Other[Music][Music][Music]okay welcome to the doctor's investingokay welcome to the doctor's investingokay welcome to the doctor's investing group podcast we have a very specialgroup podcast we have a very specialgroup podcast we have a very special guest for you today we have monishguest for you today we have monishguest for you today we have monish babraibabraibabrai monish is the founder and managingmonish is the founder and managingmonish is the founder and managing partner of pabrai investment funds andpartner of pabrai investment funds andpartner of pabrai investment funds and ceo of dondo fundsceo of dondo fundsceo of dondo funds the funds have over 500 million dollarsthe funds have over 500 million dollarsthe funds have over 500 million dollars in assets under management and arein assets under management and arein assets under management and are unique in that they have no managementunique in that they have no managementunique in that they have no management feefeefee he is internationally known in thehe is internationally known in thehe is internationally known in the investment community not only for hisinvestment community not only for hisinvestment community not only for his out performance but for his investmentout performance but for his investmentout performance but for his investment style which is a value-based approachstyle which is a value-based approachstyle which is a value-based approach mr pabrai is the author of the dondomr pabrai is the author of the dondomr pabrai is the author of the dondo investor which is a heads i wininvestor which is a heads i wininvestor which is a heads i win tales i don't lose much philosophy totales i don't lose much philosophy totales i don't lose much philosophy to investinginvestinginvesting he has been recently featured in thehe has been recently featured in thehe has been recently featured in the book richer wiser happier by financialbook richer wiser happier by financialbook richer wiser happier by financial author william greeneauthor william greeneauthor william greene and last but not least mr babrai is anand last but not least mr babrai is anand last but not least mr babrai is an educator he has been donating his timeeducator he has been donating his timeeducator he has been donating his time to business schools and groups like oursto business schools and groups like oursto business schools and groups like ours to educate and share his investing
Otherto educate and share his investing experience we're so grateful to have him
Otherso manish babrai welcome to the show
Manish Babraitom it's a pleasure to be with you and i'm looking forward to the to the session
Othercan you start by telling us your story starting a company and then transitioning from that to a professional investor
Manish Babraiyeah sure i mean i uh i had started my my first business in 1990 i was about 25 years old at the time and uh it was a i.t services system integration company and uh about four years after i started and that company grew uh very fast about four years after i started i accidentally heard about warren buffett for the first time and uh i picked up a book by peter lynch and then he was talking about this guy buffett in reverential terms and then i decided to look up who buffett was and i was lucky because the first couple of biographies on buffett had just come
Questionerof biographies on buffett had just come out in 92 93 so i could read those and then that led me to the shareholder letters and then that opened up a whole big world for me to try to get my arms around and i was really blown away by a number of things about warren when i read about him the main thing that puzzled me then was that his investment approach made a lot of sense to me but when i looked at professional investors and at that time the only professional investors i could look at were mutual funds when i looked at the way mutual funds were run they were diametrically opposite to the way he was suggesting investing should be so he was saying you make very few bets uh the big bets the infrequent bets and uh and you hold them for a while and you're not buying a stock you're buying a business etc and uh mutual funds most of them had 100 annual turnover
Othermost of them had 100 annual turnover which means the entire portfolio was being turned over every year they had in some cases hundreds of provisions and at a minimum you know several dozen positions so and then that called into question how could they know from the businesses so well well and so on so everything i saw about warren and the way he was suggesting things happen the way i saw the mutual funds doing it was different so i had an idea at that time that if someone followed buffett's approach to investing it didn't seem like a lot of the professionals wanted to go that way then that person would have a clear advantage because apparently they didn't seem to be many people doing it then and any kind of idea like that doesn't really have much merit without execution and so i said okay one is you have this idea that's fine but you know you need
Questioneridea that's fine but you know you need to actually to actually to actually test it out in the real world and prove test it out in the real world and prove test it out in the real world and prove yourself that it works yourself that it works yourself that it works and i had just sold a portion of my and i had just sold a portion of my and i had just sold a portion of my business the first time i had business the first time i had business the first time i had money i had a million dollars in my money i had a million dollars in my money i had a million dollars in my account after taxes account after taxes account after taxes and i said okay i can take the million and i said okay i can take the million and i said okay i can take the million and and and try to try to try to invest into the muffins approach invest into the muffins approach invest into the muffins approach and i started to do that and and i started to do that and and i started to do that and that went really well i think by the that went really well i think by the that went really well i think by the time it was like 99 2000 time it was like 99 2000 time it was like 99 2000 it had grown past 10 million it had grown past 10 million it had grown past 10 million so it's gone up like 70 a year or so it's gone up like 70 a year or so it's gone up like 70 a year or something so something so something so it worked uh way better than i thought it worked uh way better than i thought it worked uh way better than i thought and of course there was a strong bull and of course there was a strong bull and of course there was a strong bull market market market at the time which gave some tailwinds at the time which gave some tailwinds at the time which gave some tailwinds but but but it was significantly about the market as it was significantly about the market as it was significantly about the market as well well well so so so as i pursued that i got more and more as i pursued that i got more and more as i pursued that i got more and more interested in investing interested in investing interested in investing and less and less interesting in my i.t and less and less interesting in my i.t and less and less interesting in my i.t business it had become large business it had become large business it had become large a lot of hr problems and i wasn't a lot of hr problems and i wasn't a lot of hr problems and i wasn't enjoying it as much as i did when i was enjoying it as much as i did when i was
Otherenjoying it as much as i did when i was just ramping upjust ramping upjust ramping up and uhand uhand uh and so a few friends of mine hadand so a few friends of mine hadand so a few friends of mine had suggested thatsuggested thatsuggested that i manage money for them i used to givei manage money for them i used to givei manage money for them i used to give them stock tips and they had done wellthem stock tips and they had done wellthem stock tips and they had done well but they thought that was pretty randombut they thought that was pretty randombut they thought that was pretty random so power i funds really started in 99 asso power i funds really started in 99 asso power i funds really started in 99 as a hobbya hobbya hobby for me to manage funds for eight of myfor me to manage funds for eight of myfor me to manage funds for eight of my friends and it just started with onefriends and it just started with onefriends and it just started with one million dollarsmillion dollarsmillion dollars uh you know everyone put in a hundred oruh you know everyone put in a hundred oruh you know everyone put in a hundred or two hundred thousand type money and uhtwo hundred thousand type money and uhtwo hundred thousand type money and uh and i put in a hundred thousand and uhand i put in a hundred thousand and uhand i put in a hundred thousand and uh it's really about about a yearit's really about about a yearit's really about about a year year and a half after thatyear and a half after thatyear and a half after that when i said you know i think i ought towhen i said you know i think i ought towhen i said you know i think i ought to reallyreallyreally not treat this like a step childnot treat this like a step childnot treat this like a step child andandand should really try to build a businessshould really try to build a businessshould really try to build a business here because i really enjoy ithere because i really enjoy ithere because i really enjoy it and in the meantime i hadand in the meantime i hadand in the meantime i had transitioned out of the it business itransitioned out of the it business itransitioned out of the it business i brought now outside ceo and then thebrought now outside ceo and then thebrought now outside ceo and then the business got sold so that freed me up tobusiness got sold so that freed me up tobusiness got sold so that freed me up to to just focus on this and that's how i
Questionerto just focus on this and that's how i then morphed into an investor professionally and you've learned this from warren buffett and the kind of value investing philosophy can can you help define that what what does value investing mean to you and can you tell us how you approach learning it
