymmetries, possibilities of multi-bagger returns, that sort of thing. And so, the first thing is to go into those into those areas. So, for example, there's a website called Value Investors Club. valueinvestorsclub.com Free, no charge, even if you don't give them your email address, you can look at all ideas with a 4-month delay. If you give them your email ad address, you could look at all ideas I think with a 2-month delay. >> Right. >> And if you become a member, which is very hard to do because you have to submit an idea that is accepted, you get all ideas with no delays. But, the thing is that the Value Investors Club, even if you're looking at ideas that were a year or more old since they were posted, there's a lot of them over there that have a lot of meat on the bone. >> Mhm. >> So, one doesn't need to find or look at the ideas that were posted 3 days ago. They could be ideas posted 3 years ago. So, the way that website works is it's very difficult to be accepted as a member. And you can only post ideas if you are a member. And so, and and each member has to post two ideas of year a year which get decent reviews. If you don't post the two ideas a year with decent reviews, you are thrown out. >> got a decent filter on it already. >> It's a very good like like Michael Berry. We were talking on Michael Berry. He was in there. >> Right. >> Okay. So, um so, there uh there are lots of people who who are uh extremely good investors who uh post ideas on Value Investors' Club. And so, I I would say that if someone wanted to just build uh muscle power on value investing, >> Mhm. >> just reading the write-ups. So, Value Investors' Club has been around, I think, for more than 25 years. And there's about 200 or 300 ideas, maybe 500 ideas posted every year. >> Right. >> So, >> There's a lot. >> There's like 10,000 ideas. >> Wow. >> Each one maybe with the comments, let's say, even if it's 10 pages, which would probably be small, you have 100,000 pages. And if somebody took the time to just sit down and read all the ideas. And one could just start with the ones rated the highest and work your way down, right? But if you just read all the ideas with all the comments, what would happen is every so often something would hit you on the head with a 2 by 4. >> There it is. >> And I know that doesn't >> >> that doesn't translate in Australian. >> We've heard. Because that's one of my bingo card. >> >> My Monish bingo card, hit over the head with a 2 by 4. All right, we'll see if the other ones come up. >> you know, it's going to you're going to say, "Whoa!" >> Yeah. >> Something like something what we are looking for when you're reading something on Value Investors Club is something that truly grabs you. >> Yeah. >> Okay? That this makes this is unbelievable. >> Mhm. >> Right? And there is unbelievable stuff in there. >> Right. >> So, when you encounter those unbelievable things, um that's when you start asking yourself some questions. >> Mhm. >> So, the first question you ask yourself is that okay, this idea or this paradigm is it within my circle of competence? Is it something I understand? I'm capable of understanding. You know, if there's something biotech, I'm not even going to read the idea. >> Yeah. >> Not my not my cup of tea, if you will. But there's many things that I would have an interest in. >> Mhm. >> And so so the circle of competence is a exercise in humility and it's an exercise in honesty. Uh you cannot lie to yourself, right? So, if something is within your circle of competence and you're like saying, "Whoa! This is incredible." Um then you want to drill down. And actually, the Value Investors Club I always find is a great place to start. Even if I don't get an idea over there, if wherever I get the idea, one of the first thing that I look for is is there a write-up there, even if that write-up is 5 years old. Because somebody has digested that business and condensed it down into a format that would take you 3 months to get to. Right? So, it's a it's it's a tremendous resource. >> You still get the context. >> Yeah. It's it's awesome. So, I would say that uh we start there, we start reading, we start waiting for aha moments. >> Mhm. >> And then when the aha moments come, you look at look and see whether that idea is still at prices that make it compelling. Sometimes the prices are even better because they've gone down even more. >> Mhm. >> You know, they're even they're even better than when they were written up. >> Yeah. >> And uh so, what we are looking for is kind of seven moons lining up. Right? Uh an idea that hits you over the head, it's still current, uh it's within your circle of competence, it's something you can understand, it's something you could explain to a 10-year-old in 5 minutes, all of those things. >> And how often do these opportunities come up for you? Because I notice when people get excited and learn about this Buffett strategy that we've all subscribed to, they just want to implement it. They want to they want to do it. How frequently would you say you find these opportunities that are actually worth pursuing? I guess it's different from person to person, but for Monish, how often would you encounter something >> also, when I find an idea in Value Investors Club, um some of them many of them get discarded within 5 minutes. Some may get discarded after 30 minutes. So, what I'm saying is that we find something that looks interesting. We start drilling down a little bit more and we find some in the armor which says Oh, the management comp is too high. I really don't want to be in bed with people like that. So even though I like everything else, I have an issue with that. So I'm done. It's a red flag. I'm done. Right? So we are we are not looking for continuing with an idea. We're looking for the flimsiest reason to discard it as quickly as possible. >> So it's a tough filter you're putting over everything. >> Yeah, so what we what we're looking for is that if we find something that is bothering us uh where we or either we don't understand it or we are not comfortable with the way it is or whatever it is, if something's bothering us um we're done. >> Okay. >> Right? >> Can I ask you I feel as though cuz all businesses uh have their intricacies and are complex. >> Absolutely. >> So I feel like all businesses will have something >> They will. >> that you're like Mhm. >> Yeah, so so let me just say that, you know, once a business has gone through the 30-minute filter, you know, we've we've poked around a little bit and I haven't found anything that's a showstopper. That's when I start running the checklist. Right. The pre-investment checklist. >> What's the checklist up to? >> And the checklist has like hundreds of 200 odd questions. Right? >> Um and and usually even before I run the checklist, I want to do some more work so that I because what will what's what will start happening with the checklist is large numbers of questions I won't know the answer to. So then I have to go and do the work. But once I have finished the checklist, which means I've answered every question. Usually what happens is the first time I'm trying to run it, there will be like 20 questions or 30 questions I can't answer. I don't know the answer. Um I go and find out the answers, run it again. So, that