Turning $1M Into $1B+: A Masterclass From The Indian Warren Buffett

26:37But he said, look, the company you're in, the business I worked for had 2 ,000 people. He said, you're such a tiny cog in such a big wheel. You could drop dead tomorrow. They won't even miss you. Okay? You don't matter. And what you really want to be doing is figure out something where there's an offering gap and go for it. Right? And I was actually getting a little bit frustrated at work because the company had been growing, it would get more and more bureaucratic. And so I actually started to think about what might be possible. and I didn't have any money. Basically, I was 24, 25. So what I did is I came up with some IT services offerings that I thought would be pretty unique because at that time, client server computing was just getting going, early 90s.

27:31And so I had about$30 ,000 in my 401k and I said, okay, we'll worry about retirement later and we'll pay the penalty. I pulled that out. And I applied for every credit card I could get my hands on. And so I had 70 ,000 available to me in different credit limits in credit cards. And so I said, okay, we've got up to 100 ,000 that we can play with. And the third thing that I did is I basically did both. I was going to my job and I had started my company at the same time. Because basically what I would do is like from like six to nine in the morning, I'd work on my business. And then from 6 p.m. to midnight, I work on my business again and weekends.

28:20But somebody was paying the rent. I still had a paycheck and all that. And I said, okay, once we have enough revenue, clients, profit, I can quit. And I always tell people that basically, if you think about it, there's 168 hours in a week. Your employer needs you for 40, right? And if you live close to work or work remote, the commute time is not that much. And even if you take out time for eating, sleeping, everything else, you have at least another 40, 50 hours that you can engage on something other than work. And I used to always get great reviews. When I was starting my business, I said, okay, look, the plan is to not get fired.

29:03The plan is not to be employee of the year. Right. I don't need to overshoot. So I said, I'm going to give them just enough. So I'm just above firing level, where it's not so bad that they call me in and terminate me. I need to be above that. And I did this over nine months and then I had clients, revenue and all that. And I went into my boss and his boss. And I resigned. And they said, you know, Monish, we really couldn't figure out the last nine months, like you checked out. I said, exactly. I said, my goal was to just do enough so I didn't get fired. But she said, yeah, we saw a big drop in the old Monish and the new Monish and we talked about it.

29:46And we actually said, it's not so bad that we would fire him, but there's something off right we couldn't we couldn't figure it out right and then so i explained to them i was going into a business my own business was not comparative with theirs yeah and so they said look when your business fails not if your business when your business fails you can come back we're going to give you more money we're going to promote you and you're going to do great so i said you know my my plan was that if i failed when i was going to my business if i failed, I said, look, I got my degree. I can look for a job.

30:18I can apply for personal bankruptcy, clean everything off, and start over. I said, this is even better. I don't have to look for a job. I get more money. And so I actually felt like people have a false mental model. People think entrepreneurs take risk. Entrepreneurs do not take risk. They do everything in their power to minimize risk. If you think about Buffett's pinball machine business, what was the risk those two 14-year-olds, Qantas 14-year-olds took? Nothing. Okay. It's$15 in a pinball machine, which they could use themselves. Worst case scenario. $3 in parts. So the second pinball machine will only get bought when the first one's already producing cash, right?

31:05And the third one after the second one. So basically there's no risk, right? If it fails, they sell those machines for more than they bought them. Entrepreneurs are actually great risk reducers. They start with something that seems risky, but may not be. So that's the other thing that is a commonality between entrepreneurs and value investors, which is why the same brain cells get used. Both are trying to minimize risk. You know, we as value investors want to go low risk, high return. And great entrepreneurs, that's exactly what they're doing. They're going low risk, high return. Nobody is doing high risk, high return.

31:40So if you look at the United States, probably around a million businesses, more than a million businesses a year get formed in the United States. Venture-backed businesses are less than, much less than even 1 % of that pie. Might be in most years less than one-tenth of 1%, right? So if there was no venture capital and no venture-backed businesses, it would make no difference to the landscape, okay? We'd still have the million businesses being formed. Venture-backed businesses are a different animal because they are high risk, high return, right? What the VC wants you to do, the VC has got 10 bets.

32:16He doesn't care whether your bet works or not. He just wants one of those 10 to work. So he wants you to step on the gas as aggressively as possible. If you blow up, you blow up, right? When you're an entrepreneur who's not venture-backed, that is not how you go. You don't put just foot on the gas. You're very careful about downside protection. So what happened - Even some of the big entrepreneurs, Richard Branson, I think is the, people see him as this free risk taker, reckless sort of guy, but you've pointed out that that's not true about Richard Branson in this case. One of the stories I love about Branson is when he had the idea to start Virgin Atlantic airline, right?

32:59The minimum that you need to start transatlantic service is a Boeing 747. Okay. A couple of hundred million dollars, right? And Branson got Virgin Atlantic off the ground with no money. So what he did is he calls directory assistance in the United States, It's 555-1212 in Seattle, 206-555-1212. Asks for the number for Boeing. Okay. Gets the number for Boeing, calls the main switchboard and says, I'd like to lease a 747 that you guys might have hanging around that you're not using. They hang up on him. Right. Okay. Keeps calling them. And finally, the lady at switchboard says, let me transfer you to someone who can get rid of you properly.

33:46Right. So she transferred him to someone who's head of like commercial sales. And so this guy tells him, listen, Mr. Branson, in every country, we have one customer. And you are not the customer in the UK. It's British Airways. And so therefore, there's nothing to talk about. So Richard tells him, listen, I agree with you, that's fine. But just humor me for a second. Do you have an old Boeing 747 lying around that you're not using? And he says, yeah, actually we do. And if one of your customers, like the one in the UK called you, like British Airways called you and they wanted a plane, what would you lease it for?

34:27So he says, well, I really don't need to have this conversation, but we would lease it for about 200 ,000 a month. Okay, 200 ,000 or 300 ,000 a month. And Branson was able to convince Boeing to lease him that 747 because it was sitting and doing nothing. Then when he set up Virgin Atlantic, he said, you get paid for all the future flights in advance because people buy tickets. So the plane's going to fly in April. People already bought tickets in February. So you say, I got cash coming in two months, three months before the plane's going to fly. And I'm going to pay for the fuel 30 days after that plane lands.

35:05Okay. So he had negative working capital and the lease payment is also in arrears, right? So basically he was able to get Virgin Atlantic off the ground with zero equity, right? Now, the way I look at it is that if you can start an airline with no money, you can start any business with no money, okay? You just have to replace capital with creative thinking, right? How is it possible that 0.1 % of the population owns almost 70 % of all the motels in America? I think this is an incredible story. Can you explain? How is that possible? In the early 70s, a dictator came to power in Uganda, Idi Amin.

35:47And Idi Amin noticed that in Uganda, most of the businesses were controlled by East Asians, Indians, Patels. They controlled like 80 % of the economy. And these Patels had come to Uganda. They were brought to Uganda about 100 years ago to work on the railroad almost as slaves, right? But because they're natural entrepreneurs, they went from railroad builders to eventually owning and controlling his whole economy. And he was pissed. So Idi Amin said, Africa is for Africans, and you guys are not Africans. And these Patels had been in Uganda for three or four generations. That was their home. They were Ugandan citizens, born and raised, right?

36:38and what he did is he nationalized all their businesses, and he threw them out of the country. Which just means took their businesses, right? He just took them. Yeah, he basically confiscated all, not their businesses, homes, everything, confiscated all their assets, and he told them, you've got 90 days to leave the country. So these Patels in Uganda were stateless. Okay, you're being thrown out. You're a citizen of a country. The country's throwing you out, right? And they lost all their money. So they were able to convert a very little small sliver of their assets into gold. And the United States took some Patels as refugees.