Questioneryeah i mean i think you either get it in five minutes or you're never gonna get it i think it's basically buying things well below what they're worth and so the first part of the equation is if you're looking to make an investment an asset and you had mentioned real estate you know let's say you were looking to buy and a rental apartment i mean you would look at the rent and the expenses and what would be the net amount coming to you every month and if you had a property that was going to give you after everything a thousand dollars a month or 12 000 a year
Questioneror 12 000 a year or 12 000 a year then the question is uh then the question is uh then the question is uh what is that worth what is that worth what is that worth you know what what do you think that's worth to you and it's it's worth worth to you and it's it's worth worth to you and it's it's worth different things to different people different things to different people different things to different people because there's different opportunity because there's different opportunity because there's different opportunity costs costs costs but but but if you're looking for a if you're looking for a if you're looking for a for a 10 return on your money for a 10 return on your money for a 10 return on your money then you wouldn't want to pay more than then you wouldn't want to pay more than then you wouldn't want to pay more than 100 120 000 100 120 000 100 120 000 for the property right because that for the property right because that for the property right because that would give you about a would give you about a would give you about a 10 return and if you wanted a 20 return 10 return and if you wanted a 20 return 10 return and if you wanted a 20 return then you wouldn't want to pay more than then you wouldn't want to pay more than then you wouldn't want to pay more than 60 000 60 000 60 000 right the threshold you set right the threshold you set right the threshold you set determines whether determines whether determines whether and for some other investor and for some other investor and for some other investor maybe five percent of them maybe five percent of them maybe five percent of them and for them if they got the property and for them if they got the property and for them if they got the property for 200 000 they think it's a great deal for 200 000 they think it's a great deal for 200 000 they think it's a great deal right so right so right so and of course if you're going to and of course if you're going to and of course if you're going to leverage it leverage it leverage it take a loan etc then that changes the take a loan etc then that changes the take a loan etc then that changes the equation because when you look at the equation because when you look at the equation because when you look at the interest rate you're paying there and interest rate you're paying there and interest rate you're paying there and then you look at your equity component
Warrenthen you look at your equity component then what return you're getting on that and that can make you pay a somewhat higher multiple depending on the loan rates and so on and and investing in equities or stocks is very similar i mean basically you need to have an idea what the asset is worth versus what you're paying for it and how long do you think it would take for the market to converge on what do you think is the value of the business and and usually i think what you want to do investing is go for the complete no-brainers you know where you don't need an excel spreadsheet you don't need a calculator you can do the math in your head and you know it's going to work great
Questionerhow can you efficiently learn to evaluate a business is it as simple as a discounted cash flow calculator or how can we learn to find the true value of a business
Questionervalue of a business yeah so i think the firstyeah so i think the firstyeah so i think the first the first questionthe first questionthe first question one should focus onone should focus onone should focus on isisis is whether the businessis whether the businessis whether the business is within your circle of competenceis within your circle of competenceis within your circle of competence you know and uhyou know and uhyou know and uh so if if i lived in des moines iowaso if if i lived in des moines iowaso if if i lived in des moines iowa andandand you know iyou know iyou know i hadhadhad expertise inexpertise inexpertise in buying and selling apartments in desbuying and selling apartments in desbuying and selling apartments in des moines iowamoines iowamoines iowa thenthenthen i would have a general sense of you knowi would have a general sense of you knowi would have a general sense of you know when something came upwhen something came upwhen something came up on the radar and the price of beingon the radar and the price of beingon the radar and the price of being offered at whether it was a good deal oroffered at whether it was a good deal oroffered at whether it was a good deal or notnotnot just because i could i'd know how to runjust because i could i'd know how to runjust because i could i'd know how to run the numbers andthe numbers andthe numbers and the equity and the financing and thethe equity and the financing and thethe equity and the financing and the expenses and all of that andexpenses and all of that andexpenses and all of that and make a determination so the firstmake a determination so the firstmake a determination so the first question is toquestion is toquestion is to ask yourself is the business within myask yourself is the business within myask yourself is the business within my circle of competence the same des moinescircle of competence the same des moinescircle of competence the same des moines investorinvestorinvestor may have no expertise in londonmay have no expertise in londonmay have no expertise in london real estate for examplereal estate for examplereal estate for example or even florida real estate for exampleor even florida real estate for exampleor even florida real estate for example there may be factorsthere may be factorsthere may be factors that come in that he may not be familiarthat come in that he may not be familiar
Warrenthat come in that he may not be familiar with oh it may be very similar we don't know so first thing you need to satisfy yourself is that whatever business or stock or asset you're looking at is something you understand and if you understand it well then you know how to value it and if you can value it then the next step is you know is there a difference between the price is being offered and what you think it's worth and if there's a large enough difference there then you would generally step in and if it's if that difference is negative or minuscule then you just move one
Questionercan you comment about index funds versus individual stock picking for say you know busy professionals is it reasonable to think that someone who has an interest in investing can go out and learn how to value a business and and therefore should go out and buy individual equities
Warrenwell i think uh index investing is a great way to go for almost all of us i think that if you venture into individual stocks two or three things come into play the first is you know the circle of competence you know so they may be i mean you mentioned you're an er doctor so there may be certain things that you're very familiar with or you may like you know you may be a frequent customer of walmart and you may understand how the walmart business works or costco or whatever so there are certain things you encounter in life or you might be using an apple phone and you might think you might understand that business so if you think you understand the business well then and if you had the time then you could dig in and see whether that investment makes sense or not but if you don't have the time then i think you're better off just not
Questionerthen i think you're better off just not going there yeah i think that that makes a lot of sense we're going through a time where diversity diversification seems to be the name of the game as the proposed method and your funds have relative concentration to them sometimes just holding a few names tell us why this would be the case and give the positives and negatives to this kind of allocation strategy
Questionerwell i mean the standard way i try to invest is what i call a 10 by 10 portfolio so typically i mean if i have a fund that has 100 million for example what i'm ideally looking for is 10 bets that are 10 million each that's what i'm looking for and if i were able to find 10 bets 10 million each you know if they're in a few different industries and geographies and maybe countries that's plenty diversified one can be quite diversified with just four stalks i mean i was just listening to charlie
Questioneri mean i was just listening to charlie munger he was talking at the daily journal meeting was just taking place and he was saying look the monger family has their money in berkshire costco a chinese investment manager we do and some apartment houses right and within berkshire there's like more than 100 businesses so that itself is then of course the bulk of their fortune i think this berkshire probably maybe 80 or something is berkshire and yeah if you if you had that type of a construction of a portfolio that is plenty diversified it's giving you enough different things going on there and so i think that a no-nothing investor who buys the s p 500 is getting more than that it's getting more than 10 stocks but then people the s p itself also you know top five or top ten positions maybe a third of the fund or a quarter of the fund and so
Questionerof the fund and so it's more diversified than you would normally look for but you don't pay a heavy price for that and it's a simple index it's a broad index you can invest in it cheaply and so not a bad way to go
Questionernish you are a self-proclaimed uh shameless cloner tell us about shameless clothing cloning what is this philosophy and are you still practicing it today
Questioneryeah i think shameless cloning is a good way to go so as a professional investor the universe of stocks to look at is very large globally there are more than 50 000 publicly traded companies and and there's no anyway there's no way anyone could even look at 50 000 companies in any reasonable amount of time maybe even over a lifetime that may not be possible so the first thing you would do is you would get rid of all the businesses that are outside your circle of confidence