could take several days, right? But once I've run the checklist and I can see So, what happens with a checklist, the answers they are either in blue, which means it's not an issue. They are in red means means this is an issue. Or they are in purple, which is this is a kind of gray area. Okay? I'm not so concerned about the gray areas. I'm definitely not even concerned about the blues. The blues are great. Then I separate out all the reds. So, I take the 200 questions and maybe there's 15 reds. Right? >> Right. >> I pull those out. And I look at those 15. And at that point So, for example, one of the questions in the checklist, will the death or departure of the CEO have a negative impact on the business? >> Mhm. >> Right? >> It's an interesting one. >> All right? >> Yeah. >> In a large number of cases it's going to be yes. Okay? That's not a reason to not invest in the business. But you have to be aware >> Mhm. >> that that's a red flag. Okay? So, that's almost always a red flag. Like that comes up always because like you know, management is fundamental. >> Yeah. >> Right? So, we have questions where we know um if a if a business has debt, uh there's a whole bunch of questions related to leverage and some of those will come in as red red flags. >> Mhm. >> So, um can unions hold the business hostage? Okay? The business could be unionized. That doesn't mean we won't invest, but we want to know that this is an issue, right? So, we get these red flags, and then at that point you have to have you have a go no go decision. Right? Are the red flags benign enough where you say not enough to can it, or it is there's too much here that is a negative, I'm moving on. So, that's a judgment call. >> Right? What would you say when we look at your checklist, what are the broad categories of things that you are checking for? Are they very niche questions? I imagine a lot of questions will fall under say certain categories, right? >> Yeah. So, almost all the questions on the checklist came did not were were not created in a vacuum. They came from some investor who made some investment which did not work. And where the reason it did not work was visible before the investment was made. But this great investor missed something obvious, right? For example, Buffett bought Dexter Shoes, US shoe manufacturer in Maine. He gave 2% of Berkshire stock to buy that business. Almost immediately after he bought it, the business started having issues. And what he missed was all the manufacturing was in the US, and shoe manufacturing has all gone offshore. So, Dexter was not competitive. And eventually the entire investment basically went to zero. And if you look at Berkshire's market cap of a trillion, okay? Um that's 20 billion. And 20 billion, which bothers Buffett a lot. >> >> Okay? For something very obvious. We think it's obvious, yeah, right? So, there's a question on the checklist. Can offshore or cheap uh you know, Asian manufacturing or whatever do this business in? Now, if it's some US insurance company, the company's the question is irrelevant. It just gets a blue NA, not applicable. And we move on. But, if it's a manufacturing business, then we are going to um consider that, right? We're going to consider what's going on here, and can we have an issue here? And uh and so on. So, basically, all these questions are coming from uh real-world case of some very prominent good investor missing something obvious. And uh what I did is when I came up with these different checklist questions, I recategorized them by subject. The single biggest reason investments do not work is leverage. There are probably around 40 or 50 questions related to leverage. >> I see. I guess that makes sense. >> Yeah. So, leverage is a is a big reason why businesses fail. >> Mhm. >> The second reason uh things don't work is some sort of misunderstanding of the moat. So, >> Right. >> the nature of capitalism is if anyone has got some mousetrap that's doing really well, a lot of people are going to look at that mousetrap and want to replicate it. >> Mhm. >> And eventually, those extraordinary profits disappear, right? So, durable enduring moats are an anomaly. They are actually an exception in business. They happen accidentally. Like for example, uh when Doc Pemberton in 1887 or whatever created the Coca-Cola formula in in Georgia, >> Mhm. >> right? It has no moat. It's a drink. It's an interesting drink, but it has no moat, right? That moat got built basically accidentally over time. Now, today anyone can create a cola where if you took away the brands, you would not be able to tell the difference between that cola and Coke. >> Mhm. Yeah. >> So, Coke is a brand built on this intangible of everything that's around it where really the product is nothing is not nothing exceptional. >> Yeah. >> Right? But, the brand got built and that moat got built and became enduring. >> Yes. >> So, the predict the predictability of these what will become a long-term enduring moat versus what will not is mostly they're not going to become enduring moats. >> Mhm. >> So, when Buffett invested in Coke, by that point the moat was very solid, >> Yes. >> right? But, in 1887 or even 1910 or 1915, it wasn't that solid. >> Mhm. >> So, have to understand the nuances of the moat, >> Yeah. >> right? Because that's where a lot of the issues come up. >> Yeah. W- with when I speak to different investors, >> Mhm. >> they all come back to the moat. >> Yeah. >> As that's going to be maybe one of the biggest things that will be make or break in the long term of a business, particularly a long-term compounder. >> Yeah. >> And I think my understanding is kind of what you just said is that people are too quick to confirmation bias their way into believing that this business has a moat. So, once you kind of line up, okay, this business model has characteristics of something with a switching moat or a network effect or something to that matter, what are the steps? How do you then see a moat in the financials? Like, what are you looking for? What what kind of proves your thesis that yeah, this actually does have an enduring moat? So, >> one of the things to remember about moats is virtually every single business will see its moat get decimated in 10, 20, 30, 50 years. Very, very few businesses are going to survive and thrive for 50 years, >> Mhm. >> 100 years. So, if we go back and go back and look at the history of business, right? There is a um small hotel in Kyoto, in Japan, okay? Which has been running in the same family for 700 years. >> >> Wow. >> Okay? >> >> 700 years. Okay? >> Okay? And um now when you have future generations of your gene pool come along, no matter how good you are, you are going to have a lot of incompetence in the future members of your gene pool. >> Mhm. >> Thinking that they're going to be better than you or even as good as you is wishful thinking. >> Mhm. >> This family that has been running this Kyoto Inn for I don't know, 40 generations or something. And you know, 700 years, Japan's gone through a lot of change, okay? Um they they have probably got things ingrained into those future generations from the time they're 10 years old. Where they're telling them, "Listen, you don't need to be a rock star. >> Mhm. >> You don't need to be a high IQ guy. Please do not take any debt. Please do not try to expand the business. >> Mhm. >> Please do not bring in business partners. Please run a nice clean operation the way we've been running it. >> Mhm. >> We've got a prime hotel in a prime location with great brand. Just keep it straight and narrow." >> Right. >> And somehow they have succeeded. Which is surprising to me. They've succeeded for all these generations. But when we go past that business, okay? And you start looking at, "Okay, what other businesses are that old?" You know, more than 200 years, almost nothing. Okay? More than 100 years, you'll find a few dozen businesses, right? And so the um the mortality rate, >> >> you know, businesses dying, is very high. >> Right. >> And and so we have to understand that when you have a business like Apple, which is, you know, we're talking about Apple in the year 2026, what does Apple look like in 2076? 