Other[Music][Music][Music][Music] hi everyone and welcome back to TVP this week we have value investing heavyweight Mish pide joining us Mish is the founder and CIO of prai funds the founder of the dakshana foundation a close friend of Warren Buffett and a frequent Bridge opponent of Charlie Munger he joins Juan and Andy Evans on this episode to discuss how manisha's dad's entrepreneurial experience shaped his understanding of risk his commitment to leave is a popper by giving everything away to charity through D Shana and following the great example of chucki the rationale behind cloning as a strategy while he never went for the insurance model and concentration in ergodicity finally you will note some variety in the audio quality this episode The Joy of having guests join us from across the world also means that we're at the mercy of some fickle Tech
Otherwe're at the mercy of some fickle Tech but we hope that it doesn't disrupt your experience too much thanks for bearing with us and enjoy Mish P welcome to the value perspective podcast is a pleasure to have you here how are you
Questionerit's wonderful to be here and thank you for having me it's excellent where do we find you today
OtherI'm at my home office in in Austin Texas
Questionerthat was very nice Manish what about you guys where are you at
Otherwell we are at the very amazing chau's recording studio at the moment enjoying this conversation with you if you are a value investor it would be very difficult that that person has not heard about you but for those that might not know you could you please provide them with a brief summary and introduction about yourself
Questionersure you know I always tell people who are introducing me that the thing that they should not skip in the introduction
Questionerthey should not skip in the introduction
Questioneris that something I'm very proud of is I got a lifetime ban at a casino in Vegas who basically told me I could never play Blackjack at their casino and I told them you know I'm not counting cards because normally you ban people who are counting cards and they said yeah you know it took us about six months to figure it out and yeah we agree you not counting cards but we cannot win against your system so I asked them if they would give me a letter you know like a graduation certificate and they said no you're just banned that's that so anyway I've I've I've been a a student of Buffett and Munger and Graham now for almost 30 years I I heard about waren Buffett for the first time in 1994 and it opened up a big new world for me I had never actually bought a stock before that never really worked in the
Questionernever really worked in thenever really worked in the industry and I was really intrigued andindustry and I was really intrigued andindustry and I was really intrigued and fascinated as I read the first fewfascinated as I read the first fewfascinated as I read the first few biographies that had come out on Buffettbiographies that had come out on Buffettbiographies that had come out on Buffett and then the bookshaand then the bookshaand then the booksha letters and then the Buffett partnershipletters and then the Buffett partnershipletters and then the Buffett partnership letters and you know just opened up aletters and you know just opened up aletters and you know just opened up a whole new world for me and basically Iwhole new world for me and basically Iwhole new world for me and basically I just kept reading and learning andjust kept reading and learning andjust kept reading and learning and started to invest following thatstarted to invest following thatstarted to invest following that approach inapproach inapproach in '94 and about five years later I had'94 and about five years later I had'94 and about five years later I had some friends who asked me to managesome friends who asked me to managesome friends who asked me to manage money formally for them the small amountmoney formally for them the small amountmoney formally for them the small amount eight guys a total of million dollarseight guys a total of million dollarseight guys a total of million dollars and that's what led to the formation ofand that's what led to the formation ofand that's what led to the formation of P funds I didn't plan at that time forP funds I didn't plan at that time forP funds I didn't plan at that time for it to become a full-time vocation Iit to become a full-time vocation Iit to become a full-time vocation I thought it' be just something on thethought it' be just something on thethought it' be just something on the side for me and my friends I manageside for me and my friends I manageside for me and my friends I manage about 900 million now it's mostly Highabout 900 million now it's mostly Highabout 900 million now it's mostly High net worth families and the funds havenet worth families and the funds havenet worth families and the funds have been around for about 24 yearsbeen around for about 24 yearsbeen around for about 24 years and over the years surprisingly Warrenand over the years surprisingly Warren