Questionerand that might get rid of 90 95 of that universe it's still a large number you might still have like 5000 stocks 2 000 stocks which is the large num so if you if you said that i will look at what other great investors have bought and what are their top positions investors you admire who've done well in the past etc that cuts down the data set dramatically and not only does it cut down a data set dramatically it gives you a great pool to look at because it's already been through one filter by a great mind so if i say i want to look at what charlie munger is buying or warren buffett's buying or what bill ackman is buying then those things would cull the universe down so i could look at that list and say okay which ones of these are within my circular confidence and not take them out and then i could also look at the ones which they have made their highest
Questionerwhich they have made their highest conviction bans so usually when you're cloning you want to look at the highest the biggest patterns individuals are made because they have the greatest conviction obviously and so it's already been through one mind it's been through all the filters to the point that they actually put real money to work significant money to work and then you're coming in to look at it from your lens and so you're sending it to a second set of filters and a lot of things may not get through the second set of filters so i think it's a good way to it's kind of like you know you could bowl without bumpers and bowling might be more fun but your score is going to be lower or you could bowl with bumpers and it's kind of cheating but you do better so when you do shameless cloning it's kind of like bowling with bumpers except it's all legal
Questionercan you tell us about your philosophy with spawners this is something we've heard in many of your recent interviews what are spawners and how do you find them
Todd Combsyeah so i think there are there are some businesses that have a dna which allows them to enter new businesses and new markets and if you can look at a business that has done that successfully over some period of time then that gives you some some legs to stand on so you know the nature of capitalism is that almost everything will eventually mature and die very few companies last for 30 years or 50 years or 70 years and so on but if a company has the ability to spawn new businesses or invest in new businesses then they can transcend so their older bets may make them a lot of money for 10 20 30 years and then by the time they're dying they've only got four other engines that are doing well so for
Todd Combsengines that are doing well so for example if i look at a business like amazon i never liked their book business and their retail business and especially the book business where they took inventory of the books so they have two businesses one in the marketplace where they are you know using third-party sellers and just providing the logistics and payments and so on or they have their own products and they're both the marketplace business to me is a lot better because they're kind of like a digital intermediary the margins are there i think when they take ownership of the inventory and run it through their warehouses and all that i've always been skeptical how profitable that is i mean if if i order you know some you know let's say i order some deodorant or something from amazon or some batteries from amazon you know five dollar ten dollar purchase
Warrenfive dollar ten dollar purchase i don't believe they can make profit on i don't believe they can make profit on i don't believe they can make profit on that that that delivering it to me the next day or the delivering it to me the next day or the delivering it to me the next day or the day after with you know it's in a day after with you know it's in a day after with you know it's in a warehouse goes our truck warehouse goes our truck warehouse goes our truck then it goes on a smaller truck and then then it goes on a smaller truck and then then it goes on a smaller truck and then a delivery guy is coming to my place a delivery guy is coming to my place a delivery guy is coming to my place i mean i mean i mean fedex cannot deliver a package fedex cannot deliver a package fedex cannot deliver a package for less than 20 bucks you know for less than 20 bucks you know for less than 20 bucks you know and uh so that cost and uh so that cost and uh so that cost is up there the cost is it's a is up there the cost is it's a is up there the cost is it's a double-digit cost 5-10 bucks at least it double-digit cost 5-10 bucks at least it double-digit cost 5-10 bucks at least it exceeds the cost of the product and exceeds the cost of the product and exceeds the cost of the product and shipping is free shipping is free shipping is free so so so that business never appealed to me very that business never appealed to me very that business never appealed to me very much much much and i don't think amazon makes a lot of and i don't think amazon makes a lot of and i don't think amazon makes a lot of money on that business money on that business money on that business but but but they use that business as a tool they use that business as a tool they use that business as a tool to to to throw stuff against the wall throw stuff against the wall throw stuff against the wall and look at what sticks and what makes and look at what sticks and what makes and look at what sticks and what makes money so money so money so they had the amazon fire phone for they had the amazon fire phone for they had the amazon fire phone for example example example and and and they brought it out with a lot of fan they brought it out with a lot of fan they brought it out with a lot of fan fame fame fame and it did not get traction and they and it did not get traction and they and it did not get traction and they gave it a quick burial and they moved
Questionergave it a quick burial and they moved out and they moved on and they stumbled onto aws and they spent many years you know keeping it quiet and secret and nurturing and growing it and now aws i think is responsible for the bulk of amazon's market cap aws ammo advertising and their marketplace i think it's the bulk of the value of the business and their own retail i think again is the same it's a difficult business there's all these extra costs and so much so amazon has proven itself to be really good at spawning new businesses they've gone into many many new businesses and they're continuing to add new positions so for example i believe at some point there'll be a competitor to ups and fedex so amazon's truck fleet i think already is bigger than fedex or ups and and their delivery scope is bigger i recently uh drove from california to texas
Questionercalifornia to texas and i was relocating in texas so we just made a you know road trip out of it and just to keep myself from falling asleep i decided to count the number of amazon trucks i saw ups trucks and fedex trucks and i saw way more amazon trucks all the way and just that's just anecdotal evidence and i think if you look at the numbers that kind of bear itself out because we have deliveries coming to us all the time so they will enter at some point that business they have a lower cost structure because ups and fedex have unionized workforce and amazon has a bunch of entrepreneurs running its vans they're they own the van and they're kind of paid per package kind of thing and it's a completely different cost structure so that's that's a business that didn't exist it'll exist in the future and they have a bunch of other
Questionerand they have a bunch of other businesses like that that they've spawned or they bought like whole foods so they are what i would call an apex spawner and there are lots of other companies most companies cannot are not really good at going into new businesses if you look at a company like like google you know every other new business they've gone into they've acquired they haven't gotten any traction of stuff coming out from within google search came out from within google but they bought android they bought youtube they bought a lot of these they bought double click and so they bought most of the other pieces that uh have have value and their own initiatives like waymo etc haven't gotten traction so so i think different companies are different dnas if you can find a business that has the spawning dna and it can do it well it can give you some great tailwinds
Questionersome great tailwinds so it sounds like you would prefer the business that is able to design and implement a new technology and venture into new business rather than do it through acquisition is that right
Questionerno both both can work i mean i think when facebook bought instagram or when google bought youtube those are like the all-time best acquisitions ever what they paid was what they made them so both can work i think acquisitions is fine too it's just a matter of are they good at it are they good at sniffing out businesses that would be great acquisitions and then scaling them up you know and and is there a hit rate high and if that's the case then and you know do they understand uh what their competence are they good at are they better at home growing businesses or better at nurturing acquisitions right so different companies have different
Questionerdifferent companies have different competencies so if they're good at those things that can work out well sure
Questionerthe buzzword of uh the day is inflation and the fed has just come out with a 7.5 percent year-over-year inflation rate does that change your investing philosophy monish and if so how
Otheryeah i don't i don't spend a lot of time on macro because i'm useless at it i don't think i'm any good at predicting what future inflation there's a different schools of thought on inflation there's a very strong view that these things were temporary because of supply chain hiccups and such we hadn't covered and maybe a year or two from now we might be in a different place so they're just different views on it so who knows which way it goes but i think that if you if you make investments where the margin of safety is very large
Questionermargin of safety is very large then i think then i think then i think whether inflation is one percent or whether inflation is one percent or whether inflation is one percent or seven percent seven percent seven percent would tend to be a rounding error would tend to be a rounding error would tend to be a rounding error and also there are businesses and also there are businesses and also there are businesses where where where inflation can be a tailwind inflation can be a tailwind inflation can be a tailwind so so so let's say for example so let's say for example so let's say for example