37:15The UK took them. Canada took them. India, surprisingly, refused to take the Patels, refused to recognize the Patels had any right to return to India because they said, you haven't been here for 100 years. And India was at that time dealing with the Bangladesh refugee crisis. So it couldn't deal with anything more. But a small number of Patels, a few thousand of them, came into the United States in the early 70s as refugees. They didn't have skills where they could get great jobs. They didn't have, they spoke English with a funny accent. and they realized that, look, if we buy a really small motel, 10, 12, 14-room motel, the family can live in one or two rooms.

38:02Motels are labor intensive. The family can do all the work. It's a job and a house together. Yeah. So basically cooking, cleaning, front desk, laundry. And so what they started doing is they would buy these motels and basically fire all the staff and move in into two of the rooms. And because they had no costs, they were able to charge nightly rates that were lower than all the neighboring motels. So what would happen is that the Patel-owned motel would be running 100 % occupancy. The other motels couldn't match that rate because they'd lose money, right? Because they had workers' comp and staff and all that stuff, right?

38:44And what the Patel started to do, And Patel was very frugal. They basically were vegetarians. At that time in the US, if you were vegetarian, you were really hosed. You couldn't really eat out anywhere. So they were forced to just cook themselves, which was cheap. So there wasn't much of a grocery bill. And what they started doing is as their nephew came of age, for example, they would help him out to buy his own motel, right? And then the nephew would get that going, and then the next one, the next one. And you run this for 50 years, and you end up with 70 % of the motels in the country under hotel ownership.

39:28Not only that, they've actually gone upmarket now. So a lot of the Hiltons, Marriott's, Westerns, if you really look, you'll find it's under hotel ownership, right? Same math. They always are very good operators. And then they went into 7-Eleven, Laundromats, Dunkin' Donuts, all of it, you name it. But bottom line was that these were entrepreneurs that were low-cost producers, right? Low-cost producers have an inherent advantage. And I remember when I first met Charlie, he had read my book. And we were discussing the Patels. He says, yeah, you know, I got some friends in the motel business. I just tell them, don't ever, ever try to compete with a Patel.

40:13If you ever find yourself in competition with a Patel, just find another game to play. Just move on. It's not worth it. So you said you met Charlie. That's got to be kind of a surreal thing for you to have met and become friends with Charlie Munger and Warren Buffett. How does that happen? How does that come about? It shouldn't happen. You know, I was this squawney kid who grew up in the suburbs of Mumbai. And I accidentally heard of Warren Buffett in the mid-90s. And it was a big aha moment for me. At that time, I was lucky. The first couple of biographies on him had come out. And what I realized is when I read about how Warren was investing, I said, all these models are the same models that an entrepreneur uses.

40:59It's the same. Exactly what I was saying that, you know, better businessman because I'm an entrepreneur and vice versa. So I said, you know, but the big advantage he seems to have is that 4 % of time of strategy is 80 % time for him. And even in the business I had created, the IT business, which had grown and scaled, I always enjoyed the 4 % more. Strategy, the figuring out. I was happy doing sales calls and building teams and all that. That was great. Do it once. I said, wow, if I go into investing, it would be 80 % of my time because there's no blocking and tackling. Someone else is doing that.

41:40And so for me, that was a big aha moment that I should switch. I was lucky in the mid-90s, someone bought a small portion of my business. after taxes, after everything, I got a million dollars. And I, for the first time, had money in the bank. And I didn't really need the million, right? So I said, okay, what we're going to do is we're going to take this million, we're going to invest in the public markets, and we're going to find out if we can actually do this. You know, an idea is like an asshole. Everyone has one. Okay. Ideas don't mean anything, right? So you really have to execute. It's really execution on the idea that has value.

42:18You know, entrepreneurs get kind of hung up on, oh, I need to get a patent and all that. One of the things you have to understand is you can go to your most direct competitors. You can tell them all your trade secrets. They will listen to you really carefully and they will not change behavior. Okay, so you don't need patents for anything. You don't, the ideas don't mean anything. It's really the execution. And so basically I said, okay, let's take the million. Let's start investing it. Let's figure out what happens. And I was surprised we did really well. I think that from like 95 to 2000, a five-year period, that million became about 13 million.

42:56And I said, wow, well done, Monish. And so they got 70 % a year compounded, yeah. And so I was doing investing part-time while I was running my IT business. I was much more interested in the investing side, losing interest on the business side till that point when in 1999, I didn't even feel like going into work. I said, I just want to just focus on investing. And so I made a couple of big changes then. I looked for and found a CEO to run my company. and basically 13, 14 million, I felt was enough to retire, do nothing. I could do investing full time. And so my plan was, okay, someone can run the business, whatever's value is there, is there, it doesn't matter.

43:44I can go off and just now do investing full time. And I had a few friends who had basically, I used to just give them stock tips, the mid nineties, I'd find some company and make the investment. After that, I didn't care who bought the stock. I mean, I already bought it. And so I'd tell my friends, hey, I found this company. You ought to see if you want to take a flyer on it and buy it and so on. And they did really well on the stock tips. But some guys worth like 5 million, they would put 10 ,000 to what I told them. And they would triple their money. It wouldn't make any difference. So a bunch of these friends came to me and said, look, we don't like this randomness of these stock tips.

44:27We don't see you sometimes. And you may have sold. We don't know. We want you to manage some money for us. And so they were proposing giving me$100 ,000 each, and it would be a million dollars in all. And I said, okay, I'll do it. I thought of it as a hobby. I didn't even think of it as a fund. But I want to do it in a format that works for me. So I love the Buffett partnerships where he He didn't charge management fees. He only charged performance fees. So what's a normal structure and then what did Warren do? So a normal hedge fund would be a two and 20 structure. They would take 2 % of assets to the management fee for breathing.

45:04Every year? Every year. Yeah. And then 20 % of the profits, right? So if a hedge fund, for example, let's say has a billion dollars under management, right? The general partners would take$20 million a year. For breathing. For breathing. And then if it went up 10%, so they would make 100 million, for example, on the billion, they'd take another 20 million on that. So basically what would happen is the investor who put up the money on a 10 % return gets a 6 % return, right? Below the S &P, right? Because of all these frictional costs. So Buffett had run his partnership by saying that there's no management fee.

45:43The first 6 % returns go to you. and above that, I'll take one-fourth and you take three-fourths. So in the same situation, if the fund is up 10%, in Buffett's case, the first 60 million goes to the investors and the remaining 40 million is split. So it becomes 10 million to him and 30 million to the investors. So it's a half the fee basically. And you're paying for performance. If he's not up that much, you don't pay anything. So I like that structure. And so I told him I want to set up a a fund. So it's all legal. And we will do it with that structure. They really didn't care what structure it was.

46:22And so Pabrai funds really started in 99 as a hobby with me and my buddies. And I had 13 million on the side, which was my main focus. And I said, yeah, there's another million here. It's okay if I find something and buy for both. It makes no difference. And about a year after that, there was about two and a half million. We were up like 70 % the first year. And some more money had come in. And I said, you know, why do I treat the fund like a stepchild? Why don't I think of it like a real business? And why don't I basically grow and scale it like a real business? And so I started to do that. And PubRy Funds, we had a very good run for the first eight or nine years.

47:06I think we were doing like mid-30s a year on average, no down years. And the assets grew. We were at about, I think in 2007, we were at about 600 million in assets under management. And I had made a lot of money, the fees and the compounding and all of that. So in like a 10-year period, you turned the million dollars of managed money into about 600 million of assets and management, including new money. Yeah, yeah. It wasn't just organic. But the original money had almost tripled, tripled or quadrupled in that period. I had asked you yesterday when we were hanging out, I said, you know, there's really two questions when you hear this story.