Questionerand over the years surprisingly Warren and Charlie both became friends whichand Charlie both became friends whichand Charlie both became friends which was not expected you know we alwayswas not expected you know we alwayswas not expected you know we always think of them as you know icons never tothink of them as you know icons never tothink of them as you know icons never to be touched or met or interacted with andbe touched or met or interacted with andbe touched or met or interacted with and so that was interesting I used to playso that was interesting I used to playso that was interesting I used to play quite a bit of bridge with Charlie onquite a bit of bridge with Charlie onquite a bit of bridge with Charlie on Fridays at the LA Country Club which heFridays at the LA Country Club which heFridays at the LA Country Club which he doesn't do now because he's not sodoesn't do now because he's not sodoesn't do now because he's not so mobile so that's kind of a quickmobile so that's kind of a quickmobile so that's kind of a quick backdrop and before we get into thebackdrop and before we get into thebackdrop and before we get into the world of probabilities and kind of askworld of probabilities and kind of askworld of probabilities and kind of ask you about investing we we came acrossyou about investing we we came acrossyou about investing we we came across your dakshana foundation if I'veyour dakshana foundation if I'veyour dakshana foundation if I've pronounced that correctly can you tellpronounced that correctly can you tellpronounced that correctly can you tell us a little bit about that before weus a little bit about that before weus a little bit about that before we before we go into the rest of thebefore we go into the rest of thebefore we go into the rest of the interview
Otheroh sure yeah so just yesterdayinterview oh sure yeah so just yesterdayinterview oh sure yeah so just yesterday there was a news in the New York Timesthere was a news in the New York Timesthere was a news in the New York Times that Chuck Frei had passed away and Ithat Chuck Frei had passed away and Ithat Chuck Frei had passed away and I don't know if you guys are familiar withdon't know if you guys are familiar withdon't know if you guys are familiar with Chuck Frei but there's a book called theChuck Frei but there's a book called theChuck Frei but there's a book called the billionaire who wasn't and it's a great
Questionerbillionaire who wasn't and it's a great book to read and Chuck Frei I think over his lifetime gave away about 8 billion dollar or more to charity he tried to do it anonymously he actually went to Great Lengths to make sure sometimes that the recipients didn't know who the who the person giving the money was and his objective was to die with zero and so he was 92 when he passed away and I think a few years back maybe three or four years back he moved into a rental a simple rental apartment in San Francisco and he was down to I think his last 2 million and I think he pretty much accomplished what he sought to do which is to die with zero and that is what I'm trying to do you know live up to the Chuck Frei standard die with zero and I'm going to be leaving planet Earth on June 11th 2054 about 30 or years from now 30 years and a few
Otherand a few months and one day before that which is June 10th 2054 I hope to be down to $100 so there is one engine which is compounding assets and increasing wealth and there's another engine dakshana which is focused on giving it away and I started dakshana about 17 years ago basically because I knew that you know trying to start this when I was 70 or 80 years old I wouldn't have much energy to do anything so we started small about 17 years ago and the idea was to become good at giving money away giving money away is far more difficult effectively giving it away effectively is far more difficult than making money and so dakana basically amazingly has done far better than I expected it's been very effective at the giving and basically we identify very poor but brilliant kids in India who come from families which are typically making well under $100 a
Othertypically making well under $100 atypically making well under $100 a month3 $4 a day or less some of them aremonth3 $4 a day or less some of them aremonth3 $4 a day or less some of them are $2 a day and we basically take over$2 a day and we basically take over$2 a day and we basically take over their education for about two years fromtheir education for about two years fromtheir education for about two years from 16 to 18 and we get them to the iits16 to 18 and we get them to the iits16 to 18 and we get them to the iits which are like the MIT of India or AESwhich are like the MIT of India or AESwhich are like the MIT of India or AES which is like the Harvard Medical Schoolwhich is like the Harvard Medical Schoolwhich is like the Harvard Medical School of India and it does a full reset forof India and it does a full reset forof India and it does a full reset for the family and the community becausethe family and the community becausethe family and the community because their income levels go to you know Worldtheir income levels go to you know Worldtheir income levels go to you know World standards at that point and currentlystandards at that point and currentlystandards at that point and currently Daka is spending about three odd millionDaka is spending about three odd millionDaka is spending about three odd million a year and the objective is and we justa year and the objective is and we justa year and the objective is and we just started a program about 13 million ofstarted a program about 13 million ofstarted a program about 13 million of capex in the next 3 years to increasecapex in the next 3 years to increasecapex in the next 3 years to increase our capacity but the idea would be thatour capacity but the idea would be thatour capacity but the idea would be that hopefully if the compounding enginehopefully if the compounding enginehopefully if the compounding engine works in the next three decades then theworks in the next three decades then theworks in the next three decades then the giving engine needs to work even bettergiving engine needs to work even bettergiving engine needs to work even better because as we compound money then I needbecause as we compound money then I needbecause as we compound money then I need to amp it up like Mr Frei so that's whatto amp it up like Mr Frei so that's whatto amp it up like Mr Frei so that's what Dua is all about basically I like to