Questioneryou bo you own a bunch of apartment you bo you own a bunch of apartment you bo you own a bunch of apartment houses houses houses okay okay okay and you're done your portfolio is there and you're done your portfolio is there and you're done your portfolio is there you've already made the beds and all you've already made the beds and all you've already made the beds and all that that that and and and you believe a lot of inflation is done you believe a lot of inflation is done you believe a lot of inflation is done well well well your your your portfolio would do really well because portfolio would do really well because portfolio would do really well because your rents would rise with inflation your rents would rise with inflation your rents would rise with inflation but your costs wouldn't but your costs wouldn't but your costs wouldn't right you've already spent yesterday's right you've already spent yesterday's right you've already spent yesterday's dollars on the capex dollars on the capex dollars on the capex and the down payments and all of that and the down payments and all of that and the down payments and all of that and you're collecting rent in tomorrow's and you're collecting rent in tomorrow's and you're collecting rent in tomorrow's dollars which are inflation-adjusted dollars which are inflation-adjusted dollars which are inflation-adjusted so so so you're you're in good shape your asset you're you're in good shape your asset you're you're in good shape your asset is increasing in value and is increasing in value and is increasing in value and your your your fixed rate loans fixed rate loans fixed rate loans are actually worth less are actually worth less are actually worth less the lender is getting screwed the lender is getting screwed the lender is getting screwed uh not you uh not you uh not you and in that environment you do well now
Questionerand in that environment you do well now if you're going to be buying a lot of apartment houses in the future then inflation can be a negative because now you'll have to pay up and who knows if rent can keep up or not and all of that so that becomes an issue
Questioneri'll give you an example of investment i made where inflation is very extreme and i knew it was the extreme and i still made the investment and it has worked out exceptionally well and it will keep working out well so i made it and since you mentioned i think you guys got started in real estate
Questioneri was in turkey in 2019 uh my second trip to turkey istanbul great place i just spent three weeks there and i visited a business where the market cap was 20 million dollars and i was told that the liquidation value of the business was more than 800 million dollars and so this was a company that had
Ted Weschlerand so this was a company that had 12 million square feet of warehouse space in 82 different warehouses around turkey a lot of it was in istanbul because 40 percent of the gdp of the country are around istanbul but it was spread out all over the country and they had a bunch of other businesses besides this that 12 million square feet was 99 at least long-term 10-year leases and the tenants were blue chip tenants amazon ikea car for just awesome tenants and the leases were inflation indexed so every year the rents went up based on changes with cpi and so it took about 10 minutes to do the math i never used the calculator so there was 12 million square feet the construction cost at that time in turkey was about 40 dollars a square foot and the cost of the land depending on where you were at were between 20 and 40 square foot so a constructed warehouse
Questionera constructed warehouse was between 60 and 80 dollars a square foot so if you took a let's say a 70 average for example and then you multiplied it by 70. so that's 840 okay so without debt that's the value and a lot of their warehouse is skew closer to 80 and 70 in terms of the actual price and there was uh 200 million of debt so even if you took it at 840 million 200 million you have 640 million and the market cap is 20 million and so basically the market cap is sitting at something like three percent of the liquidation value and there were a bunch of other businesses on top of this business but i didn't even care about the other business but those were harder to value and there was no debt on those businesses so those were pure assets like they run the largest freight train network in turkey it's a large business they have about like 700 containers
Questionerthey have about like 700 containers they have about like 700 containers going back and forth between turkey and going back and forth between turkey and going back and forth between turkey and europe europe europe and they have the largest truck fruit and they have the largest truck fruit and they have the largest truck fruit and they have a and they have a and they have a forklift forklift forklift rental business and they have these rental business and they have these rental business and they have these vehicle inspection stations that they vehicle inspection stations that they vehicle inspection stations that they have like a have like a have like a long-term contract so there's a bunch of long-term contract so there's a bunch of long-term contract so there's a bunch of different businesses they're all different businesses they're all different businesses they're all like monopoly or new monopoly businesses like monopoly or new monopoly businesses like monopoly or new monopoly businesses at the time i invested it was at the time i invested it was at the time i invested it was libra had just devalued it had gone from libra had just devalued it had gone from libra had just devalued it had gone from 3 liter i bought you a dollar to 5 3 liter i bought you a dollar to 5 3 liter i bought you a dollar to 5 and and and inflation was running rampant inflation was running rampant inflation was running rampant the expectation was the expectation was the expectation was that future inflation would be 50 a year that future inflation would be 50 a year that future inflation would be 50 a year 5-0 5-0 5-0 as soon as i could as soon as i could as soon as i could satisfy myself that there was no fraud satisfy myself that there was no fraud satisfy myself that there was no fraud here here here and that the things i mean i spent it and that the things i mean i spent it and that the things i mean i spent it after visiting the warehouses and after visiting the warehouses and after visiting the warehouses and assuring myself that the assuring myself that the assuring myself that the ceo and ceo and ceo and father-son team that ran it seemed father-son team that ran it seemed father-son team that ran it seemed completely above board to me and and completely above board to me and and completely above board to me and and such such such once i eliminated fraud risk once i eliminated fraud risk once i eliminated fraud risk i just started buying every share i
Warreni just started buying every share i could and uh we owned about 35 percent of the company i was shocked i was able to get that many shares so seven million dollars bought us about 35 percent of the company which we still owe inflation from 2019 now is about probably 40 50 okay but like i told you the story of the you know owning a home if there's inflation in the future and i'm not building more warehouses my warehouses are going up in value my rent is going up everything's going up and so i can't lose i can't go backwards and so i said that i'm buying at three percent and i don't think i don't think there could be value destruction because if there's inflation then cement prices go up steel prices go up land prices go up everything goes up and rents go okay and um what the company was really good at is in the middle they got a chance to refi
Otherin the middle they got a chance to refi at lower interest rates soat lower interest rates soat lower interest rates so turkey is weird they've kept theirturkey is weird they've kept theirturkey is weird they've kept their interest ratesinterest ratesinterest rates but inflation is running very high sobut inflation is running very high sobut inflation is running very high so they in the from 2019 to 2022they in the from 2019 to 2022they in the from 2019 to 2022 the debt went from 200 million to 90the debt went from 200 million to 90the debt went from 200 million to 90 million they paid off a lot of debtmillion they paid off a lot of debtmillion they paid off a lot of debt and the blended interest rate is 14and the blended interest rate is 14and the blended interest rate is 14 on their debt so they're getting 2020 25 cpi increases because the20 25 cpi increases because the20 25 cpi increases because the government suppressesgovernment suppressesgovernment suppresses the cpi numbers to show that thethe cpi numbers to show that thethe cpi numbers to show that the information is lower so inflation isinformation is lower so inflation isinformation is lower so inflation is really running at 50 percentreally running at 50 percentreally running at 50 percent and they only get about 25 but theirand they only get about 25 but theirand they only get about 25 but their debt is at 14. so it doesn't matter youdebt is at 14. so it doesn't matter youdebt is at 14. so it doesn't matter you know they're stillknow they're stillknow they're still collecting and and debt versus the valuecollecting and and debt versus the valuecollecting and and debt versus the value of the asset as almost nothingof the asset as almost nothingof the asset as almost nothing most of it is sitting in equitymost of it is sitting in equitymost of it is sitting in equity andandand what they said is thatwhat they said is thatwhat they said is that they really get a market rentthey really get a market rentthey really get a market rent after 10 years with the tenant leavesafter 10 years with the tenant leavesafter 10 years with the tenant leaves because in the meantime you've got thisbecause in the meantime you've got thisbecause in the meantime you've got this suppressed increases in rentsuppressed increases in rent