2050? I don't even know if they're around in 2050. >> Mhm. >> You know what I'm saying? What looks like a totally dominant locked moat, technology, we don't know it'll be around. Bill Bill Gates never had any confidence that Microsoft would ever last for even 50 years. >> Right. >> You know, um in many ways I think I'm Forrest Gump. Okay? >> Okay. >> Back >> Explain that one. >> Back back when I had a head full of hair. >> Yeah. >> Okay? I was running an IT services company in Chicago. We were a Microsoft solution provider. And one time the local Microsoft office called me. And they said, "Bill is coming into town. And we are getting about eight or nine of our top, you know, uh partners to have lunch with Bill. Would you like to come to the lunch?" I said, "Is the Pope Catholic? Of course I'm coming to the lunch. Okay?" >> Yeah. >> So there I am, Forrest Gump, with Bill. >> That's awesome. >> Okay? And this is this is like um 19 95. >> Okay. >> Okay? This is like 31 years ago. >> That's early days, yeah. >> I was about 31 years old at the time. Okay? >> yeah. >> And um and so I'm I'm sitting there with Bill and I asked him a question. I said, "Bill, um what do you think is the durability of Microsoft?" And Bill basically said that um I have spent a lot of time studying the durability of many businesses. He said there was a time when General Motors owned 80% of the market. Literally literally nobody could touch General Motors in the '50s and '60s. '70s, they were dominant. >> They were huge. >> And he said the history of business is just creative destruction over and over and over again. >> Mhm. >> So he says that um I don't think we can count on Microsoft being a dominant force several decades from now. Right? >> Right. >> Now the interesting thing is Steve Ballmer is richer than Bill Gates. >> Is he really? >> He's richer than Bill Gates. >> How the heck did that happen? >> And >> Is that cuz Bill's just giving it all away? >> No, it's all Steve is not a founder. Okay? >> Yeah, yeah. >> He is a hired gun. >> Yeah. >> And he was the one of the first hired guns they had. Okay? And he had like, I don't know, like uh 5% or 6% of Microsoft >> Okay. >> got. >> Yeah. >> He never touched it. >> Right, he's just held it. >> Just held it. >> Wow. >> Okay? And Bill Bill basically didn't believe. >> Oh. >> He didn't He didn't believe. >> didn't believe in himself. >> So, what what Bill did is he took his Microsoft money >> Mhm. >> and he diversified it into a whole bunch of different businesses. Those portfolios have done decent, but nothing like Microsoft. >> Mhm. >> Right? >> Yeah. >> So, and he did that because of what he was telling me that, you know, this is not not not durable. >> Mhm. >> And And of course, he didn't know that rock star Satya Nadella is going to come along and just hit it out of the park. >> Mhm. >> Right? And Microsoft now is 50 years old. 5 0. I mean, I think it's 51 years old. Okay? >> Yeah. Crazy. >> He would have never guessed that was possible. Tech company, you know, 50 years is crazy. >> Yeah. >> And so, the uh the durability of the moats, one has to be very very uh pragmatic. >> Mhm. >> And one of the things that I uh think about I think about the durability a lot about a lot of my portfolio. I'm always thinking about, you know, what is the durability here? Because I know of these business failure issues and all that. And um when I look at um our largest position, which is, you know, the uh real estate company we have in Turkey. Um that that business rents warehouses in super prime area of Istanbul to all these industrial companies, right? And these are uh long-term leases, recurring revenue, all of that. So, I know that um from 1 year to the next um their business is not going to fall off. You know, because it's all leased and and for these companies to even move out is complicated and there's a lot of tightness in space. So, I can see that that business 10 years, 20 years, 25 years, maybe is okay. Okay? I And I those areas that I've looked at where all these properties are you know, there is no it's not a bad neighborhood, there's none of that. It's like it's a very it's as far as long as I as I can see, I don't see anything coming in which disrupts that, right? But that's because it's a very basic real estate uh warehouses and this industrial real estate, which is a good place to be. If they were in the hotel business, for example, that's not so durable. You know, that's much more even if they were in uh residential housing you know, the neighborhoods change and different things happen and all of that. So, that becomes more sensitive. So, um I look at I look at the different businesses that we we have a stake in and the durability varies, you know? And uh it's a very difficult thing to get this long durability in uh in an enterprise. >> So, it sounds like from your experience, the durability of a moat is more of a subjective thing that comes back to your understanding the business model as opposed to something that you look for in the financial data, like long-term growth rates? >> Yeah, I think that's more of a of a qualitative. So, when we look at a company like Berkshire Hathaway, extremely durable. You know, they've got so many businesses, they've got no debt, they've got all these different revenue streams. It's very, very durable. Berkshire Hathaway is way more durable than Microsoft. Way more durable than Apple. Right? Those may have more upside, but this is very durable. >> Right. >> You know. >> Okay, interesting. So, from there So, we've spoken about a lot. We've covered how to how you're finding businesses, staying within your circle of competence. We've talked about >> at You look at the checklist. You look at You look at the leverage, moat. Another reason why businesses don't do well is something weird about either the owners or the managers. >> Okay. >> So, that's the other piece. You know, who is the knight who is guarding the castle? >> Okay. What do we need to know about management? I've always boiled it down to skill and integrity is the two things to to look at with management. How How do you think about >> important thing is track record. >> Track record. Okay. >> So, so all these companies tell us what they're going to do in the future. We don't care about that. >> Mhm. >> Total nonsense. Okay, what we care about is what have they done in the past. So, if