OtherDua is all about basically I like to play games I like to play Blackjack duaiplay games I like to play Blackjack duaiplay games I like to play Blackjack duai is a game Abri funds is a game Bridge isis a game Abri funds is a game Bridge isis a game Abri funds is a game Bridge is a game I just like to play games that'sa game I just like to play games that'sa game I just like to play games that's really nice you've mentioned in the pastreally nice you've mentioned in the pastreally nice you've mentioned in the past that and you will correct me if I'mthat and you will correct me if I'mthat and you will correct me if I'm wrong when you were growing up your dadwrong when you were growing up your dadwrong when you were growing up your dad was an entrepreneur and you would seewas an entrepreneur and you would seewas an entrepreneur and you would see him manyhim manyhim many times start new businesses and thosetimes start new businesses and thosetimes start new businesses and those businesses not doing very well and thenbusinesses not doing very well and thenbusinesses not doing very well and then he would start all over again and so wehe would start all over again and so wehe would start all over again and so we thought that it would be nice to startthought that it would be nice to startthought that it would be nice to start our conversation about framing how didour conversation about framing how didour conversation about framing how did that experience shape risk for youthat experience shape risk for youthat experience shape risk for you
Otherthat's a great question actually my mythat's a great question actually my mythat's a great question actually my my dad wasdad wasdad was exceptional at ident identifyingexceptional at ident identifyingexceptional at ident identifying offering gaps in the market he wasoffering gaps in the market he wasoffering gaps in the market he was really good at kind of looking at kindreally good at kind of looking at kindreally good at kind of looking at kind of what was going on around him andof what was going on around him andof what was going on around him and saying oh this product or this servicesaying oh this product or this servicesaying oh this product or this service doesn't exist and I know that if Idoesn't exist and I know that if Idoesn't exist and I know that if I create this product or service it's
Othercreate this product or service it's likely to do well and so his hit rate on those was extremely high so usually when he had a startup and in India there was no ecosystem of venture capital or anything or even Bank financing for that matter he repeatedly started with zero and he was almost always right about the opportunity I think he was very good at identifying those gaps that existed the issue he had was that he was an eternal optimist and he was in a hurry so once the business got going he would want to grow it as fast as possible and so these businesses typically had a very thin layer of equity and capital and as much leverage and debt as the banks would give him and he was just constantly maxing on The Leverage to grow as quickly as possible and the moment the first headwinds would show up and there would always be headwinds you know we
Otherwould always be headwinds you know we would always be headwinds you know we always have headwinds and business these always have headwinds and business these always have headwinds and business these businesses just were not built to businesses just were not built to businesses just were not built to withstand even the lightest winds withstand even the lightest winds withstand even the lightest winds because they were just always low to the because they were just always low to the because they were just always low to the health and they would in variably health and they would in variably health and they would in variably crumble and fail because the ecosystem crumble and fail because the ecosystem crumble and fail because the ecosystem also was not there that you could get also was not there that you could get also was not there that you could get other financing or someone to give you other financing or someone to give you other financing or someone to give you Equity or something like that and so he Equity or something like that and so he Equity or something like that and so he would go back to square one and would go back to square one and would go back to square one and amazingly he would in a few months amazingly he would in a few months amazingly he would in a few months concoct up a new concoct up a new concoct up a new idea and get going again and I saw him idea and get going again and I saw him idea and get going again and I saw him do this do this do this repeatedly and he was a very logical repeatedly and he was a very logical repeatedly and he was a very logical engineer kind of rational thinker and engineer kind of rational thinker and engineer kind of rational thinker and and I remember that one time when I was and I remember that one time when I was and I remember that one time when I was about 10 years old there used to be this about 10 years old there used to be this about 10 years old there used to be this kind of astrologer who used to come to kind of astrologer who used to come to kind of astrologer who used to come to our home on Sunday and this guy's you our home on Sunday and this guy's you our home on Sunday and this guy's you know wearing like orange robes and has know wearing like orange robes and has know wearing like orange robes and has all these marks on his all these marks on his all these marks on his forehead and my father would sit with