Questionersuppressed increases in rent so they're getting further and further away from the market trend finally the tenant leaves after 10 years and then they're able to re-rent it so there's a big shortage of warehouses and so uh so probably 15 20 of the footprint is at market rents and a lot of the older leases are way below market so every year the rents keep going and which is great because and the footprint they're not able to expand it much because banks are unwilling to lend and things which i like but i just want them to stay with that foot and now 90 million debt and they've spawned a new business they're spawner they started a solar business which has added about 200 million to the intrinsic value so the intrinsic value today in dollars is higher than it was in 2019 the lira has gone from five liter to the dollar when i invested to almost 14. dollar when i invested to almost 14. okay
Otherokayokay sososo we got clobbered on the liverwe got clobbered on the liverwe got clobbered on the liver the investmentthe investmentthe investment is nowis nowis now the market cap is over 100 millionthe market cap is over 100 millionthe market cap is over 100 million dollars so the thedollars so the thedollars so the the it's still deeply undervalued but itit's still deeply undervalued but itit's still deeply undervalued but it moved up about five minutesmoved up about five minutesmoved up about five minutes okay sookay sookay so and it's still got a lot of room to runand it's still got a lot of room to runand it's still got a lot of room to run so what i'm saying isso what i'm saying isso what i'm saying is we knew there was inflation like i knowwe knew there was inflation like i knowwe knew there was inflation like i know i known alreadyi known alreadyi known already a year from now the leader will be ata year from now the leader will be ata year from now the leader will be at 20.20.20. and i know two years from now it'll beand i know two years from now it'll beand i know two years from now it'll be at 30.at 30.at 30. and i know the investment will still beand i know the investment will still beand i know the investment will still be you know no issues and uh and soyou know no issues and uh and soyou know no issues and uh and so that's an example of wherethat's an example of wherethat's an example of where seven percent interes inflation is youseven percent interes inflation is youseven percent interes inflation is you knowknowknow come play at fifty percent informationcome play at fifty percent informationcome play at fifty percent information and and still keep your shirt on so thatand and still keep your shirt on so thatand and still keep your shirt on so that business has done well and they've beenbusiness has done well and they've beenbusiness has done well and they've been very smart about how they'vevery smart about how they'vevery smart about how they've you know used the bank debt i mean iyou know used the bank debt i mean iyou know used the bank debt i mean i think the banks get hostthink the banks get hostthink the banks get host and the depositors get host you know youand the depositors get host you know youand the depositors get host you know you don't want to be sitting on bankdon't want to be sitting on bankdon't want to be sitting on bank deposits
Questionerdeposits bank paying you 10 or something in that environment but this that works out okay it sounds like a big part of that success was the ability to raise rents for their property and then also just that giant margin of safety and actually my next question would be how did you find it was this a publicly traded security or was it a private business
Questionerit's uh it's publicly traded it's still cheap nobody wants to buy it so every professional investor has exited turkey they got freaked out with the back job fiscal policies and they all sold everything and they all left i spent three weeks in turkey i think it's the most amazing market to invest in so i only look at stuff where i just understand the inflation is there so for example i mean there's a i mean i'm not going to invest in this i'm going to give you an example there's a juice company in turkey
Questionerthere's a juice company in turkey publicly created very large tax juicers and 98 of their product is exported so their costs are in libra and their revenue is in you and turkey is part of the european common market so all the exports were duty free all over europe so as the leader has depreciated their input costs actually have gone down versus the euro because the exchange rate that they convert to is so favorable so wages have not kept up with inflation and other costs have not kept up inflation so this particular business for example does really well in a high inflation environment so in general in turkey if you're a business where your revenue is in euros or dollars and your expenses are in turkish lira uh a high inflation environment is not going to affect you and a lot of devaluation is probably going to give you tailwinds
Otheryou tailwinds sososo if i just limit myself to businesses if i just limit myself to businesses if i just limit myself to businesses which fit that equation so even as this which fit that equation so even as this which fit that equation so even as this company i bought company i bought company i bought the real estate company the real estate company the real estate company a lot of their leases are euro leases a lot of their leases are euro leases a lot of their leases are euro leases so then they just automatically or they so then they just automatically or they so then they just automatically or they don't even need to bother with the don't even need to bother with the don't even need to bother with the exchange rate because exchange rate because exchange rate because in lira it's so high in lira it's so high in lira it's so high and and and sososo basically but but the thing is that basically but but the thing is that basically but but the thing is that professional investors look at it in you professional investors look at it in you professional investors look at it in you know broad spots oh turkey know broad spots oh turkey know broad spots oh turkey bad economic policy crazy macro bad economic policy crazy macro bad economic policy crazy macro environment whatever else better way out environment whatever else better way out environment whatever else better way out of here of here of here and when you have that type of mass and when you have that type of mass and when you have that type of mass excellence excellence excellence you are going to get mass missed pricing you are going to get mass missed pricing you are going to get mass missed pricing and uh and uh and uh sososo i i found some businesses in turkey that i i found some businesses in turkey that i i found some businesses in turkey that i think i think i think would not be hurt with inflation it would not be hurt with inflation it would not be hurt with inflation would not be hurt by devaluation would not be hurt by devaluation would not be hurt by devaluation and and and they have a lot of tailwinds and they're they have a lot of tailwinds and they're they have a lot of tailwinds and they're really cheap really cheap really cheap so life is good so life is good so life is good do you just view this as an opportunity do you just view this as an opportunity do you just view this as an opportunity then to potentially acquire more shares then to potentially acquire more shares
Questionerthen to potentially acquire more shares ororor find other opportunities in that marketfind other opportunities in that marketfind other opportunities in that market yeahyeahyeah we are buying every dayyou have a focus on emerging markets inyou have a focus on emerging markets inyou have a focus on emerging markets in general like india and and turkey forgeneral like india and and turkey forgeneral like india and and turkey for exampleexampleexample as well as chinaas well as chinaas well as china investors here in the us seem to haveinvestors here in the us seem to haveinvestors here in the us seem to have some fearsome fearsome fear over these markets for instance chinaover these markets for instance chinaover these markets for instance china most recently can could you talk aboutmost recently can could you talk aboutmost recently can could you talk about that and what what attracts you tothat and what what attracts you tothat and what what attracts you to foreign marketsforeign marketsforeign markets
Otherwell i think i think you're better offwell i think i think you're better offwell i think i think you're better off not being too jaundicednot being too jaundicednot being too jaundiced about where the company is basedabout where the company is basedabout where the company is based and i think toand i think toand i think to really look forreally look forreally look for really well-run businessesreally well-run businessesreally well-run businesses with great leaderswith great leaderswith great leaders whichwhichwhich have the ability to withstandhave the ability to withstandhave the ability to withstand anyanyany headwindsheadwindsheadwinds that their locations were producedthat their locations were producedthat their locations were produced right so this this real estate companyright so this this real estate companyright so this this real estate company in turkeyin turkeyin turkey if it's market cap went to a billionif it's market cap went to a billionif it's market cap went to a billion dollars tomorrowdollars tomorrowdollars tomorrow above its liquidation value i gave you aabove its liquidation value i gave you aabove its liquidation value i gave you a liquidation value i did not give youliquidation value i did not give youliquidation value i did not give you intrinsic valueintrinsic valueintrinsic value if it went to a billion dollars tomorrowif it went to a billion dollars tomorrow
Questionerif it went to a billion dollars tomorrow i would not sell a single share
Questionerbecause i believe that the father son who run it are really good capital allocators the son is really young he's actually very gifted and and they're very creative and i think that they will continue to add value so i believe in 10 or 20 years that company might be worth 5 10 15 billion who knows right i own 35 percent i just want to sit on that 30 percent and so if it gets to 500 million that's fine but we're not selling billion we're not selling billion and a half today we'll think about but below that we have no interest and even billion and a half i'm not sure i'll sell two billion i'm out of there today