there's a CEO who's been running a business and he's been there in that business for the last 10 or 15 years, well, that's fantastic. Let's look at what the business was like 15 years ago. What's happened? And how's he done versus his competitors? And whatever, it's black and white. So, we have to go back and look at the track record. And the because the track record would tell us uh it'll separate the men from the boys. >> Mhm. >> Right? And that's really where you start seeing the differentials because um we have um power laws at work here. And if you get an outlier manager, that's what we're looking for. You know, we can find an undervalued business, but what's really going to create the value and the growth long-term is an outlier manager. >> Mhm. >> And the outlier managers have it's all qualitative. This is not in the balance sheet and all of that. And and this takes a while to to figure out. >> Mhm. >> And um so so the nature of management um and understanding it and getting a good grasp on that is very important. >> And you, from my understanding, try and when you're interested in business, you try and go to it. You'll try and meet with For example, you go to Turkey to meet with these businesses. Is that an important part? Do you Do you want to meet the management? Do you want to go and look and ask them questions, or are you >> For the longest time, I did not meet management. >> Okay. >> And the reason is that, generally speaking, the one skill they have in spades is they're great salespeople. >> Okay. And if you go meet a great salesman and you talk about a subject which he knows everything about and you know nothing about, >> Mhm. >> you're going to be blown away. You won't even know that you've been sold. >> Yeah, I can >> So, I always felt that there was a negative and that Ben Graham talked about that. >> Yeah. >> That, you know, you got to be a little careful on that. But what I've realized that it was a mistake that yes, I can get distortions in my judgment by meeting them, uh but I think that uh you start picking up things that are very important. I think the track record is more important than the meetings because the track record really tells you everything. >> Mhm. >> The meetings The meetings individual investor is not going to be able to do. Right? So, he's not going to be able to meet these people. So, that part of it is not even worth discussing. I would say that focus on the history and the track record because that will tell you who these people are. >> Mhm. >> And I'll you know, so uh some things that became um obvious to me relatively recently is that there are there are particular traits um in management that I would I would kind of call it um 100 bagger leaders. You know, so if you're looking for a stock to go up 100 X, >> Mhm. >> um unless they have particular nuances in their leader, it's not going to happen. And these nuances are kind of what Charlie would call Lollapalooza effects, which is 10 factors working in the same direction. So, it's not just one factor, but they're overlaying one over the other. So, for example, um one of the things that's um very important trait for a leader is energy. And you know, Warren has talked about this. Actually, the the energy of a leader is almost never been covered in the annals of value investing. You know, you go back and look at what Ben Graham said and Phil Fisher said and what Charlie Munger said. They don't talk about the energy of a leader. >> Energy like enthusiasm, drive. >> No, meaning that you know, so uh I think like productivity, right? So, Buffett said Buffett made this comment about two of his managers. He said David Sokol, who they fired later, and Greg Abel, who's the current CEO. In both cases, what he said was what they get done by 10:00 in the morning, I cannot get done in the whole day and maybe in the whole week. Okay? >> Right. >> Now, that's a very big deal, okay? Now, when Greg Abel ran MidAmerican Energy, Berkshire Hathaway Energy, before he became the CEO of Berkshire Hathaway, >> Uh-huh. >> Berkshire Hathaway Energy compounded at a ridiculous rate. It's a electric utility. >> Mhm. >> Okay? >> It's not what you think. >> You look at electric utilities, and they don't compound. There's nothing but but this one went up like 50, 70x in value. I mean, Greg Abel is a billionaire. >> Mhm. >> Right? And he's a billionaire from having a very small stake in that business. The reason the reason it happened is what what Buffett is saying that and Buffett is not exaggerating. So, what he's saying is that what Greg gets done by 10:00, I can't get done by all day. Buffett himself is high energy. But he's saying these these guys, Greg's Dave Sokol and Greg Abel, are 10x. >> Mhm. >> Okay? >> >> Now, that is very hard to >> measure. >> It's very So, you know, we look at um we look at someone like Jamie Dimon, okay, the leader of JPMorgan Chase. When I look at the results of JPMorgan Chase, they're off the charts, okay? I don't know that much about Jamie. I don't know about his energy levels, right? But if I were to you put a gun to my head, I would say he's probably high energy. He's probably like cranking like at a very high high rate to be able to do what he did. >> Uh but this trait this particular trait is extremely important. But it's not at all easy to figure out. >> Right. >> And if you look at Berkshire Hathaway, you know, Warren has more than 100 leaders uh under him. Okay? He's only made this comment about two of them. Okay? He's not made a comment about anyone else. And he picked these two guys were the ones who were the successors, the high energy guys, okay? Um the company in Turkey that I have, Reşat's, the real estate guy, uh real estate play. It took me many years to figure out that I couldn't understand why were they doing so much better than everyone else. And it's multiple factors, but one factor that's very clear is the energy levels and the productivity level is off the charts. That guy, the son who's running the business, is 20x or 30x or 50x more productive than any competitor he has in Turkey. >> Right. >> He's so far and he himself doesn't understand it. Because he just thinks that's normal. >> It's just him, right? >> the way things are. And I And I look at him and I say, "This guy doesn't even understand how off the charts he is." Okay? But But you have to overlay other factors with it, okay? So Buffett has also talked about creativity. Okay? Now, creativity uh he's he said that Ajit Jain has very high creativity. And he said he's done all kinds of unusual things in insurance. Insurance is a very boring business. But, he called Ajit Ajit an idea box. Okay? So, again, in a very in a very Now, if you look at if we look at a business like Amazon, extremely creative. Okay? They keep throwing stuff against the wall. And they enter all these, you know, like the Fire, it failed. The Kindle worked, but they've they've done so many ventures that have failed. They make these small bets, they fail, but they're very creative about it. They did not understand how to manufacture hardware. They were a book bookseller. They figured out how to make the bloody Kindle. Okay? And now they've got AWS and all of this stuff and, you know, making chips and everything else, you know, so the Amazon's gone into like