Questionerforehead and my father would sit with him and ask him to tell him about thehim and ask him to tell him about thehim and ask him to tell him about the future okay and the austrology wouldfuture okay and the austrology wouldfuture okay and the austrology would give my father various data points ofgive my father various data points ofgive my father various data points of what was going to happen and so on andwhat was going to happen and so on andwhat was going to happen and so on and then next Sunday the astrologer would bethen next Sunday the astrologer would bethen next Sunday the astrologer would be back so I mustered up the courage to goback so I mustered up the courage to goback so I mustered up the courage to go up to my dad and said you got to knowup to my dad and said you got to knowup to my dad and said you got to know that this guy is full of that hethat this guy is full of that hethat this guy is full of that he doesn't know nothing and we don't havedoesn't know nothing and we don't havedoesn't know nothing and we don't have money and everything's like gone and youmoney and everything's like gone and youmoney and everything's like gone and you give him money every week and then hegive him money every week and then hegive him money every week and then he shows up the following week why wouldshows up the following week why wouldshows up the following week why would you want to do this and he said thatyou want to do this and he said thatyou want to do this and he said that when I give him money and I ask himwhen I give him money and I ask himwhen I give him money and I ask him about the future he gives me a very Rosyabout the future he gives me a very Rosyabout the future he gives me a very Rosy forecast for what's about to happen nextforecast for what's about to happen nextforecast for what's about to happen next in my life and I suspend reality whenin my life and I suspend reality whenin my life and I suspend reality when he's talking to me like that and he ishe's talking to me like that and he ishe's talking to me like that and he is the Rope he said I'm I'm at the bottomthe Rope he said I'm I'm at the bottomthe Rope he said I'm I'm at the bottom of a very deep well and I need a rope toof a very deep well and I need a rope toof a very deep well and I need a rope to come out of that well and he is my ropecome out of that well and he is my ropecome out of that well and he is my rope because he tells me these stories about
Questionerbecause he tells me these stories about these new businesses that I'm going to create and they're going to prosper and that things are going to be great and that is my rope to come out of that well not be depressed and go start the next business so that was the experience the impact it had on me was that I was lucky that my dad was doing really well when it came time for my brother and I to go to college and he wanted us to come to the US for college and thankfully he could afford it at that time so we came to the US and I was I studied engineering and my plan was to never ever be an entrepreneur and to never ever start any business because I'd seen this huge gyration up and down and I just didn't want that and I said okay if I get a good engineering degree I'm going to get a good job and I'm always going to be able to have a job and life
Questionergoing to be able to have a job and life is going to be stable 15% is going to go into my retirement account into index funds and that's going to grow and all of that and my dad was visiting me I think about three years after I started working and he told me that he was disappointed you know that he had all these aspirations of what I might do and here I was you know doing some non-descript Cog in a wheel of a large company kind of thing and I told him do you remember my childhood and you remember the trauma he said oh life just being that was all excitement in life you know you can't have a boring life and so he was able to Prevail on me and I moved I basically left my my job and started my first business and then went from there it's a a great story we've read the book uh richer wiser happier by William green and your your profiled in there and the main thing around your
Questionerthere and the main thing around your profile is about cloning and how you've really made your career out of being a great cloner can you talk us a little bit through you know what what you were doing when you were cloning and and who the the people of your your cloning or the subjects of your cloning were
Otheryeah I mean I think you know Charlie Charlie buer talks about these mental models and I think cloning is a very powerful mental model one of the very powerful mental model one of the weird unusual things about humans and I still don't know why this is the case with humans is most humans have a strong aversion to cloning I'm not sure where that comes from in evolution but they think it's beneath them they almost think it's like coping or something like that also a lot of humans will believe that oh you know Starbucks is such a great idea but it's already been done or
Othergreat idea but it's already been done or oh you know Soul cycle is a great ideaoh you know Soul cycle is a great ideaoh you know Soul cycle is a great idea but it's been done and actually there'sbut it's been done and actually there'sbut it's been done and actually there's room for manyroom for manyroom for many Starbucks and there's room for manyStarbucks and there's room for manyStarbucks and there's room for many words verions of the same business andwords verions of the same business andwords verions of the same business and that's the other thing that humans havethat's the other thing that humans havethat's the other thing that humans have a false mental model where they see thata false mental model where they see thata false mental model where they see that someone has done somethingsomeone has done somethingsomeone has done something Innovative and they think that it's doneInnovative and they think that it's doneInnovative and they think that it's done you know there's no opportunity thereyou know there's no opportunity thereyou know there's no opportunity there and we run into some humans like forand we run into some humans like forand we run into some humans like for example if you if you look at a companyexample if you if you look at a companyexample if you if you look at a company like Microsoft you know they