Questionerbut uh but uh but i hope it doesn't get there because i think a much longer runway long term and such so so i think that what what i'm really focused on is finding businesses that have
Questionerfinding businesses that have great managements very protected monopoly like products great returns on capital and then seeing how that overlays with the country and sometimes we'll make mistakes but in general you know humans vascular fear and greed when you get extreme greed you get extreme mispricing in one direction and when you get extreme here you can extremely spicy in the other direction this is the nature of options the the the warehouse operator which was sitting at 20 million dollars they could sell one single warehouse in the next 10 minutes for 70 or 80 the largest warehouse would probably get them 70 80 million like that and i think they told me that they sold two warehouses one of the largest one in a second mid-sized one out of 82 2 out of 82 the debt would go to zero so they would they could just take the account from 82 to 80
Othertake the account from 82 to 80 and private buyers will just pay them what it's worth you're not even going to look at the stock and uh and it's anyway the whole business is not available you know it's not available for sale you could buy it in the market attractions but you can't buy the whole business for that price so so i think that it is in the nature of auction driven markets that they can vacillate quite widely and you know if you look at any business uh look at ibm you know times or any publicly traded company just look at the 52-week range of that stock it might be like 50 to 120 or 70 to 120 something like that but if you look at a your own home how much does it change what's the lowest it goes in a year and the highest it goes in a year you know recently we had some movement but in most years like less than five percent it's like nothing
Otherit's like nothing it's like nothing so so so but in that home where a stock but in that home where a stock but in that home where a stock publicly traded it would go all over the publicly traded it would go all over the publicly traded it would go all over the place place place so the same asset as a listed company so the same asset as a listed company so the same asset as a listed company will behave very differently than it will behave very differently than it will behave very differently than it behaves as an unlisted behaves as an unlisted behaves as an unlisted private asset private asset private asset and so because of that fluctuation and so because of that fluctuation and so because of that fluctuation we can do well we can do well we can do well i would not be i would not be i would not be well in turkey well in turkey well in turkey if there wasn't a stock market if there wasn't a stock market if there wasn't a stock market if i had to go negotiate individual if i had to go negotiate individual if i had to go negotiate individual deals like if i went to this company and deals like if i went to this company and deals like if i went to this company and said hey i'd like to buy all your said hey i'd like to buy all your said hey i'd like to buy all your warehouses warehouses warehouses they'd say well at a billion it's not they'd say well at a billion it's not they'd say well at a billion it's not okay facing okay facing okay facing know that'd be their answer to know that'd be their answer to know that'd be their answer to you know warm regards you know so so you know warm regards you know so so you know warm regards you know so so so the it's really the auction different so the it's really the auction different so the it's really the auction different markets markets markets
Questioneryou talked about you talked about you talked about auction-driven markets and how they can auction-driven markets and how they can auction-driven markets and how they can create greed and fear create greed and fear create greed and fear where do you think that we are now in where do you think that we are now in where do you think that we are now in general monish with the u.s markets general monish with the u.s markets general monish with the u.s markets could you peg us on one side or the could you peg us on one side or the could you peg us on one side or the other other other
Otherwell i don't think the markets are
Questionerwell i don't think the markets are in bubble in bubble in bubble territory i think that there are territory i think that there are territory i think that there are slivers of the market that are over slivers of the market that are over slivers of the market that are over territory and that very weird mispricing territory and that very weird mispricing territory and that very weird mispricing i think the whole crypto thing is a i think the whole crypto thing is a i think the whole crypto thing is a bubble bubble bubble uh i think that you know the meme stocks uh i think that you know the meme stocks uh i think that you know the meme stocks are bubbles you know amc and gamestop are bubbles you know amc and gamestop are bubbles you know amc and gamestop and all of those i think those are and all of those i think those are and all of those i think those are bubbles but bubbles but bubbles but i i don't think the bubble exchanged to i i don't think the bubble exchanged to i i don't think the bubble exchanged to more than like 10 or 15 stocks you know more than like 10 or 15 stocks you know more than like 10 or 15 stocks you know it's a small area of the market and it's a small area of the market and it's a small area of the market and maybe crypto is another area of the maybe crypto is another area of the maybe crypto is another area of the market that has bubble s characteristics market that has bubble s characteristics market that has bubble s characteristics and i don't really need to be wrong or and i don't really need to be wrong or and i don't really need to be wrong or write on that because write on that because write on that because i'm not going and shorting those right i'm not going and shorting those right i'm not going and shorting those right but i but i would say that it's not but i but i would say that it's not but i but i would say that it's not clear to me tesla's overvalued clear to me tesla's overvalued clear to me tesla's overvalued it's not clear to me it's not clear to me it's not clear to me you know google is overvalued you know google is overvalued you know google is overvalued anything like that or apple's overvalued anything like that or apple's overvalued anything like that or apple's overvalued those are very strong businesses those are very strong businesses those are very strong businesses and they could be strong for a long time and they could be strong for a long time and they could be strong for a long time and in a low interest environment those
Questionerand in a low interest environment those earnings streams are worth a lot so i think for the most but i don't think they're in bargain territory so i would say that the u.s markets for the most part are not in public energy except for a small sliver but it's very hard to find things that that are 50 off or 70 off i think those are few and far between and that's why i spend more time in places like turkey because i think a lot of rationality has gone out the window can it be as simple as p e ratios when it comes to value what is your interpretation of how how you can apply a p e ratio for a value of a business
Questioneryeah pe ratio is not very useful they can be a company with trades at four times earnings and it's overvalued and they can be a company that is trading at 80 times earnings and it's undervalued so the issue the correct way to value a
Questionerso the issue the correct way to value a businessbusinessbusiness is to understand what kind of futureis to understand what kind of futureis to understand what kind of future cash it is likely to producecash it is likely to producecash it is likely to produce over the next five 10 15 years and thenover the next five 10 15 years and thenover the next five 10 15 years and then discount that back and uhdiscount that back and uhdiscount that back and uh so a 4p company might be decliningso a 4p company might be decliningso a 4p company might be declining you know melting ice cubeyou know melting ice cubeyou know melting ice cube earnings are going down 50 a year forearnings are going down 50 a year forearnings are going down 50 a year for example and orexample and orexample and or in negative territoryin negative territoryin negative territory and it may not be worth even one timesand it may not be worth even one timesand it may not be worth even one times earningsearningsearnings you know soyou know soyou know so uh whereasuh whereasuh whereas some business is growing 40 a year andsome business is growing 40 a year andsome business is growing 40 a year and it deserves to be at 100it deserves to be at 100it deserves to be at 100 because it's just got so much strongbecause it's just got so much strongbecause it's just got so much strong tailwinds for such a long periodtailwinds for such a long periodtailwinds for such a long period andandand so what we want to do as investors is weso what we want to do as investors is weso what we want to do as investors is we want to look at no-brainerswant to look at no-brainerswant to look at no-brainers we want to look at things where we don'twe want to look at things where we don'twe want to look at things where we don't need to do a dcfneed to do a dcfneed to do a dcf where now i'm not going to find thingswhere now i'm not going to find thingswhere now i'm not going to find things like my turkey example i mean inlike my turkey example i mean inlike my turkey example i mean in ininin 30 years or 29 28 years investor30 years or 29 28 years investor30 years or 29 28 years investor i don't think i foundi don't think i foundi don't think i found other than that one at like four percentother than that one at like four percentother than that one at like four percent or three percent of liquidation valueor three percent of liquidation value