47:41Number one, how the hell were you getting these returns? So what did you know about investment? What was that part? But the second part is, what'd you do on the fundraising side? How'd you get so much more money to come through the door? And you've had a great line about that, about how you get more money to come through the door. Because you didn't strike me as a guy who wanted to be out there fundraising and knocking on doors and trying to raise funds. So how does it happen? Yeah. Buffett has a great, great quote. He says that if you are in a rowboat in the middle of the Atlantic, they will swim to you in shark-infested waters to invest with you if you have beaten the market, right?

48:15They will find you. He says you could be a leper and they will invest with you. That's what happened. And also one of the things that was very difficult for me was that the SEC has a lot of rules and laws around hedge funds. One of those is you cannot solicit the general public. So when I was running my IT business, I would call on any CIO and say, hey, would you like to use our services, et cetera. I could literally call anyone out of the phone book. When you're running a fund, you can't just get a list of dentists in North Carolina and pound them. That's not legal. You can't do that. So the SEC said you can only talk to people you know.

48:54I said, the people I know, I'm going to run out of my Rolodex in like five minutes. There's very few people I know. So what I did is I started to meet my investors once a year for an annual meeting where I would give them their results and take their questions and all of that. And I told them, listen, there was one reason and one reason alone you were put on planet Earth. And that is to bring assets to Pabrai funds. Okay. Humans are always looking for a calling. They are looking for some cult leader to follow and be part of cult. So you gave them one. So yeah, they were wandering in the wilderness.

49:34They needed purpose. Okay. So I said, here's what you need to do. You need to go talk to your friends and family because I can't talk to them. The SEC won't let me talk to them. You can talk to them. Okay. You talk to them. You tell them about me, you tell them to contact me. Once they contact me, I can engage with them. Okay. So go out and spread the word. Okay. And send me more of your assets too. Okay. So basically what, like I, like I said, I started with a million a year later, it's two and a half million, two years later, it's 10 million and it's growing, you know, and, and part of it was that the annual returns are adding, but part of it was that, so I had eight investors when I started a year later, they were 17.

50:15And two years later, they were 25. So now I had an audience of 25 to proselytize and spread the word. And of course, the results. Now, the other thing that was happening is that when I started the funds in 1999, we were nine months away from the biggest bubble about to burst that had happened in decades, the dot-com bubble, right? And I was able to see the bubble not very much in advance of the rest of the world, maybe just two or three months ahead. I knew the internet was transformational, but I also knew that the euphoria was too much. We had pets.com trading at multi-billion dollar valuations with no revenues, right?

51:03I mean, it was just common to have a lot of companies, people were counting eyeballs. They're not counting dollars and they're not looking at net income. They're not even looking at revenue. They're just looking at eyeballs. And so I said, okay, this is bad news. It will blow. At some point, the bubble's going to burst. I didn't know when. So I had always been a tech investor from the mid-90s and I'd done really well. Tech had had a great run from 1995 to 2000. It had just done really well. And I'd ridden that coattail. But what I did in 99 when the fund started and also with my own capital is I did a 180.

51:41I switched completely to classic Ben Graham deep value, what Buffett had started doing in the 50s. And one of the things that was happening in the equity markets at that time was the day the Nasdaq peaked, I think March 8th or March 9th, 2000, was the day that Berkshire hit a multi-year low. And literally people were pulling money out of their Berkshire stock and buying pets.com, right? And then that goes to zero eventually. And so I said, okay, basically there's a lot of basic businesses that had become really cheap because nobody was interested. So I was buying funeral homes at two times earnings and buying steel companies at three times earnings.

52:21And so a lot of basic businesses which are very predictable and doing well, trading really cheap. Right. And so Pabrai funds did really well. In fact, the NASDAQ imploded. Basically, it hit 5 ,000 in March 2000. By the time it bottomed out the next two or three years, it was at 1 ,200. It was a 70 % drop. And the Dow and the S &P didn't go down as much, but they also went down a lot. And so it was a traumatic period for investors. It was a great period for me. And so it was very easy for me to talk to my investors because I was the only guy making money for them. Okay. If they had like five accounts, they just moved it all to me because everything else was going down.

53:10Everything else is red. So that's how we got going. So in 2007, I think my net worth at that time was like 84 million. And Warren had been running these charity lunch auctions where once a year you could bid on eBay to have lunch with Warren Buffett and the money would go to the Glide Foundation, which was doing, feeding the homeless and all that in San Francisco. So I said, I am using this guy's intellectual property. I'm making all this money off him. I really have a big tuition bill I need to pay. So I said, the lunch is a great way to do that. I said, I can bid for the lunch and I'll meet Warren.

53:57I'll be able to thank him in person. And it goes to a cause that he supports. So I thought about it. It's okay. 84 million, what's an appropriate tuition bill? I said, 2 million is good. I think if I gave him 2 million, I'd feel good about that. So I said, okay, I decided in 2007, I was going to bid for that lunch. And I decided I would go up to$2 million. And you can bring up to seven other people to that lunch. So I was going to take my family, but there still were a couple of seats empty. So I contacted my friend, Guy Spear. He lives in Zurich. I said, hey, guy, I'm going to bid on this lunch, blah, blah.

54:30And I said, do you want to come in with me? And I said, if you and your wife want to join us, because there'll be four of us and two of you, you can pay one third. And I'm willing to go up to 2 million. So guy says, well, that's too rich for me. I can't pay one third of 2 million. He says, I'm good for a quarter million. So I said, okay, whatever the bid ends up at, you're capped at a quarter million, right? And so I bid for it. it settled at 650 ,000, much less than what I was willing to pay. And then one third of that got paid by Guy. And so my only agenda in meeting Warren was to just say, thank you, Warren.

55:11I didn't have, and of course, he was a big fan boy and meeting him and all that. Warren's agenda when he has these lunches is really different. His agenda is he wants the people who won that lunch to feel like they got a great bargain. So he would take all our, what I would call our lemonade, lemon questions and can turn them into lemonade. So he's always, exactly what he does in the Berkshire meetings is he's a great teacher. And so he was trying to give as much value as he could in that lunch. And like he told us when we met him, he said, look, I got nothing going on all afternoon, right? So when you guys are sick and tired of me, you just let me know and I'll leave, right?

55:56We kept asking him questions for three hours and then we were exhausted. And so we said, Warren, we just don't have anything else to ask you. You know, he said, okay, I'll take off, no problem. And in that lunch, I told him, I said, look, Warren, my wife then, Harina, I said, she's a huge fan of yours, but her true love in life is Charlie. And Warren got competitive. He said, Charlie is a very boring guy. He's a very kind of pessimistic, always says no to everything. I'm the guy who's really interesting. So he said, what I'm going to do is you guys live in California, in LA. I'm going to set you guys up to meet Charlie for lunch.

56:35And then when you meet him for lunch, you're going to find that he's useless and I'm the guy. So I thought he was joking about that. And two days later, I got an email from his assistant to Charlie's assistant copying us, basically saying, hey, I met this wonderful couple in California and they seem to think you're more interesting. I think they just don't understand. So I want them to meet you so we can set the record straight. Right. And so This is really what he was saying. This is exactly what he said in the email. Right. Was he joking or was he not joking? And then Charlie's assistant sets us up to meet Charlie for lunch.

57:06Now Warren, you can bribe and have lunch with. Okay. Charlie, there's no bribing. This is great. And so So we met Charlie, my wife and I, we met Charlie in 2008 at the California Club in LA. And I actually found that lunch a lot better than the Buffett lunch. Okay, it was great. Because I think Charlie is just so direct, you know. And I never expected these lunches or any of this to lead to anything. It's a one and done. But it led to a friendship with Charlie. He started asking us to come to his place for dinner. and I would meet him like four or five times a year for dinner. And then we started playing bridge together.