spent solike Microsoft you know they spent solike Microsoft you know they spent so many billions of dollars a year on R&Dmany billions of dollars a year on R&Dmany billions of dollars a year on R&D they've got M Microsoft research whichthey've got M Microsoft research whichthey've got M Microsoft research which in several veral decades more than fourin several veral decades more than fourin several veral decades more than four decades had produced nothing you knowdecades had produced nothing you knowdecades had produced nothing you know they just keep having these very smartthey just keep having these very smartthey just keep having these very smart phds funded and all of that nothingphds funded and all of that nothingphds funded and all of that nothing comes out of that lab but what hascomes out of that lab but what hascomes out of that lab but what has worked for Microsoft is they saw wordworked for Microsoft is they saw wordworked for Microsoft is they saw word perfect and they cloned it and createdperfect and they cloned it and createdperfect and they cloned it and created word they saw Lotus 123 and created
Otherword they saw Lotus 123 and created Excel they saw ncape and you know created Microsoft Explorer and now Edge you know search you know they created Bing and you know what Bing stands for is but it's not Google you know and so all the successes Microsoft has had has come from being an intense cloner so Apple invented the mouse actually Apple copied the mouse from Xerox Park Labs you know that's where they they copied it from and Microsoft wanted to make the Mouse work in a MS DOS and windows World which was a big challenge because of a very different architecture and they were just dogged about they finally the engineers were able to do it and you know they created Windows and Microsoft's not even a great cloner you know Windows took like 15 20 versions before humans could actually use it and they still complain it's not as good as that you know so even not
Questioneras good as that you know so even not being that great a cloner gives you a huge Advantage Sam Walton with Walmart I think for the first 15 years or 20 years of Walmart's existence there was absolutely nothing new that Walmart came up with it was a completely cloned model taken from Kmart taken from Sears and Sam Walton spent an incredible amount of time in his comparative stores so whenever he was traveling anywhere to see any Walmart or Scout new locations he was always going into the retail stores of even small you know Mom and Pop competitors and he didn't care if they were big or small or successful or not successful even a failing retailer he would find something that they were doing that he could copy from them and Walmart got built on that so even even a company like Starbucks you know our schz looks at the cafes in Italy
Otherlooks at the cafes in Italy and says you know this can play in Poriaand says you know this can play in Poriaand says you know this can play in Poria Illinois and clones it you know and itIllinois and clones it you know and itIllinois and clones it you know and it does it does play and then he's gone nowdoes it does play and then he's gone nowdoes it does play and then he's gone now upscale with you know Starbucks reserveupscale with you know Starbucks reserveupscale with you know Starbucks reserve and all that so I I think what I foundand all that so I I think what I foundand all that so I I think what I found over the decades is that number one mostover the decades is that number one mostover the decades is that number one most humans for whatever reason think cloninghumans for whatever reason think cloninghumans for whatever reason think cloning is beneath them and number two that ifis beneath them and number two that ifis beneath them and number two that if you don't follow that model it's goingyou don't follow that model it's goingyou don't follow that model it's going to give you a huge leg up in life andto give you a huge leg up in life andto give you a huge leg up in life and dsh is a cloned model you know I found adsh is a cloned model you know I found adsh is a cloned model you know I found a guy who was doing something really smartguy who was doing something really smartguy who was doing something really smart I actually wanted to fund him he didn'tI actually wanted to fund him he didn'tI actually wanted to fund him he didn't want to scale so then I asked him youwant to scale so then I asked him youwant to scale so then I asked him you know do you mind if you copy your modelknow do you mind if you copy your modelknow do you mind if you copy your model he said no no I would I would actuallyhe said no no I would I would actuallyhe said no no I would I would actually help you you know and so PAB funds washelp you you know and so PAB funds washelp you you know and so PAB funds was cloned from the Buffett Partnerships socloned from the Buffett Partnerships socloned from the Buffett Partnerships so the Buffett Partnerships had thesethe Buffett Partnerships had thesethe Buffett Partnerships had these unusual rules from 56 to 1970 they ranunusual rules from 56 to 1970 they ranunusual rules from 56 to 1970 they ran you know and he had the greatest recordyou know and he had the greatest record
Questioneryou know and he had the greatest record and all of that and when I was starting for Bri funds in 99 this is three decades after Buffett has shut down and in three decades after he shut down what is arguably the most successful hedge fund ever no one had cloned his model no one had cloned his fee structure nobody wanted to do it that way and I was surprised I said wow and I said well don't be surprised Mish this is the way humans are they want to leave all these opportunities for you because they don't want to clone and I have so many investors who will not invest in a fund which charges a one or 2% management fee you know we charge no management fee and I didn't come up with that I copied that from Warren and so you latch onto a demographic that wants that they want the aligned interest of the investment manager and it and it works so I I have