Questioneror three percent of liquidation value it's happened once in 30 years once init's happened once in 30 years once init's happened once in 30 years once in 28 years okay28 years okay28 years okay but you don't need it to happen morebut you don't need it to happen morebut you don't need it to happen more than once or twicethan once or twicethan once or twice okayokayokay if if that business gets to be a threeif if that business gets to be a threeif if that business gets to be a three billion or five billion dollar businessbillion or five billion dollar businessbillion or five billion dollar business in 10 or 20 yearsin 10 or 20 yearsin 10 or 20 years we're done it doesn't matter what elsewe're done it doesn't matter what elsewe're done it doesn't matter what else we didwe didwe did and howand howand how wise or stupid we were on other betswise or stupid we were on other betswise or stupid we were on other bets this bet alone would carry usthis bet alone would carry usthis bet alone would carry us you know it's if it's a 10 bet and ityou know it's if it's a 10 bet and ityou know it's if it's a 10 bet and it does that you knowdoes that you knowdoes that you know 7 million7 million7 million becomes a billion or something you knowbecomes a billion or something you knowbecomes a billion or something you know we arewe arewe are 100 bagger100 bagger100 bagger no problemno problemno problem how does a deal like that come acrosshow does a deal like that come acrosshow does a deal like that come across your desk is this you going throughyour desk is this you going throughyour desk is this you going through filtersfiltersfilters
Otherwell so when i went to turkey there arewell so when i went to turkey there arewell so when i went to turkey there are the good newsthe good newsthe good news with the videos people like you put outwith the videos people like you put outwith the videos people like you put out is there are fans of monish globallyis there are fans of monish globallyis there are fans of monish globally and the thing about these fans of monashand the thing about these fans of monashand the thing about these fans of monash is like some of these guysis like some of these guysis like some of these guys uh like my my friend in turkeyuh like my my friend in turkeyuh like my my friend in turkey they are runningthey are runningthey are running value fundsvalue fundsvalue funds they are very well worst in the
Ted Weschlerthey are very well worst in the in the intelligent investor in the intelligent investor in the intelligent investor and they've read about buffett many of and they've read about buffett many of and they've read about buffett many of them have come to the annual meetings them have come to the annual meetings them have come to the annual meetings and and and and they've some of them attended my and they've some of them attended my and they've some of them attended my meetings for example meetings for example meetings for example so for example my friend in turkey runs so for example my friend in turkey runs so for example my friend in turkey runs a fund a fund a fund and uh i think he visited and uh i think he visited and uh i think he visited california attended my meeting in like california attended my meeting in like california attended my meeting in like 2014. 2014. 2014. and i just looked at things that were and i just looked at things that were and i just looked at things that were going on in turkey that looked like a going on in turkey that looked like a going on in turkey that looked like a lot of lot of lot of a lot of um fear a lot of um fear a lot of um fear in 2018 so i i asked him i said look if in 2018 so i i asked him i said look if in 2018 so i i asked him i said look if i come to istanbul i come to istanbul i come to istanbul could we just visit everything you want could we just visit everything you want could we just visit everything you want just visit every portfolio company just visit every portfolio company just visit every portfolio company that's in your portfolio because i know that's in your portfolio because i know that's in your portfolio because i know how he thinks he's he understands graham how he thinks he's he understands graham how he thinks he's he understands graham and i know how he thinks he said it'd be and i know how he thinks he said it'd be and i know how he thinks he said it'd be a pleasure a pleasure a pleasure i said then let's do it and i said do i said then let's do it and i said do i said then let's do it and i said do you mind if i buy stuff that you want he you mind if i buy stuff that you want he you mind if i buy stuff that you want he said said said i'm done you can buy whatever you want i'm done you can buy whatever you want i'm done you can buy whatever you want and and and so uh so uh so uh i just went with him and
Questioneri just went with him and spent a weekspent a weekspent a week and i just visited every companyand i just visited every companyand i just visited every company and so it's already been through youand so it's already been through youand so it's already been through you know the shameless clonerknow the shameless clonerknow the shameless cloner already went through one filter the guyalready went through one filter the guyalready went through one filter the guy is smartis smartis smart he's a very smart guy and he's veryhe's a very smart guy and he's veryhe's a very smart guy and he's very thoughtful and he knows these businessesthoughtful and he knows these businessesthoughtful and he knows these businesses cold he knows the families he's givingcold he knows the families he's givingcold he knows the families he's giving me history about the cousins and theme history about the cousins and theme history about the cousins and the uncles and everything else what's beenuncles and everything else what's beenuncles and everything else what's been going on for 30 yearsgoing on for 30 yearsgoing on for 30 years i mean stuff that i would never be ablei mean stuff that i would never be ablei mean stuff that i would never be able tototo right and so i'm bowling with bumpersright and so i'm bowling with bumpersright and so i'm bowling with bumpers it's great to bowl with bumpersit's great to bowl with bumpersit's great to bowl with bumpers bowling with bumpers i absolutely lovebowling with bumpers i absolutely lovebowling with bumpers i absolutely love that yeah bowling good bumpers inthat yeah bowling good bumpers inthat yeah bowling good bumpers in istanbul is awesome manistanbul is awesome manistanbul is awesome man
Questioneryour website mentions the free lunchyour website mentions the free lunchyour website mentions the free lunch portfolio can you tell us about thatportfolio can you tell us about thatportfolio can you tell us about that
Questioneryeah the free lunch portfolio basicallyyeah the free lunch portfolio basicallyyeah the free lunch portfolio basically isisis our take at an indexour take at an indexour take at an index with you knowwith you knowwith you know maybe 15 stocksmaybe 15 stocksmaybe 15 stocks and justand justand just using two or three simple filters youusing two or three simple filters youusing two or three simple filters you know likeknow likeknow like uh one part of the business one part of
Otheruh one part of the business one part ofuh one part of the business one part of that freelance portfolio is clone codethat freelance portfolio is clone codethat freelance portfolio is clone code ideas another part is the spawners andideas another part is the spawners andideas another part is the spawners and the cannibalsthe cannibalsthe cannibals so i think that when youso i think that when youso i think that when you justjustjust don't have much activity it only youdon't have much activity it only youdon't have much activity it only you know adjust once a yearknow adjust once a yearknow adjust once a year and uh andand uh andand uh and there's not many changes that happenthere's not many changes that happenthere's not many changes that happen even after a yeareven after a yeareven after a year and you just let these businesses go iand you just let these businesses go iand you just let these businesses go i think it it does reasonably well so it'sthink it it does reasonably well so it'sthink it it does reasonably well so it's it's notit's notit's not we're not doing stock pickingwe're not doing stock pickingwe're not doing stock picking it's a pretty much like an and it's notit's a pretty much like an and it's notit's a pretty much like an and it's not a money-making enterprise for us wea money-making enterprise for us wea money-making enterprise for us we don't we don't have that productdon't we don't have that productdon't we don't have that product we uhwe uhwe uh just put it out therejust put it out therejust put it out there and said to some people if you want toand said to some people if you want toand said to some people if you want to do this uh you know feel free butdo this uh you know feel free butdo this uh you know feel free but there's no reps and reps of warrantiesthere's no reps and reps of warrantiesthere's no reps and reps of warranties and neither are there any feesand neither are there any feesand neither are there any fees well for a newer investor who's learningwell for a newer investor who's learningwell for a newer investor who's learning it would be a good place to start rightit would be a good place to start rightit would be a good place to start right as a yeah i think that's a good place toas a yeah i think that's a good place toas a yeah i think that's a good place to start the s p 500 is a good place tostart the s p 500 is a good place to
Questionerstart the s p 500 is a good place to startstartstart berkshire hathaway is a good place toberkshire hathaway is a good place toberkshire hathaway is a good place to start i mean all of these arestart i mean all of these arestart i mean all of these are pretty validpretty validpretty valid you run a foundation called dakshana uhyou run a foundation called dakshana uhyou run a foundation called dakshana uh can you tell us about that foundationcan you tell us about that foundationcan you tell us about that foundation your experience with it and maybe giveyour experience with it and maybe giveyour experience with it and maybe give us a story that came from thatus a story that came from thatus a story that came from that experienceexperienceexperience