57:50Usually on Fridays, he would play bridge at the LA Country Club. I'd meet him about once a month or something to play bridge. And that used to be lunch and then about four or five hours of bridge after that. So it was a wonderful, deep friendship for 15 years, which was unexpected, just never expected that. So let's go back to the lunch. You asked him questions for three hours. Yeah. What were the interesting questions and answers? I know you've said one that I want to hear you explain because I didn't fully, I've heard the tidbit, but I want to hear the full story, which was he said something about being a harsh grader of people.

58:25Yes. What does that mean? Well, I told Warren, I said, Warren, you know, you are, both you and Charlie are such good judges of humans and human nature. Were you always that good at figuring people out? So he says to me, Monash, you're mistaken. I am useless at figuring people out. He said, if you put me in a cocktail party with 100 people and you gave me five or 10 minutes to meet each person, I could tell you three or four people exceptional. And I could tell you three or four people you want nothing to do with. And the remaining 92, I would have no opinion on because not enough time to figure them out.

59:07But he also said that, look, What you do in life is those three or four people who are exceptional, you bring them into your inner circle. And obviously the three or four people who are not the great humans, you're not going to do not the great. too, just like the useless humans. So he says, be a harsh grader. So he says that when you have friendships and when you have people you work with, your peers and all that, he says there's a gravitational pull. If you hang out with people better than you, you're going to get better. If you hang out with people worse than you, you're going to get worse.

59:51So he said that one of the things that most humans are not willing to do is loyalties get in the way for them, right? So they may have a friend who's kind of weird or quirky or has ethical issues, but they've had a long friendship. So they'll keep that person going with them. That has detrimental impacts. So basically, I really took that to heart. And I said that I'm really going to try to see if I can focus on the great relationships, the great people. And that's actually been a journey I've been on now for 16, 17 years. It's been tremendous. It's great. Now, it's unfair, right? Because you're treating the unknown the same as the useless people.

1:00:46But that's the way life is. I think that sometimes you have to make these difficult choices. Because if you don't do that, then the impact of that is significantly negative. And one of the things I realized when I started to get to know Charlie, I got to meet Charlie's friends. So I would play bridge with his friends. I'd meet his friends. And what I realized is his friends were so off the charts. They were so exceptional. I said, wow, this is like a different world, right? And I said, I'm going to take a shortcut. I'm going to make Charlie's friends my friends because he's already done all the work.

1:01:25He did the filtering. You can't get a better filter than Charlie Munger, right? And so I worked on building relationships with Charlie's friends and some of his family. And that's been beautiful. I mean, some just great friendships. relationships. And I realized that there's such a huge delta in off the charts, top 0.1%, top 1 % of humans and the rest. And we talked about this. Adam Grant wrote this wonderful book, Give and Take. And he categorizes people in three buckets, the givers, the takers, and the matchers. Now, the takers, you don't want anything to do with. They're just going to want want to extract whatever they can from you.

1:02:10So they're just not people you want to have in your life. The givers are people who are selflessly trying to help the planet, not really concerned about what comes back to them, right? Those are the ones you want to be with. And then the matchers, they're kind of doing math in their heads. Oh, you know, Sean did this for me, so I'm going to do something similar for him. And so even the matchers aren't that great. So what you really want to do is you want to seek out the givers. And more important than that is you want to be a giver. And so the interesting thing that he pointed out in that book is that when you're a giver, the universe conspires to help you.

1:02:49And I found it magical how, and Warren and Charlie are great examples of givers. Everyone's trying to help them in any way they can. And so that's the The funny thing is that the matchers who are trying to do this equalization, they end up losing. The best way to get the most is not ask for anything. It'll all come to you. Right. And so these are wonderful models to incorporate. Yeah, there's even some game theory with that, which is the cost of excluding somebody who might be good or might be great is actually quite low to you. but the cost of accidentally including somebody who might have some toxicity, it's quite costly to you.

1:03:29And so I think even in investments, he has the good pile and then the too hard pile. Warren has a lot of baseball analogies. He says that in investing, there are no call strikes, right? So in baseball, you're at the pitch, three strikes, you're out, right? He says, I can let a thousand balls go by, a thousand stocks go by and not swing, right? I only need swing when eight moons line up, right? And so... The fat pitch, right? The fat pitch, right. And so the thing is that we live in a world with infinite humans. If there are infinite humans, it also implies that there are infinite number of good humans.

1:04:06So basically

1:04:13excluding a good human from your circle because you can't figure them out, there's no penalty for that because there's an infinite supply. Just to put it bluntly. Wait for the fat picture. In a mathematical way, mathematically. But when you bring in a substandard person, there's so many drains, it's just negative. I want to hit you with some of your big investing philosophies and give me the kind of the punchy version of what does the phrase mean and how you use it. So let's do one, heads I win, tails I don't lose much. Well, I mean, I think this is classically comes from the Patels, right? It's the Dando philosophy.

1:04:52But this is how we want to do all our bets with people, with stocks, with everything. Asymmetric. Yeah, basically where we always want to look for things where the odds are so heavily in our favor. And so in investing, we do get these anomalies where you take low risk. What's one that you've benefited from? Or what's an example in your portfolio, your career investing, where you felt like you recognize asymmetric upside, your downside was cap, but your upside was high? Well, I mean, I think that if I look at my first business, for example, right? I mean, I'm taking$30 ,000 for my 401k, which I can make up.

1:05:32and at that time the credit card laws were very different where if you declared personal bankruptcy you got a clean slate and actually didn't affect your credit because you couldn't file again for seven more years so everyone will give you money after you filed okay so actually they've changed the laws now but at that time what I had I realized that starting a business has high rates of failure right and so I said how do I minimize the risk on that and and this is what all entrepreneurs do. And I said, okay, so basically, if this thing blows up, which there's some probability that could happen, I got my job already, they want to take me back.

1:06:10And I clean up the slate. And I'd also de-risked it because the company was already cash flow positive by the time I quit my job, right? And so there was already a pipeline and such. And so repeatedly, what I've found is even in investing, I mean, I'll give you an example. Like for example, I think in 2003 or 2004, there was a steel company in Canada, Ipsco. And I noticed that they were trading for three times earnings, right? And the stock was at$45. They had$15 a share of cash on their balance sheet. They had no debt. And they had contracts over the next couple of years where they had said earnings for the next two years are going to be$15 a share each year.

1:07:01Because these were not forecasts. These were hard contracts, right? So I said, okay, so the stock's at 45. If I just buy the stock and hold it for two years, I got$45 cash in the company. Now it was cyclical business, third year could be zero, could be negative. But I said, I own all the plant, equipment, everything for free, right? So I made the investment. I put 10 % of assets into Ipsco. And I said, all I want to do is I want to see what Mr. Market does with the stock in two years. Just going to hang out and see what happens. So we make the investment. And then a year later, the company announces that we're going to have one more year of$15, okay?

1:07:40So now you're going to have 60 versus 45, right? And by now, the stock has kind of gone up and it's sitting at about$90, double in one year. So I said, okay, it's still a very cyclical business. Maybe we should take our chips off the table. And while I'm thinking about all that, one day I wake up and the stock said 155. Some Swedish company came and offered 160 to buy them. Five minutes later, I sold the company and moved on. So what I'm saying is that that's what we're looking for. And in the equity markets, because these are auction-driven markets, when you look in areas which are hated and unloved, you will find these anomalies.