Questionermanager and it and it works so I I have found in the Investments that have havefound in the Investments that have havefound in the Investments that have have done well with many of those have beendone well with many of those have beendone well with many of those have been cloned the business models have beencloned the business models have beencloned the business models have been cloned the charity has been cloned Icloned the charity has been cloned Icloned the charity has been cloned I mean you know I have no original ideasmean you know I have no original ideasmean you know I have no original ideas I'm just the ShamelessI'm just the ShamelessI'm just the Shameless cloner I guess I got to follow up tocloner I guess I got to follow up tocloner I guess I got to follow up to that so if I think about cloning can youthat so if I think about cloning can youthat so if I think about cloning can you ever get to the point where there areever get to the point where there areever get to the point where there are too many cloners let's take barshtoo many cloners let's take barshtoo many cloners let's take barsh hathway for example so back in 1979hathway for example so back in 1979hathway for example so back in 1979 there were 20 people or 20 potentialthere were 20 people or 20 potentialthere were 20 people or 20 potential cloners sat there listening to tocloners sat there listening to tocloners sat there listening to to Charlie and to Warren and then in 2015Charlie and to Warren and then in 2015Charlie and to Warren and then in 2015 that there's 44,000 potential clonersthat there's 44,000 potential clonersthat there's 44,000 potential cloners does it ever get too competitive ordoes it ever get too competitive ordoes it ever get too competitive or actually is it quite a difficult thingactually is it quite a difficult thingactually is it quite a difficult thing to do so not everyone can be successfulto do so not everyone can be successfulto do so not everyone can be successful as you have with cloning for foras you have with cloning for foras you have with cloning for for whatever reason well what I'm saying iswhatever reason well what I'm saying iswhatever reason well what I'm saying is that now the Burkshire annual meetingsthat now the Burkshire annual meetingsthat now the Burkshire annual meetings are you know online you know millions ofare you know online you know millions of
Questionerare you know online you know millions of people listen to those all the past
Othermeetings are online on buffett. cnbc.com
Questionerso it's been in the public domain for a long time how many companies do we have
Otherthat have cloned The Bu Shamar almost
Warrenzero basically because I think the thing is that cloning doesn't work unless you are fanatical about so you need a very I mean Sam Walton was a fanatic you know uh Bill Gates is a fanatic and so it's the Fanatics who can make this happen not the people who who say oh uh I think this going to work and let me give give this a a go at it and if you have that type of an approach uh you got to go all in you know and so again for whatever reason very few humans are willing to go all in so it's the intensity of the pursuit so I am not really really concerned that cloning is going to stop working because the cats out of the bag
Otherworking because the cats out of the bag or something or because I'm doing thisor something or because I'm doing thisor something or because I'm doing this podcast or whatever it's going to be apodcast or whatever it's going to be apodcast or whatever it's going to be a alive and well because humans just youalive and well because humans just youalive and well because humans just you know large number have aversion to itknow large number have aversion to itknow large number have aversion to it the ones who don't have aversion are notthe ones who don't have aversion are notthe ones who don't have aversion are not fanatical about it and and the the otherfanatical about it and and the the otherfanatical about it and and the the other piece is that there are so many areaspiece is that there are so many areaspiece is that there are so many areas available for cloning so even if oneavailable for cloning so even if oneavailable for cloning so even if one particular area becomes somewhatparticular area becomes somewhatparticular area becomes somewhat comparative you have so much other Greencomparative you have so much other Greencomparative you have so much other Green Field areas you can go into Manish youField areas you can go into Manish youField areas you can go into Manish you will correct us if we are wrong when youwill correct us if we are wrong when youwill correct us if we are wrong when you started your career with a big influencestarted your career with a big influencestarted your career with a big influence of Warren and Charlie and I think thatof Warren and Charlie and I think thatof Warren and Charlie and I think that this even comes across on your firstthis even comes across on your firstthis even comes across on your first book The D investor you were morebook The D investor you were morebook The D investor you were more leaning towards the Benjamin Graham sideleaning towards the Benjamin Graham sideleaning towards the Benjamin Graham side of B investing but as your career hasof B investing but as your career hasof B investing but as your career has progressed you seem to have leaned moreprogressed you seem to have leaned moreprogressed you seem to have leaned more towards the way that Charli and Warrentowards the way that Charli and Warrentowards the way that Charli and Warren think about the world is your perceptionthink about the world is your perception