a thousand areas. Okay? Rize Saş in Turkey, the business I I have, has gone into a zillion areas. The most recent one they went into is growing tomatoes. Okay? >> Okay. >> So, now Now, here's the situation with the growing tomatoes. Okay? They're not farmers. >> Yeah. >> Okay? They know nothing about farming. The father um is reading the newspaper. And Turkey has very high inflation. >> Yes. >> And the population gets pissed off when the price of tomatoes go up because tomatoes are so fundamental to Turkish cuisine. >> Yes. >> Okay? So, the government knows that we cannot have the price of tomatoes go up. >> Right. >> Okay? So, the government government comes up with a scheme. They They And this is the article he's reading in the newspaper, maybe couple of years ago, two or three years ago. The government says that if anyone buys land to grow tomatoes, and if you invest 5 million Turkish lira in that venture, we will match it 10 to 1. >> Wow. Fifth So, this is what the government said. >> Yeah. >> We will give you 50 million Turkish lira as a loan, which is interest-free for 10 years. >> Okay. >> Okay. Now, in a high-inflation environment, if inflation is running 50 to 100%, if you if you give me a million dollars interest-free for 10 years, after 10 years, that's worth 40,000. >> Mhm. >> Okay? It's a grant. It's not a loan. >> Mhm. >> It's a grant. >> Mhm. >> So, the father is reading this newspaper article, and you know, they're all they're all wired to get high returns on investment, and they look at this and say, "We need to go in the tomato business." >> >> Okay? Now, here's what happens, okay? So, they buy the land. The government gives them the 10 to 1 match. But they execute in a way that blew me away, okay? So, on Instagram, there are some videos of their tomato stuff. So, when you do the video, you can show the what they're doing. But they they made these very high-end greenhouses. Their productivity per square foot of square meter of tomato is off the charts. So, very high-end. They made it all organic, and they made it all for export. So, Reysaş has a huge fleet of refrigerated trucks. They have the largest truck fleet in Turkey. >> Okay. >> They also have the largest train uh freight train network in Turkey. So, they already transport all kinds of vegetables and whatnot. They've been doing that for years. >> Okay. >> And they took these tomatoes, and they blasted all of them to Germany, because Turkey has um in there's no tariffs between the EU and Turkey. >> Yeah. >> Turkey can send anything uh without any tariffs, right? >> Yes. So, they they grew the tomatoes in Turkey with this 90% government subsidy, right? And the cost is nothing. You You know, someone gave you 90% of the capital for nothing. And then they are selling the tomatoes at a high premium with very high packaging into an export market, not into the local market. >> >> And I know that when I sit down with them and ever get to know the economics on that, it's going to be so off the chart. >> It's just a game. >> So, so this is a this is the this is the what I'm saying a company that rents warehouses goes into tomatoes and blows out all the 50-year tomato growers. >> That's insane. >> Blew them all out of the water. >> Right? Because they don't they don't have the trucks, they don't understand the logistics, they just grow tomatoes and give it to a wholesaler cuz they don't know how to do anything else. These guys went high-end and all of that. So, the creativity, so you have energy, you have creativity, right? And then you start overlaying it with integrity, you overlay it with capital allocation skills, you overlay it with basically strong leadership, and you start uh you know, like Nick Sleep talks about scale economy shared, like Costco. Um they could charge a lot more, but they don't. Right? And so, the the the customer loyalty is very tight. >> Mhm. >> And and such. So, basically, what we are trying to do is the moat the moat of a business is a mix of all these things, right? It's the management, it's the market, it's uh you know, the positioning and all of that. So, when you look at a a business, these parts of it become the most complicated. You know, because because the this is judgment. You can look at history, but you also have to make a judgment how far can this go? And so, the good thing with the something with the with the creativity is that they are not limited. Amazon is not limited into what they can do. They can do anything. I mean, what business can they enter next? I've no idea. Okay, because it's a creative. But whereas a lot of other businesses like if I look at a business like Meta, they've been very smart about the acquisitions, but they haven't been able to create much internally. Right? I mean, WhatsApp was a great acquisition. Instacart Instagram was a great acquisition. But beyond what they did in the core, they haven't done that. But then Google has grown more stuff in-house and such. So it's it's a complicated area, but it's a area worth figuring out. >> Yeah, that makes sense. So we I see all of those factors coming into figuring out how to how to find a great business. >> Yeah. >> And then we find a great business, but not all great businesses are good investments, right? So there's there's the value component that Charlie always spoke about. You can't pay an infinite price. >> Yeah. >> So I feel like once we've got those once we've got the quality, how do you then go about valuing the business? What How do you Can you take us through how you do that? >> Yeah, so the thing is that a business is just like a bond. Okay, there's no difference between a business and a bond. So let's say I have US Treasuries, 10-year US Treasuries giving me 5%. Okay, so I know that if I invest a million dollars, every year I'll get 50,000 in interest. And I'm I know exactly what's going to happen there. >> Mhm. >> Now, if I buy Coke, you know, the stock of course the Coca-Cola company, and I put a million dollars into it, and Coke is let's say at a P of 15, for example. So, next year they're going to earn 70,000 on the million. The question is, what will they earn in the next 10 years? And when will I get my million back? Right? My My most important question is, how many years are you going to take to give me my million back? And if I look at a business like Coke, um I would expect there'll be some growth because they're, you know, growing everywhere, doing different things, whatever else. But it's not going to be spectacular. It's a big, you know, company. And I cannot see a a possibility of me getting the million back in three or four years. Not in the cards, right? Um if I look at a business like Nvidia, for example, right now, Nvidia has, let's say, I don't I haven't kept up, but let's say a four trillion market cap. So, the question I have is, in how many years do they produce four billion dollars that can be sent to the shareholders, if they choose to? Four trillion dollars, sorry. And let's say Nvidia is making 300 million 300 billion a year, okay? And now the question comes up is, well, what is the growth rate? Right? So, to me, in Nvidia is either too expensive or too hard to figure out. Because I cannot figure out when that four trillion comes back. It could come back to me in six or seven