1:08:22Last year, for example, I spent about seven or eight months studying the coal industry. Four-letter word, hated and unloved, more than anything else. I mean, a lot of endowments and funds are not even allowed to invest in the coal industry. There's so much hatred for it. So you got excited. The math was like this. If there's a business that is going to exist for 50 years, on average, it's going to produce a billion a year in cash flow that's going to be distributed to shareholders, available to buy for less than$2 billion. Where do I sign? Okay. That was a coal industry. Okay. And so it's like you, in auction-driven markets, you repeatedly run into these things where things, you know, there's companies emerging from bankruptcy.

1:09:19There's things that people just don't like. There's different reasons why things get mispriced. Right. You talked about like private markets versus public auctions and why you think public auctions present more of these dislocations, more of these opportunities? Well, I think that, let me put it this way. Let's say this home of mine was a publicly traded company, okay, listed on the NYSE, right? Every day its price would change, right? It would be wiggling here and there. And if I look at the average public company on the New York Stock exchange, the 12-month range of the stock might be 70 to 140 in 12 months.

1:10:05If I just throw a dart at any company in the New York Stock Exchange, and I just look at the 52-week range on that stock price, it's going to be 60 to 100, 70 to 130. So like a 50 % swing. It's a big swing, right? My home, which maybe might go up 4 % in a year or in a good year, maybe 3%, would be vacillating in value. It would be sometimes trading 20, 30 % more than it's worth and sometimes trading 20, 30 % less than it's worth. And if I had a realtor friend and I said to him, listen, can I call you every day and just tell me what my house is worth? The guy would think I was stupid. But I would call him on Monday and say, hey, what's my house worth?

1:10:48He said, oh, it's worth 2 million. I said, oh, thank you. I called him the next day. He said, still worth 2 million. Okay, third day. He said, listen, idiot. It's 2 million. Okay. And after a month, he would tell me, oh, it's moved to 2 million 30 ,000. Okay. And then again, he would be at 2 million 30 ,000 for a while. Okay. It wouldn't move because it's an intelligent buyer facing an intelligent seller. And so you're not typically going to get a company like Ipsco available as the whole company for the price you can buy some shares. Because the whole company, there's an intelligent guy. The Swedish company paid four times that price to buy the company.

1:11:30And so that's just the nature of the reason I've always liked public markets is because there is so much irrationality. And if you're just willing to be patient, in a year, if I can make two good investments, it's a good year. Okay, so we don't need a lot of activity. Right. We just need to be patient and wait for the times when something weird is causing a mispricing. Right. So let me ask you a few questions. So number one, should, in your opinion, should somebody just buy the index, low cost index fund, or actively invest? The index is a really good way to go. The index is too dumb to know that it owns Nvidia.

1:12:19And it's even more dumb that it'll never sell Nvidia. Or it's owned Apple the last 10 years and never sold it, for example. So I would say for the overwhelming majority of humans, probably more than 99 % of humans, you're best off just buying an index. And I think that the US equity markets and the US financial services industry is so efficient that the frictional costs for owning an index through an ETF is single digit basis points, less than one tenth of 1%, less than 0.05%. or 1 % or so on. So it's very small. And so I think it's very smart to go with indexing. Absolutely. Yeah, for the vast majority of people.

1:13:10Yeah, for almost everyone. And for whom, who shouldn't do that? Well, if you have the talent and the patience to figure out what a business is worth, and then have the ability to buy those businesses well below what they're worth, and patiently hold them. Those sliver of humans that can do that would be better off just doing it that way. All right, let's take a quick break because I got to tell you a story. Let me tell you about the first time I tried to run payroll for my team. I was using a traditional bank and you know the type. It's got a janky interface. It's built like a 2002 tax form and it was open only during business hours.

1:13:49And I hit send and it froze. They flagged the transaction. They locked my account. They put me on hold for 45 minutes and then they told me I got to visit my local branch. And that was the day I started looking for a new banking solution. After asking a few founders what they were using, I found out about Mercury. And so now my payroll is two clicks. I can wire money. I can pay invoices. I can reimburse the team all from one clean dashboard. That's why I use it for all of my companies. And so do 200 ,000 other startup founders. And so if you're looking to level up your banking, head to mercury.com and apply in minutes.

1:14:18Mercury is a financial technology company, not a bank. Banking services are provided through Choice Financial Group, Column N.A., and Evolve Bank & Trust members FDIC. If I said, what's the number one trait that makes a great investor, what comes to mind? Patience. If you are a guy who loves to watch paint dry, you paint a wall and just sit there and watch it dry, you will do very well. Did you ever watch Seinfeld? Some episodes, not religiously. The thing is that Elaine is on a flight with her boyfriend. I forget the name of the boyfriend. and I think if you pull up Google, you can probably find this clip.

1:14:57The boyfriend is just staring at the seat back in front of him, okay? And so Elaine says to him, would you like something to read? He keeps looking at the seat back and says, no. Do you want to talk about something? And he says, no, he's just doing nothing. He's just looking at the seat back in front of it, right? By the end of the flight, she's broken up with him. Yeah.

1:15:24he would have made a great investor. That's what you need. You can be, if you can be happy, or like, you know, Pascal, Pascal had a great quote. He says that all man's miseries stem from his inability to sit quietly in a room alone and do nothing. Right. Right. And so if you have this ability to watch paint dry, watch the back of an airplane seat for a few hours, and just be in a nirvana state, this is the work you need to be doing. I don't know if you know this, but you have fans in a subreddit on Reddit. I don't know if you've ever, have you ever been on it? I haven't done much on Reddit, no.

1:16:00So when I was doing my research for this, I'm seeing what do people think about you? What questions do people have? And I go and one of the best comments, I thought was such a great compliment. They go, the day I knew that this is my guy I want to follow. He's on CNBC, he's on a TV show and they're asking for stock picks. So give me a stock pick. And they go around the horn and everybody gives their stock. It's going to be this, it's going to be this, it's going to go up. they go to you and you go i don't really give public stock tips like this um and they're like well you got you're on tv you got to do something and they're like the comment was he refused to just like randomly name a pick or tell people to go buy something and the tv hosts were like why are you on tv and he was like that's not what i do and he just stayed steadfast and i thought it was such a great compliment but also so so big of a contrast from you go watch kramer or these guys and it's like, you go on and it's like overstimulation telling you, you got to do something right now.

1:16:50The opposite of patients basically. Is that, should people avoid that? Yeah, I mean, I think that it's a big red flag if you're taking stock tips from some guy on TV. I think that's just not going to end well. You know, the guy on TV is not going to be there when he's down 30%. Right. He's all somewhere, not available. Have you seen the reverse Kramer index? It's not just him. People just, whatever he said, do the exact opposite and you're up like you're crushing the market if you just did the exact opposite of this guy. Yeah, so I mean, I think that, like I said, I think indexing is a great way to go for most people.

1:17:21I mean, so I wish in high school, so even middle school, compounding was part of the curriculum from an investing point of view. And it's really simple, but the people don't pay attention to the math. There are three variables that matter with compounding. right? I mean, one is the starting capital you have. The second is the annualized rate of return you get. And the third is the length of the runway, right? Now there's something known as the rule of 72, which is a kind of mathematical - A very helpful rule, but explain it. It's a beautiful rule. I learned this, luckily one teacher in college, she used to be a student.

1:18:05She came back to teach because she's like, I wish we actually taught things that were relevant in the real world. So she took it on herself, became a teacher to come back and teach personal finance. And the one thing she did was she's like, you know, compounding is the eighth wonder of the world. And let me just tell you the rule of 72, very simple math. So the rule of 72 is just a mathematical quirk that happens to work. So for example, if I'm getting a 7 % return a year and I want to know how long is it going to take for this money to double? I can take 72 divided by seven. It's approximately 10.