Questionerthink about the world is your perception of risk change because you have become more experienced or because it has been influenced by the way that they look at the world
Todd Combsyeah I mean I think I think the Ben gram framework is like Bedrock you know I think that all of us need that Bedrock so the the idea that it's the stock is not a piece of paper it's a you know ownership stake in a business the concept of margin of safety and and so those those ideas permeate across where whether you're doing pure gramian investing or you go with the buffet or Munger approach of you know the great businesses and so on they all use this underlying bedra the reality of the situation is that we will make a lot more money by having ownership stakes in businesses that grow dramatically in value over time so if I bought a a business for 40 cents on the dollar and that dollar never grew or it grew at a
Warrenthat dollar never grew or it grew at a low rate I might make two or three times but if I even paid 60 or 70 cents on the dollar for a business that was growing you know 10 15 20% a year and I didn't pay that much of a premium for that clearly that's going to be a vastly superior approach not to mention far more tax efficient because you're not you know each time paying Uncle Sam when you sell and want to look for buying again and the other piece of it is that there are only only so many great ideas one is going to find over a lifetime and so the I think the the idea that Ben Graham had that is that you sell a business when it gets at or near its perceived intrinsic value is at odds with the theories of Fisher for example whose perspective was that a great business may surprise you about its real intrinsic value intrinsic value is a
Todd Combsintrinsic value intrinsic value is a very difficult thing to figure out forvery difficult thing to figure out forvery difficult thing to figure out for most businesses so the odds that you maymost businesses so the odds that you maymost businesses so the odds that you may be wrong about an assessment ofbe wrong about an assessment ofbe wrong about an assessment of intrinsic value can be extremelyintrinsic value can be extremelyintrinsic value can be extremely expensive and so the the model of givingexpensive and so the the model of givingexpensive and so the the model of giving a great business a lot of rope which isa great business a lot of rope which isa great business a lot of rope which is holding it beyond the point at which youholding it beyond the point at which youholding it beyond the point at which you think it has passed it its intrinsicthink it has passed it its intrinsicthink it has passed it its intrinsic value would be blasphemy in the world ofvalue would be blasphemy in the world ofvalue would be blasphemy in the world of benr but I think that approach isbenr but I think that approach isbenr but I think that approach is extremely important for True wealthextremely important for True wealthextremely important for True wealth creation over over long periods Bencreation over over long periods Bencreation over over long periods Ben Graham himself made most of his moneyGraham himself made most of his moneyGraham himself made most of his money from owning one particular business forfrom owning one particular business forfrom owning one particular business for many decades which was Geico and so themany decades which was Geico and so themany decades which was Geico and so the Geico ownership actually violated theGeico ownership actually violated theGeico ownership actually violated the core principles that he was espousingcore principles that he was espousingcore principles that he was espousing and teaching he just felt like he feltand teaching he just felt like he feltand teaching he just felt like he felt like he couldn't teach the approach tolike he couldn't teach the approach tolike he couldn't teach the approach to find or hold a Geico asfind or hold a Geico asfind or hold a Geico as easily as he could teach a quantitativeeasily as he could teach a quantitativeeasily as he could teach a quantitative approach to investing so even inapproach to investing so even inapproach to investing so even in
Warrenapproach to investing so even in Graham's case half his net worth when he passed away was Geico and it had troun the SNP by 7 8% a year over the long holding period so I I think that the you know I think that a Swiss army knife approach to investing is probably best where there are times that we're going to find anomalies not grow that much but is really cheap and it's very stable could give us a great return for some time when we don't have a great business that's obvious to buy so kind of to while our time if you will but I think that if we are in the fortunate situation of finding a great business that with a great Runway then we want to hold on to those for dear life and this is a big mistake I made for many years where I was buying well below intrinsic value and selling right at intrinsic value and I think it was a mistake Mish you brought up uh Geico there and
Questioneryou brought up uh Geico there and obviously that takes us onto the subject of insurance what one element of the barkshire model is obviously insurance and having some insurance uh to have a float to invest I think that at one point in time you did have an insurance company but you chose not to take that on in terms of copying the the the barkshire model can you talk a little bit more about owning an insurance company and and why you didn't decide to take that on
Todd Combsyeah I think that's a good question so Warren has repeatedly said that insurance is a commodity business it's very difficult to there are some pockets within the large insurance industry where one can have a sustainable competitive Advantage but by and large the bulk of the industry operates in a commodity like manner if I'm a small business and I'm looking for Workers Compensation Insurance for example I'm