Otheryeah i mean i think uh dakshina is nowyeah i mean i think uh dakshina is nowyeah i mean i think uh dakshina is now uhuhuh aboutaboutabout 15 years old15 years old15 years old and it's worked out way better than iand it's worked out way better than iand it's worked out way better than i thoughtthoughtthought i think in the like 2006 2007 time framei think in the like 2006 2007 time framei think in the like 2006 2007 time frame i could telli could telli could tell that uhthat uhthat uh the wealth we were buildingthe wealth we were buildingthe wealth we were building would widely exceed our ability to spendwould widely exceed our ability to spendwould widely exceed our ability to spend ititit and uh and the wealth would keepand uh and the wealth would keepand uh and the wealth would keep compounding because at that time i wascompounding because at that time i wascompounding because at that time i was like 40 years old or something 42. solike 40 years old or something 42. solike 40 years old or something 42. so i was veryi was veryi was very i would say i was very influenced by ai would say i was very influenced by ai would say i was very influenced by a quote of warren buffett that he saidquote of warren buffett that he saidquote of warren buffett that he said thatthatthat i want to give my kids enough money fori want to give my kids enough money fori want to give my kids enough money for them to do anything they wantthem to do anything they wantthem to do anything they want but not enough money for them to dobut not enough money for them to dobut not enough money for them to do nothingnothingnothing so clearlyso clearly
Warrenso clearly large inheritances actually are a disservice to your kids and gene pool it's going to make their lives worse rather than better small inheritances i think can give them a good boost without being a negative so i knew that i agreed with that as i knew that you know most of the money would not go to the kids and so if you're not going to give the money to the kids you're only left with one choice which is your actual society we can't take it with us and i did not want to be writing checks to the red cross when i was 85 and drooling with half my brain gone i wanted to try to do in philanthropy what i was trying to do investing which is give the money away thoughtfully so it had meaningful impact on society so actually at that time i started looking for a charities that i could write checks to and i was very deeply disappointed out
Otherand i was very deeply disappointed out of thousands and thousands of charities globally i couldn't find one that i was so impressed with and the reason is that the people who run charities they have really good hearts they're not they're not fraudsters they are good people good people with good hearts who want to do good good in the world but they have no business mind and so they are all heart and no head and to do it properly you need a billions and so you need a balance between heart and head so you do need to be compassionate and you do need to care about the world but you need to understand return on capital and in my case what i call social return on invested capital which is if i put money out to a particular cause you know if i'm going to pull a homeless man off the street in l.a set him up in an apartment pay the rent try to get them a job try to get them
Questionertry to get them a job try to get themtry to get them a job try to get them rehabbed try to get them off drugsrehabbed try to get them off drugsrehabbed try to get them off drugs what is the cost of doing that for onewhat is the cost of doing that for onewhat is the cost of doing that for one homeless personhomeless personhomeless person and what is theand what is theand what is the impact to society and how does itimpact to society and how does itimpact to society and how does it compare tocompare tocompare to for examplefor examplefor example giving needles to drug addictsgiving needles to drug addictsgiving needles to drug addicts sososo i could give a set of needles to drugi could give a set of needles to drugi could give a set of needles to drug addicts what is the return to societyaddicts what is the return to societyaddicts what is the return to society for that versus taking some homelessfor that versus taking some homelessfor that versus taking some homeless people off the street and each of thesepeople off the street and each of thesepeople off the street and each of these has versus let's say working on climatehas versus let's say working on climatehas versus let's say working on climate changechangechange each of these is good good things toeach of these is good good things toeach of these is good good things to pursuepursuepursue the problem that comes up is measurementthe problem that comes up is measurementthe problem that comes up is measurement is really hardis really hardis really hard how do you measure how do you measurehow do you measure how do you measurehow do you measure how do you measure whether needles is betterwhether needles is betterwhether needles is better ororor taking a homeless guy off the street istaking a homeless guy off the street istaking a homeless guy off the street is betterbetterbetter and so what i did is i did what charlieand so what i did is i did what charlieand so what i did is i did what charlie munger said which ismunger said which ismunger said which is when you face a tough problem one way towhen you face a tough problem one way towhen you face a tough problem one way to solve it is to invert itsolve it is to invert itsolve it is to invert it so monger always says in word alwaysso monger always says in word alwaysso monger always says in word always inputinputinput so i said okay the inversion isso i said okay the inversion is
Otherso i said okay the inversion is i'm only going to look at i'm only going to look at i'm only going to look at areas of philanthropy areas of philanthropy areas of philanthropy where measurement is easy where measurement is easy where measurement is easy so anything that is a great cause which so anything that is a great cause which so anything that is a great cause which cannot be measured cannot be measured cannot be measured if something cannot be measured we if something cannot be measured we if something cannot be measured we cannot actually cannot actually cannot actually understand what the return is on the understand what the return is on the understand what the return is on the money we're putting out money we're putting out money we're putting out it may be a great cause but it then you it may be a great cause but it then you it may be a great cause but it then you just have you run you're running blind just have you run you're running blind just have you run you're running blind so i said okay we're only going to focus so i said okay we're only going to focus so i said okay we're only going to focus on things where the measurements are on things where the measurements are on things where the measurements are easy so we ended up with basically easy so we ended up with basically easy so we ended up with basically a focus on education a focus on education a focus on education which generally lends itself to metrics which generally lends itself to metrics which generally lends itself to metrics you can measure and a focus on poverty you can measure and a focus on poverty you can measure and a focus on poverty alleviation in india so we alleviation in india so we alleviation in india so we identified that we could identified that we could identified that we could india has a situation where there are india has a situation where there are india has a situation where there are really good medical schools really good medical schools really good medical schools and they're really good engineering and they're really good engineering and they're really good engineering schools which are run by the government schools which are run by the government schools which are run by the government they're almost free to attend like a top they're almost free to attend like a top they're almost free to attend like a top four year engineering program in the in four year engineering program in the in four year engineering program in the in india would be less than four thousand
Otherindia would be less than four thousand dollars same with med school and the 4 000 any bank will give you and your first year income will be 10 or 15 000 so you'll easily cover that 4000 even in one or two years you can pay off right so but the problem is there's a lot of pressure to get seats in these schools it's very competitive and so there's a big coaching industry which is very expensive to get coached for the entrance exams for these schools and so the poor people can never get into these schools even though they're free to attend so what my foundation did is we set up free coaching for these kids where if they are very poor and gifted we bring them in for two years we spend like you know two three thousand dollars per kid on them and then we have a 80 70 80 hit rate on them getting to these schools and these kids are coming from families
Otherand these kids are coming from families where the income is typically less than 100 or 200 a month and they finish and they're at 1000 or 2 000 so it's awesome what a great so we can so we can measure what our success rate is because the third party tells us it got admitted or not it's not something we can fudge we can measure how much we spent we can measure what they're making we can measure every single thing and so if you go on our website dakshana.org d-a-k-s-h-a-n-a dot o-r-g you can see all our annual reports and the metrics and all of that and uh you know buffett buffett and monger both read the reports they become good friends now and buffett has told me that the production annual reports are the best annual reports he's ever read from any non-profit which i'm assuming includes includes the gates foundation so i take that as a compliment and it's there because that's
Questionercompliment and it's there because that's what we care about you know i i care about that the money is well spent and i think we get tremendous bang for the park i think for about three thousand dollars we lift our family permanently which is incredible i think and um so i think that might be a good note on uh on which to end uh tom what do you say
Otheri think that that's great thank you so much for joining us monish it's a pleasure to have you on and uh thank you again for coming i enjoyed the session and uh look forward to future interactions take care all right thank you