years. Maybe I don't Maybe it's doubling every year or whatever, it comes back in five years. Or it could take 20 years. Could never come back, right? So, what I'm looking for I'm looking for no-brainers. So, when we have 50,000 stocks on the planet and we are looking at needles in haystacks in this dense area of the value investors club. There will be many write-ups there where the money is coming back in 3 years >> Mhm. >> or in 2 years. Or 4 years. >> And you say that as in this is just the cash flow that the business is generating and you the owner is coming back >> because you can you can you can see it in some cases that that basically um the business is so hated and unloved or whatever else that nobody seems to care about the cash flows and there's a lot of cash coming. >> Mhm. >> Right? So, I'm I'm interested in basically getting extreme value. Right? Where I want to I want to I want to invest where the cash is coming back relatively quickly. So, if you if you set a rule in your mind which said that I only want to invest in businesses where I know for sure that in 3 years I get all my money back. Okay? You will discard a large number of businesses. Now, if you say 4 years you will discard a fewer number. But, still a large number. 2 years will be very tight. But, in investing we want to be unreasonable. >> Mhm. >> We do not want to be reasonable. We want like they said the 2 by 4. >> Yeah. >> We want extreme unreasonableness. >> Mhm. >> Where uh things just don't make sense. >> Mhm. >> Right? And because companies are going through different things at different times and things are happening, you will get distortions. And and when you get these distortions, you can act on those distortions. So, like like for example, um I've I've I've uh mentioned in the past that there was a Canadian steel company I invested in like around like 22 years ago. And the economics there were very simple. Um the stock was trading at about 40 or 42 dollars a share. They had 15 dollars a share in cash on the balance sheet. They had no debt. And because they had these long-term contracts, you know, they were making tubular steel, these pipelines and oil wells and all that were giving them long-term contracts. >> Mhm. >> They had issued guidance that said the next 2 years we're going to have 15 dollars a year in cash flow. Okay? >> locked in. >> And that was not a that was not not guidance, that was contracts. >> You know, purchase orders we will get this money. >> Purchase orders signed where they're take it's a take or pay situation. So, I said, "Okay, Mr. Market is pricing this at 42 dollars. Now, in year three, earnings could have gone to zero. It's a cyclical business. But I said, "Why entertain such morose thoughts? Okay? I want to just collect my 45 and I want to see that stock at 42 after 2 years. I just want to see the market look at 45 dollars on the balance sheet and price it at 42. I want to see that happen, right? So, that was the only thing. I didn't know what it would be worth. I didn't know what was going to happen. I put 10% of the fund into IPSCO, right? One year goes by and they announce we have another year of 15 dollars because we signed more contracts. >> Yeah. >> Well done, Monish. >> Yeah. Yeah. >> Well done. >> Yeah. >> Okay? So, now we got $60 locked in, right? The stock in the in the 12 months has moved up to 90. >> Right. >> now after 1 year, it's a little bit more sensible pricing. The stock's at 90, okay? Now, it could still go to zero in year four. And I was thinking at that point, Monish, you know, we've got long-term gains. We've We've got a double. This is a cyclical business. We should exit. We're done, right? And while I'm thinking about all of this, I wake up one morning and the stock is at 155. Okay? It just went from 90 to because some Swedish company comes in and offers to buy them for 160. >> Right. >> Okay? One femtosecond later, I sold everything. Done, okay? Better to be lucky than good. Okay, now Ep School was a situation, if you think about it, where market had a very tough thing to do. How How do you price Ep School? Okay, how do you price a business where you don't know what the year three cash flows are going to be. Year four cash flows are going to be. How do you price it? So, if I look at if you if I look at a business like ADP, ADP does payroll. I don't know if you have them in Australia, but they are a payroll service provider to millions of businesses, okay? And ADP has had like 60 or 70 years of continuous growth in their dividends. Okay? It's such a stable business because all these companies run their payroll through ADP. They pay the fees. They get more customers. They get more fees. It just keeps increasing. Mhm. It's like a bond where they It just keeps going on. A business like ADP, the market knows how to price it. And they're going to price it to perfection. There's no meat on that bone. It'll trade up at a trailing earnings of 25 or 30. And it's going to just keep going like clockwork, like Microsoft, okay? A business like Ipsco, how is the market going to price it? It doesn't know how to price it. That's what we're looking for. So, how are we going to find these? We're going to find these in situations where the uncertainty of a business is very high and the risk is very low. >> Okay. >> Low risk, high uncertainty. So, actually the formula is low risk plus high uncertainty equals high rewards. Now, somebody on Twitter, on X, a couple of years back, two or three years ago, puts out a tweet uh tagging me saying, "David Einhorn's Consol Energy bet looks like Monish's Ipsco bet." Okay? >> Okay. >> And he's tagged me, so I see the tweet. I said, "Ipsco is back. Let's go check this out." >> Yeah, yeah. >> Okay? And I look at David Einhorn's portfolio on Dataroma, and Consol is his largest bet, second largest bet, I think. And then I go look at Consol Energy to understand why is this guy saying it's like Ipsco. And Consol Energy sells thermal coal, stuff that goes into power plants. Low-cost producer, very cheap cost of production, all that. What they do is they produce very high-quality coal, and these power plants around the wall around the world forward buy the coal. So, what Consol does is they will sell coal to be delivered 2 years from now or even 3 years from now, 4 years from now to these power plants. And what they do with the price is they say the price that the coal is going to be sold at is based on the index price of that coal, the API index, but the power plant manufacture owners don't want a floating price. So, what they say is, "Look, um let's say the API is at 75 dollars a ton, for example. What they'll say is that we will pay you 3 years from now based on the API, but we don't want it to be more than 85." And Consol says, "Well, I don't want it to be less than 65." Right? >> Mhm. >> So, they agree on a future price based on the API with these two collars. It can't go above 85 and can't go below 65. >> Okay. Yeah, yeah, yeah. >> And Consol is doing all these sales 3 or 4 years out. So, you go back you go in and look at all the lowest prices that they could get, right? And you bring it back. Now, coal, nobody wants to invest in coal. >> Mhm. >> And I saw that in 3 years you get all your money back. The whole market cap is coming back. And that's