1:18:3310 years to double. 10 years, right? Now, if I have a 10 % interest rate that I'm getting, and again, if I do 72 divided by 10, it's seven years. So you can switch between the years or the interest rate, and it tells you the other one. And this is the most important thing in life, is how long does something take to double? Because that basically leads to everything else. So for example, if you look at someone like Warren Buffett, he started his compounding journey when he was like 10 or 11 years old. I think he would say it's when he was seven years old. he's going to be 94 this year. Okay, that's a 87-year runway so far, right?

1:19:17Now, the thing is that if you have a really long runway, then a low rate of compounding would still get you a big number. Or if you have a shorter runway and a higher rate would again get you the same result. So it's very important in life, and that's why I think that I wish they'd do this in high school, is to start that engine early. So for example, let's take a situation of someone who's just finished college, right? 22 years old, they got some job, maybe like making$70 ,000,$80 ,000 a year or something. And they put away$10 ,000 in their 401k, right? They're 22 years old. in an index, right?

1:20:04The index has done 10 % a year. Now, what that means is the 10 % a year means that that 10 ,000 will double every seven years. So let's take a situation where the person is now 64 years old, right? Now they started at 22, it's 64, so it's 42 years. 42 years is six doubles, right i do this to make it easy right okay so six doubles right that's two to the power of six two to the power of six is 64 so that 10 000 that the person saved at 22 is 640 000 at 64 but that's not all they have at 23 they save 11 000 that's again sitting at some big number and you keep going. And sometimes we see these news articles, there's some guy who's a janitor of some college and he gives 4 million to the college and lived in a one bedroom apartment, whatever, right?

1:21:07Why are we surprised? Okay, if you actually run the math, he actually didn't even save that much. And he didn't even have such a great compounding engine. It's not like he found Apple 20 years ago or something. That's not what happened. What happened was that there was a consistency. And so actually my pushback to my dad when he was telling me to start a business is I was telling him at that time, I said, look, I got a 401k. I got 30 ,000 in the 401k, right? I'm continuing with 15 % a year. My employer at that time was matching the first 2%. So it was becoming 17%, tax-free basically, tax-deferred.

1:21:45And my income's going up over time. So when I first started working, my salary was$31 ,000, right? So I'm saving$4 ,500 a year, right? But if I was still working, my pay would have been hundreds of thousands or more. And I'm putting away a lot of money. So by the time I get to retirement, it's game over. Lots of extra cash available, no problem. And I never missed the money because it was pre-tax taken out. So it's just great. So I think I wish that young people understand that, yeah, listen, you can pursue lottery tickets. You can pursue entrepreneurial dreams. You can do all of that. That's fine.

1:22:28But on the side, keep this going. And start it early. Let it be boring. Let it be a stupid index fund, Vanguard, and whatever. And that's it. The tortoise is going to win the race. Right. What's the circle the wagons philosophy? Well, the circle the wagons philosophy actually came out of when I was thinking about Buffett's letter last year to the shareholders, the 2023 letter. He pointed out that in 58 years of running Berkshire, there were only 12 decisions that he had made that had moved the needle for Berkshire. Now, Berkshire had a tremendous run. They've compounded, I mean, until recently were compounding at 20 plus percent a year for 58 years.

1:23:14If you're 20 % a year, you are doubling every three and a half years. And that means after 35 years, it's 10 doubles and 58 is another 23 years. So you've got another, what, one, six, six, so 16 doubles, two to the power of 16. Now the way to do 2 to the power of 16 is 2 to the power of 10 times 2 to the power of 6. 2 to the power of 10, round number is 1 ,000. It's 1 ,000x, right? And 2 to the power of 6 is 64. It's 64 ,000 times what you started with, okay? If you started with$100, it's 6.4 million, okay? $100 is 6.4 million, okay? So he's saying, I would calculate in the last 50 years, 58 years, Buffett's made 300 or 400, at least 400 different investment decisions.

1:24:10He's saying 12 are the ones that mattered, right? The god of investing has a 4 % hit rate. That's the god of investing. That's why we should index. Right. What are the rest of us mere mortals supposed to do? So now the thing is that I was thinking about his 12 bets, right? And I thought about, okay, which were the 12? And I think he never mentioned that, but you could guess which one. Seize would be one of them. Coke would be another one. Amex, Gillette, Cap Cities, Washington Post. You can come up with the names, Berkshire Hathaway Energy. Ajit Jain, hiring Ajit Jain. Probably the biggest bet for them, but paid off huge for them.

1:24:47What's the story with Ajit? There's something about the recruiter for him? So what I realized when I thought about these 12 bets was it wasn't the buy decision. The buy decision is important. The important thing was they never sold. C's stayed in the stable for 50 years. Coke has been in the stable for 40 plus years, right? So it wasn't the buy decision. It was the paint drying decision. Okay, that was the important thing. So when you find yourself in the happy position of a small ownership in a great business, just find something else to do with your time, play bridge or whatever. Have you considered golf?

1:25:31I have. Golf is great. And so if you ask Charlie, he would say the single best decision, best investment Berkshire Hathaway ever made was the search fee they paid to hire Ajit Jain. Okay. Now, Ajit Jain walks into their offices in 1986, 1985 actually, never having worked in the insurance business, right? From scratch, without them putting up venture capital or anything, the business he's created for them today probably has a value north of$100 billion. Okay. I mean, it just gets lost in Berkshire because Berkshire is so big. But I'll give you an example of a discussion I had with Charlie, I think that's maybe two, three months before he passed away.

1:26:24So he was telling me that Berkshire Hathaway writes super catastrophe insurance, like insurance against hurricanes, earthquakes, and so on. And many, many years when people are looking for earthquake insurance in Florida, hurricane insurance in Florida, Ajit would look at the rates being offered and just take a pass. Okay. Basically, he would find it too competitive, whatever else, people are not giving enough. Okay. What he did in 2023, and they mentioned it at the meeting actually, is that he wrote hurricane insurance on Berkshire's behalf, reinsurance, with a maximum payout of$15 billion. dollars.

1:27:15So if these hurricanes had hit, now basically the math is like this. I just want to explain how Ajit's mind works. Berkshire would pay out on a big catastrophe like hurricanes, three to five percent of the total insured loss incurred. So for them to have a 15 billion payout, you would have to have had an event with insured losses in Florida of 300 billion. It's beyond Andrew and beyond Katrina. It's beyond all of those, right? So it would need to be a really big event for them to have a 15 billion payout. The premium he collected to write that 15 billion policy, take a guess. Take a guess. 5 billion.

1:28:00He collected 5 billion. Okay. I was sweating that guess. No, no, but he collected, that's exactly what he collected. How much did he pay out in 23? Zero. There was one that came through. my guess would be they might have paid out three, 400 million. Okay. You know, some million. Collect five billion. And what Charlie said to me is, Ajit's done this about six times, okay, where he's picked the years that he's written these policies because what was happening in most years is the premium offered was two billion. He just took a pass. Right. Right? A lot of, all the other insurers wrote that policy.

1:28:36Berkshire took a pass. Right. No cold strikes. Right. And now, for example, we've had some unusual losses. Like for example, that ship in Baltimore. Now that's going to end up being about three to five billion in losses. And it's the biggest maritime loss in global history. It's going to change premiums for ships in the future. Berkshire will probably be writing when everyone else is saying, I don't want to do that. It's like the cat who sat on a hot stove and doesn't want to sit on any hot or cold stoves ever again. You have a thing over there I saw in your office that says, it's like a placard.