based on the bottom price. >> Yeah, that's the conservative. >> It's not on the other end. >> Yeah. >> And and and some of it is still open to market and whatever else. So, that's I looked at the whole Consol situation. So, >> There you go. >> So, here's the thing about a commodity business, right? Um if we look at Saudi Aramco, okay? Unbelievable business. You know, for the longest time they used to produce oil at $1 or $2 a barrel. You know, you produce at $1 or $2 and sell at 60 or 70 or 80, it's a great business. I think now they're price to produce a barrel maybe $8 or $10 a barrel, okay? Still a phenomenal business, okay? So, if you are a bottom quartile commodity producer, which is the way CONSOL is, their coal is very high quality and their cost of production is extremely low. They've been around for 120 years under Pittsburgh mining that coal, never gone bankrupt, never had any financial stress of any kind in 120 years. And the reason is they are the lowest cost. So, no matter what happens to the price of coal, they're either making a little money or they're making a lot of money. You know, it's like like Saudi Aramco. You take the You take oil to be whatever you want, they're always going to make money. >> Yeah. >> Except when Hormuz is closed. >> Yeah. >> Okay? They're going to make money. So, the thing is the thing with the When I looked at CONSOL, there are multiple models that come in, right? So, one model that came in is low-cost commodity producer. That is a great great place to be. Second is forward selling. >> Mhm. >> Unbelievable. >> Lock it in. >> Okay? It goes back. >> Mhm. >> So, you know, we had this It goes back. Now we have this model we can apply it in many contexts because there are many companies like that. >> Mhm. >> And so, I saw that this was a no-brainer. And then, once I invested in CONSOL, then I ran into metallurgical coal, which is even better than thermal coal. And then I switched the bet to metallurgical coal, which is even uh more attractive. >> Okay. >> So, what I'm trying to say is that um when we look at these businesses and if you say that, "Okay, I want the money back in 2 or 3 years," it sounds weird, but it's there. >> In some places you just have to find it. >> yeah. It's not going to be there in the AI space. >> Yes. >> It won't be there at Microsoft. It'll be there in these nooks and crannies which are usually hated. >> Yeah. >> Nobody wants to go there. >> So, that kind of is in contrast to what Buffett would say where he'd say buy a high-quality business just sort of fair price. And is that just as a function that Berkshire and what Buffett's doing is on such a scale that taking advantage of these tiny little pockets which you know, nimble investors can. Is that because they're playing two different games? >> I would say I would say the following. You could define You could define Saudi Aramco as a commodity business. I would define define it as an extremely high-quality business. You know, this is a business that's been around for like 70, 80 years. Never lost money. Okay? >> Mhm. >> How many businesses around for 80 years never lost money? Okay? >> Not many. >> Yeah. So, what I'm trying to say is that when we talk about a good business, you have to be flexible in your mind. Because people will say, "Oh, this is a commodity business. This is a cyclical business." >> And just throw it out. >> Yeah, but that's not true. That's a great business. I mean, um if if I have a iron ore mine in Brazil where the cost of producing the iron ore the lowest in the world, >> Mhm. >> that's phenomenal. >> Mhm. >> It's going to be a great business for a very long time. So, just understanding this nuance that greatness lies in the eye of the beholder. You know, it's not what everyone else thinks is great. So, you you may and that's exactly what the edge is. You You When we see Consol Energy, we see it with a particular lens. Right? We are applying a certain lens which is saying I want my money back and this is locked in but there's still upside because they have the collars but on the other end they could still make a lot of money. That's exactly what's happening now. Natural gas is so tight, all their collars are coming at the the high end. >> Right. >> You know? >> Yeah. Okay, interesting. Um so I feel like that kind of takes us through almost to the end of the strategy. I guess valuation is the last kind of pillar. I guess one thing I did want to ask you there's going to be a lot of people out there inspired by what you're talking about. But inevitably they will struggle to actually get this going. I I wanted to ask you you've been doing this for so long, you've done it so successfully, you've seen other people do it. Where do people most frequently go wrong? >> I would say that even a guy like Warren Buffett um Berkshire Hathaway has been created out of 12 great ideas that Warren Buffett had over 60 years. He made more than three or 400 investments over the last 60 years. Only 12 of them moved the needle. So even for a guy like Buffett the hit rate was like 3 4%. So when we make an investment the odds that that company is going to be 10x or 50x or 100x is maybe 2 or 3% or less. It's a It's a small percentage. And the key is that um there's an asymmetry. So if you just hold on to them this is a business which can tolerate a very high error rate. So, if you make 10 bets, for example, 10% portfolio, 10 10 bets, if one of those bets is a 100 bag, okay? It doesn't matter the other nine go to zero. Right? So, if I if I make a invest a million dollars, one of them is a 100,000 dollar bet, and it goes up 100X, that's 10 million. You have a 10X on the whole portfolio with the other 90% not even relevant. You might double or triple your money there, and so you might end up with 20, 30 million, you know, another 20 million or something like that. But, basically, the the idea is that um there's an asymmetry. The biggest mistake I've had in my career is selling too soon. >> Mhm. >> And and so so we have to be very careful that when we find usually the businesses that are going to be the 100 baggers are not visible as 100 baggers when you make the investment. You will probably get to that realization over the years of owning it. When I bought Resaas, for example, in Turkey, I just saw it as a very undervalued business. I did not understand energy levels. I did not understand creativity. I did not understand capital allocation prowess. I did not understand all these things that they had. And it took me many years to understand that. Now, once I understood all that, it's very clear to me now that it cannot be sold. It's like if you bought Amazon a while back, you just don't touch it. >> Mhm. >> You know, it just cannot be sold. And so in a when we make 10, 15, 20 bets in a portfolio, you are going to end up, if you do this properly, with one or two extreme outliers. A lot of dogs, but one or two extreme outliers. And the key is you cannot sell those outliers. I had Ferrari as an outlier. I sold it. I had so many of them as outliers that I sold. >> Yeah. >> And so, that's what, you know, old too soon and wise too late. >> Mhm. >> You know? >> >> Trying to get your listeners to get wise early, you know? So, basically, the idea is that um the losers don't cost you as long as you hold everything. And you have to be very um hesitant to sell anything. You have to be very sure that there's no possibility that you're missing something here. >> Yeah. How do you So, I've actually found that in my own investing experience. It's interesting, it kind of struck a chord with me, is that I started out quite passive in ETFs and whatnot, and then I started applying this Buffett strategy, and I had a few outliers that soon enough snowballed my small active portfolio into much higher levels than my passive portfolio. So, that's when that opened my eyes up. But I also agree, the more I learn about this, I agree that you should not cut the flowers and water the weeds. But it's so I find it's very difficult to sit on a large unrealized gain and just let it go. So, how do you What gives you conviction to continue to hold a business that's already performed very well to let the flowers keep growing? >> Well, I mean, I think if a business has performed really well, and you owned it for a while, you actually know that business extremely well, right? And um we haven't talked about this concept of escape velocity. Okay? So, we only need to get rich once, right? So, let's say for example I feel that once I have $10 million, I'm I'm rich, okay? And let's say I've made different investments and I I have a portfolio which is $8 million Ferrari and $2 million other stuff. Okay? And I clearly know that Ferrari is a great business. Okay, I've held it for a while. They introduce a car for $5 million a piece and in 10 minutes the 500 units are gone and those people can flip it for $10 million a piece instantly. It's kind of manufacturing Picassos, if you will, right? Now, Ferrari also trades at a high multiple. Okay? But um using the notion of you only need to get rich once, okay? If if if I were in that situation where there's $8 million Ferrari, $2 million something else, the Ferrari is not being touched. And the reason is that it's a phenomenal business unless I see very clear evidence that the business is in secular secular decline, I'm not touching it, right? Now, I still have the $2 million and I can still invest there and look for the next 100 bagger or 10 bagger or whatever. But effectively I've reached escape velocity. And so, once you get there, you don't need to optimize. You know, you don't need to try to get cute by saying, "Oh, this is fully priced and let me try to find something else, etc. I think that um it's usually going to be a mistake to sell a great business. And so, just leave it alone. >> Right. Okay. I think that pretty much takes us through the full strategy. For the last 5 minutes, I've got some questions from my subscribers. Would you be happy going through a couple of them? >> All right, awesome. Um let's have a look at this one. Um does cloning still work in 2026? Who are five investors that we should have a look at, excluding Buffett? >> Well, cloning definitely works in 2026, 2056, >> Mhm. >> 2156, it'll always work. Uh there's a website called Data Roma, >> Mhm. I love it. >> uh which is free. >> So good. >> The best things in life are free, >> Yeah. >> >> You know, these guys are just doing great public service. >> Yeah. >> So, if you go to Data Roma, there's a number of great investors whose portfolios get updated every few months. And I'd say just look at that list and look at uh the investors and look at things and see what interests you. And then when you find a name that interests you, go to Value Investors Club, pull the pull the write-up, and go from there. >> Okay. What's your thoughts now, um investing in Chinese companies, specifically Alibaba and Tencent? >> Yeah, I haven't I haven't looked at both of those companies in a while. >> Mhm. >> I think in general my uh my general feeling is that um a lot of the great Chinese businesses are very undervalued right now. >> Mhm. >> But I also feel that for a small investor, um investing in $500 market caps, um one should be able to do do than that. >> Okay. You can get better elsewhere. >> Yeah, I mean I I think that I think that we we can we can do better by digging more. >> Okay. >> Going smaller. >> Okay, cool. Um this one is I'm a physician in the US moved from Southeast Asia, no debt keeping expenses 30% of my take home income. The 70% I'm investing I'm scared I would invest it into a lost decade. What are your thoughts on the potential of a lost decade in index funds? >> Yeah, I mean >> in the past, right? >> Oh yeah, I mean I think I think the the history is that like from 1965 to 19 82 the index was flat. The Dow was flat, the S&P was flat. >> Mhm. >> Uh from 82 to 99 it went crazy, did really well. Then from 99 to like 2010 or 2011 is flat again. >> Mhm. >> 2011 till now we've had a crazy run. And probably from 2027 to 2037 it's not going to be such a great uh outcome. I I think a good alternative to index is to put it into Berkshire. >> The Buffett index. >> Yeah, go for the Buffett index. >> Or see previous 1 hour of this interview. >> Well, that's harder. Like I said it's it's that's more work. >> Yeah, fair enough. Fair enough. Um okay, I I had so many questions. The important questions, how do you maintain that sexy mustache? >> >> Do you have any tips on mustache maintenance for the the fans out there? >> The >> >> the mustache took me a few years to figure out. >> Yeah. >> Um I was kind of experimenting with different stuff. And finally it came together. >> I like it. I like it. Um >> So just just like everything else, you just stick to it. >> Just stick to it. >> better. >> Yeah, yeah. Couple of iterations. Yeah. Um what gives you confidence that your ETF the proprietary wagons ETF, will beat the S&P 500 over the next 10 years. >> You know, I I have I have a lot of regulatory restrictions on speaking about the ETF. Uh So, I will I will um I will duck that question. >> Okay, fair enough. Well, let's finish on this one then. Uh people are interested in uh any book recommendations you have. You've been reading anything lately or any favorite books of yours that you would point people to? >> The one the one that came out a couple of years back, which was the uh uh Buffett and Munger um annual meeting uh Q&A uh organized by subject. I forget the name of the guy who did that. Uh but, that's really good. I mean, I think that's just is excellent. >> Yeah. >> Um and uh I'm trying to think if uh Yeah, that that's in recent times that's really stood out for me. >> Yeah. Just going back over the >> There's uh there's a book coming out end of this year, which is uh Nick Sleep's Letters. >> Oh, cool. >> And it's got some interesting um I think the Stripe founder is doing a um an intro to it and so on. So, that that should be pretty good to >> Yeah, awesome. >> look at as well. >> All right, perfect. Well, Manish, thank you very, very much for joining me today. I really appreciate you being so generous with your time. Um and I know that everybody watching will be thanking you as well, cuz that was an absolute master class. So, I appreciate you joining me. Thank you very much and uh we wish you the best. >> I always enjoy our banter, Brandon. >> The banter. I love it. Well, hopefully there'll be much more banter in the future. >> Yeah, sounds good. >> Thanks very much for >> All right, thank you. >> Thanks.