1:29:19It says, trouble is opportunity. Absolutely. What's the story of that? It's a quote by John Templeton. And actually, there's a good friend of mine, Prem Watsa in Canada. They call him Berkshire Hathaway of Canada, Warren Buffett of Canada. and I had seen that plaque on his desk and somebody sent it to me. And so it's a great quote. I mean, I think that that's what we're trying to do as investors is we need to be fearful when the world is greedy and we need to be greedy when the world is fearful. And so basically when the world is running away from coal, we need to run towards coal. Right. So I'm always looking at what is hated and unloved, right?

1:30:04And usually you will get a lot of mispricing when something is hated and unloved. Right. Tell me about Bitcoin. Are you a fan of crypto? Bitcoin? Are you a believer? Outside my circle of competence. And I would say that if you put a gun to my head, I would say it's going to end badly. And why is that? It's in the eye of the beholder. There is no intrinsic value, as I understand it, to Bitcoin. Now, you can argue that there isn't an intrinsic value to the dollar, but it has the full faith and credit of the US government, which is then backed by the hardworking American people. So basically, I think that it's, for me, it's in the too hard pile, but I think for most people, I would just say, take a pass.

1:30:51Right. Most people who have invested in Bitcoin couldn't really tell you why it's or what it's going to be worth and why it should be worth that. Okay. Fair enough. So one of the reasons I wanted to fly here is because it's fun to meet these kind of outlier investors or even just hear the stories. And I've heard you tell a couple of stories about guys I've never heard of that I would love for you to tell the story because I think most people have never heard of these people. So tell me about Nick Sleep. Who's Nick Sleep or Jun Junwala? Whichever is your favorite. Give me one of the stories that you love.

1:31:28Well, I think Nick is a wonderful guy. And there's a book called Richard, Richard, Wiser, Happier that came out two, three years ago. And there's a chapter on him. Nick is very, he's a recluse. He doesn't do interviews and such. I was actually surprised he even talked to the author. But it's worth reading the book. and he and his partner, Zach, they would come into their office and basically just sit and read annual report after annual report. They were blue in the face. I mean, they would want to see if they could understand different businesses. And that exercise of reading those annual reports led them to the annual report of Amazon, right?

1:32:14And for example, I've been a customer of Amazon, known Amazon for a long time, et cetera, familiar with the business. But every time I would take a cursory glance at Amazon, it looked very expensive. On an earnings basis, a PE basis, it looked really expensive. And the reason it looked expensive is they were investing so far ahead of the curve on the growth that what should have been categorized as CapEx was just categorized as expenses. So the US government was really funding their growth because there were no taxes being collected. Now, what Nick and Zach were able to do because they were just sitting in their office with no distractions, reading year after year of Bezos' letters.

1:32:58And the Bezos letters are worth reading. I mean, they're very clear. He clearly laid out in those letters what he was up to, right? That he's basically, that he wasn't completely candid, but he was basically, you could tell that the business had very high returns on capital. And he was investing, he was throwing a lot of things against the wall, but basically they were very low risk bets. If any single bet didn't work, it wouldn't sink the company. And so, for example, one of the bets they made was AWS, right? Which became a huge, and they didn't know it was going to become as big as it did. But basically, they also made a bet on FIRE, Amazon FIRE, which didn't work.

1:33:41But basically, I think what Nick and Zach realized is that here was a very gifted capital allocator who understood all the different facets of building a team, going after different markets. He actually disrupted multiple industries. And so they had placed a bet on Amazon. and because Amazon was doing so well, it was becoming a larger and larger portion of their fund. And in the UK, there are more regulations on hedge funds than we have in the US. The UK regulator was telling them that we see this position as very high risk and you guys need to diversify. So they were getting pressure. And they felt that they understood the business so well.

1:34:34So they looked at each other. They were managing, I think, two or three billion. They had made hundreds of millions for each of them. And they said, look, we are independently wealthy. We never thought we'd be here. We're young. Why do we have to listen to some regulator? right? We could return all the capital to all our investors. And what Nick said is, if I return the capital, I'm going to put everything into three stocks. And these are three stocks. He owned maybe a dozen stocks, but he was going to go into three stocks. The three stocks he was going to put one-third each into was one-third Berkshire, one-third Amazon, one-third Costco, right?

1:35:17And so he said, I'm very comfortable with these three stocks. They're very built-to-last businesses. And he did that. And what happened a few years after they hung up their boots is, it's really funny, Amazon still kept, you know, it's a juggernaut. It still kept going. And so it became 70%, 80 % of the pie. So instead of them being one-third each, it was 80%, 10%, 10%, for example. right? And Nick decided that, oh, maybe I should take some chips off the table here. And so he cut the Amazon position in half and bought another business, which has not done well, it went sideways. And that goes back to Buffett's point of 12 that worked in 58 years, is we are not going to, if Warren Buffett has a 4 % hit rate, the rest of us are going to have a 2 % hit rate, Okay.

1:36:16But you also need to get rich just once. So I think that what worked really well for Nick and Zach was they took the Buffett lesson, which is that once you have a great business, just leave it alone. Now, even after he was sloppy and he took chips off the table from 80 % or whatever, still done very well. And I think one of the things that investors forget is that if you look at the Walton family, none of them are running Walmart. Sam Walton passed away a long time ago. It's been several decades since Sam Walton passed away. The Waltons have, for the most part, kept the Walmart stock. And for most of them, it's almost the entire net worth in a single stock, right?

1:37:02So more concentrated than even Nick Sleep is, right? And it's not a business that they control. It's not a business that they run. It's not a business that they're on the board of. None of them gives them sleepless nights, right? And so, for example, in 2018, I started visiting Turkey. And I was just looking at things hated and unloved at that time. And I saw that the Turkish markets were screening really cheap. Everyone and the brother was just exiting Turkey. And I have a really good friend of mine in Istanbul, very good investor, kind of classic Ben Graham investor. And I told him, hey, Haider, I'd love to visit Istanbul.

1:37:48And I'd love to, if we could visit all the companies in your portfolio, starting with the company with your strongest conviction, biggest position to the smallest position. And I said, don't take me to see any companies where you don't have money in. He said, well, it should be a blast. So I went in 2018, first time to Istanbul. The blue fish on the brosferis was great. And all these different businesses we saw were great. And I didn't really do much work. He told me which places we were going to. But I just said, let me meet the companies first. I went back in 2019. And we're driving to this company.

1:38:26And like I said, all these Turkish names and companies, I said, I will do the work on the back end. I'm not going to spend time. So as we're driving over, I said, Haider, remind me, what company are we going to do? What's the Cliff Notes version? He said, okay. He says, this company you're going to visit, Resas, has a$16 million market cap. And he says, liquidation value of the business we've sold today is$800 million. So I said, is it a fraud? He said, no, I'm invested in the company. And so I said, you're telling me the company is trading for 2 % of liquidation value. He said, yeah. I said, why?

1:39:07He said, it's Turkey. Everything's cheap. I said, but this is outlier cheap. And Reysas basically is a very simple business. The largest warehouse operator in Turkey, they rent out all these warehouses. These are 99 % leased, inflation indexed, and they're leased to Amazon, Ikea, Carrefour, Mercedes, Toyota, blue chip clients, and all of that. So I went and met the father and son who run the company and the founders. And then after that, I went and visited a bunch of the warehouses, and I couldn't find anything wrong with it. Basically, and he was absolutely right. if you just went to any realtor in Turkey and said, this is their 80 warehouses, give me a value on each one.

1:39:58He would just look at the rent and he would tell you, okay, you're looking at about$70,$80 a square foot for each warehouse. They had 12 million square feet. It was about a billion dollars. And there was 200 million of debt. So 800 million liquidation value and 16 million market cap. Okay. And so then I thought, okay, this thing probably trades by appointment and maybe can't buy the stock. But Turkey has very high trading volume because they're all gamblers. And so I found that when I started buying the stock, that huge volumes are available. And I spent$8 million to get a third of the company.

1:40:37Okay. Now, the way I look at it is that when you look at Buffett's letter with the 12 positions, or you look at Nick's Sleep with Amazon, right? The family that runs the business, they have maybe 40, 45 % ownership, right? I'm an outside investor at 33%. I have no board seat. But the way I look at Resas is the way the Walton family looks at the Walmart stock, right? I said, and what I've noticed since then, since 2019, is they have increased the value of that business. So I would say that probably today the business might be worth one and a half to 2 billion, somewhere in that range. And I think they'll continue, because I've never seen them make any decisions that were stupid.

1:41:28They're very smart about the decisions. It's very well run. So I say, okay, basically we are done. we will keep that business. I don't care about the stock price. So the 16 million market cap now is about 500 million in four years. And the Turkish lira, which when we were investing, it was five lira to the dollar. Today, it's approaching 33 lira to the dollar.

1:42:06Turkish but the business is worth more, right? And so the thing is that it's exactly what Buffett says is that basically just leave it alone. And as long as that family and that father and son are running the business, we will just keep our stake and let it keep running. So basically the idea is that I'm also going to, when I look back, going to find there were a few things that moved the needle big time and the rest did. And the key to moving the needle is inactivity. And so that's what you got to be. You got to be very patient and be very inactive. Right. You talked about Bezos being a capital allocator.

1:42:52Buffett, obviously, capital allocator for Berkshire. And who are the other, I guess, if I just throw some names at you or some companies at you, Like, I'm curious to hear your take on how well they allocate capital. Because we know maybe how good their brand is or their product is. But we were talking about this yesterday. There's a transition from you're a product manager where your focus is building product and you're a people manager where you're building an organization. And then you're a money manager and you're now, you know, you're sitting on$100 billion. You have to figure out some way to invest it.

1:43:21This is like, you know, so tell me, Meta or Facebook, what do you think? How do you think they've done with capital allocation? Well, I think it was really surprising to see how he did a 180. I mean, I think Mark basically moved from being a spendthrift to being a Patel. I mean, literally, I think it was remarkable to see an entrepreneur pivot that way. Right. So, you know, Meta was a country club. You know, they had all this spending going on in all these areas and he really tightened it up. I mean, I was really, I mean, and it showed up in the numbers. They, I mean, Facebook is a great business.

1:44:04You know, all the different brands they have and different properties they have are tremendous. It is the norm in capitalism that great businesses will be sloppy with how they execute. I think normally it's very rare to find a great business, which is also tight-fisted. And Meta wasn't tight-fisted, but it is now. And so that was just wonderful to see. So I think, yeah, I think the capital allocation there is excellent now. What do you think about Elon Musk, fellow Texas resident? The United States, this is one of the most beautiful things about the United States, is Elon wasn't born here, okay?

1:44:48And he wasn't educated in his first 20 years of life over here. We, the United States, got a finished product, basically. And he's created tremendous value, tremendous jobs, and disrupted multiple industries. I think Elon is an exceptional allocator capital. Yeah, it's terrific, actually. And Tesla gets a lot of, there's a lot of conversation. Is Tesla overvalued? Is it undervalued? Is it too frothy? I guess what's your take on when you look at a business like Tesla, how does your mind analyze a business like Tesla? It goes into the too hard pile. I would say this. I would say that Elon is not human.

1:45:30Okay. He's beyond human. If you just think about all the things he's done, I mean, now that neural net and boring company and what he's doing with SpaceX and all that. It's just really very remarkable. The execution is off the charts. And I think, like I said, I think it's just unbelievable in terms of what he's been able to accomplish. So I have a lot of respect. I think Elon understands capital allocation really well. And I think all the businesses that he he gets involved with or he founds, they do so well because he gets so much out of the people, which basically means he gets so much out of the capital, right?

1:46:17I mean, his hiring is so good. The teams that he's building are so exceptional that, I mean, when you're hiring a software engineer, they could be an engineer who's worth 10 million a year, and they could be another guy worth$100 ,000 a year. And he can tell the difference. And so that's a great skill to have. Yeah, I love that. We'll end with this. We have Charlie here and he passed away and you were friends with him. What's maybe your favorite story or lesson from Charlie Munger? Yeah. I mean, obviously I miss Charlie. I think he was one of a kind. I think he was just a... And I've been thinking last several weeks, several months about so many of the lessons and things.

1:46:59But one of the things Charlie said in one of the last interviews he gave, someone asked him, I think, what would you like on your gravestone? And he said, I tried to be useful. And I think those words, I tried to be useful, encapsulate Charlie really well. If you look at Warren Buffett's tribute to him that he did this year in the letter, Charlie selflessly helped Warren a lot. I mean, without Charlie Munger, there's no Berkshire Hathaway, even though you had a Warren Buffett there. And twice I went to Charlie when I was facing difficult personal situations, nothing related to investing, right?

1:47:46Extremely helpful to me. On point, I just did exactly what he told me to do, and those issues disappeared, right? And so Charlie always was trying to see how can I help the world in all the institutions that he touched. You know, his memorial was at the Harvard Westlake School in California and LA, transformed that institution. He was at the board of the Good Sam's Hospital, transformed the hospital, Berkshire Hathaway transformed. I met so many partners he had in different businesses, always gave them the better deal. And I think in every way possible, I think that was just absolutely correct.

1:48:30He selflessly tried to be useful. And, you know, Charlie, I don't think Charlie believed in God. I don't think he believed in religion, right? And I think he didn't believe in legacy. I think he believed that when we're gone, we're gone. It's ashes and dust, right? Till one day before he passed away, he was in the hospital. He knew he was dying. he was trying to get one last grant done to a nonprofit. No upside to him. He's dying. Six days before he passed away, he was buying a stock. A stock we discussed. And I'd send him a write-up on. So I'm just saying that I think Charlie extracted everything he could from his mind and his body.

1:49:17The other thing was that he never complained. lost sight in one eye many decades ago. He was almost blind in the other eye. He cared most about reading, right? That was most important to him. And I saw him one time when the second eye was giving him a very serious problem where he could have gone blind. This was maybe 10 years ago in the second eye. Even when he was facing the prospect of complete blindness. He was so stoic. Never said, oh, poor me, self-pity. His response to me was, I'm going to have to learn Braille. That's how he was going to deal with it. And so I think it's just great. We have such a big, rich body of work that he left, poor Charlie's Almanac.

1:50:06And I think a lot to learn from him. Well, thank you for sharing that. And thank you for doing this. This is hopefully your process of sharing some of your wisdom. So thank you for doing this. It's a pleasure. I really enjoyed the session. Thank you. I know. Okay. All right. Sounds good. Thank you.

1:50:38Hey, let's take a quick break because there's a quote that I love I want to read you. It's that we shape our tools and thereafter they shape us. And, you know, as an entrepreneur, if you're using a bank that was built in the 90s, you're operating like you're in the 90s. And trust me, I've been there. Clunky portals, random holds on your money,$50 wire fees, and then being told, please visit your local branch. Well, that's why I switched to a different type of banking solution, Mercury. It turns your financial chores into a smooth workflow. You can do wires, invoices, cards, reimbursements, two clicks, and I'm done.

1:51:08If you're already using Mercury, respect. If you're still using one of the old big banks, I got questions for you. So go visit mercury.com and give it a test drive. Mercury is a financial technology company, not a bank. Banking services are provided through Choice Financial Group, Column 8, and Evolve Bank & Trust members FDIC.