QuestionerCompensation Insurance for example I'm going to take the low bid you know I may take the low bid amongst a rated carriers or B+ rated carriers but once a carrier or insurance companies a rated the lowest price wins and so most insurance companies do not have pricing power and and Warren has also said that the average insurance company is a terrible business and what what I realized almost right after I made the acquisition of stone Trust Insurance is that I I think the first board meeting is was becoming clear to me that this is not the place I want to be it was a it a very commodity business they were a price taker and their dumbest competitor was setting price and so I I felt that rather than go deeper and deeper getting more and more pregnant with this situation I wanted to put the toothpaste back in the tube so to speak which is
Warrenback in the tube so to speak which is not always easy to do toothpaste is only designed to come out of the tube not go back in so I basically decided I'm going to reverse a course and we decided to sell the insurance company and we were we were able to sell it for just about what we bought it for which I thought was a very good outcome and we were able to return most of the capital that we had raised back to the investors the person who bought the insurance company from me is extremely happy with stone trust and the difference is that he's a vastly superior operator than I am and I remember that when we sold the company to him many years ago the premiums we were collecting every year were about $65 million a year that company today after all these years it's been seven or eight years since we sold the business maybe six six or seven years the
Questionermaybe six six or seven years themaybe six six or seven years the premiums last year were 50 mil it's downpremiums last year were 50 mil it's down 30% but the combined ratio of that30% but the combined ratio of that30% but the combined ratio of that business isbusiness isbusiness is 62% unheard of in the insurance business62% unheard of in the insurance business62% unheard of in the insurance business and so Francis Chu who bought theand so Francis Chu who bought theand so Francis Chu who bought the business for me is a unbelievably greatbusiness for me is a unbelievably greatbusiness for me is a unbelievably great operator I mean he's got Decades ofoperator I mean he's got Decades ofoperator I mean he's got Decades of experience I would never been have beenexperience I would never been have beenexperience I would never been have been able to do what he did so actually itable to do what he did so actually itable to do what he did so actually it was a win-win for everyone it gavewas a win-win for everyone it gavewas a win-win for everyone it gave Francis a platform to build theFrancis a platform to build theFrancis a platform to build the insurance side and so you know theinsurance side and so you know theinsurance side and so you know the interesting thing I learned and you knowinteresting thing I learned and you knowinteresting thing I learned and you know this goes back to the concept of youthis goes back to the concept of youthis goes back to the concept of you know the great businesses and then theknow the great businesses and then theknow the great businesses and then the mistakes in investing and all of that ismistakes in investing and all of that ismistakes in investing and all of that is investing is a very forgiving businessinvesting is a very forgiving businessinvesting is a very forgiving business you know even the best investor probablyyou know even the best investor probablyyou know even the best investor probably not going to be right more than half thenot going to be right more than half thenot going to be right more than half the time right you going to have 50% errortime right you going to have 50% errortime right you going to have 50% error rate is just bar for the course and so Irate is just bar for the course and so Irate is just bar for the course and so I realized that when we had bought therealised that when we had bought the
Greg Abelrealized that when we had bought the insurance company that this was a mistake and so I said okay can we reverse because it's going to consume a lot of brain cells in an activity that I don't want to really particularly be focusing on using brain cells on and so that's what ended up happening and I learned I learned quite a bit I'm very grateful for the experience I think being able to see the insurance company from the inside they were very good people and to be able to see the claims at an individual claim level and you know kind of seeing how the sausage is made if you will it has been a great experience for me taught me a lot and that I'm sure can only help in the future even in the case of burshire haway you know Charlie Munger said a few years back that in the very distant future Insurance may be a small business at B show it would not surprise me that
Questionerat B show it would not surprise me that if and when a g chain is no longer running things that they may elect to run off that business because I haven't heard of them having a second a and a lot of that business only works because there's a just like Stone trust only works because there's Francis to so these unusual Insurance operators are very rare C can I ask on that it's I think it's a difficult difficult field was there any scope if Frances was fantastic on the underwriting side was there any chance for you to partner and do you be on the investment side and he be on the the insurance side in a similar way that they have a barkshire well you know we are old too soon and wise too late when Francis was buying the business from me he begged me to keep a stake he said monish I really want you to keep 20% 25% whatever you want and he said let's do this
Todd Combsyou want and he said let's do this together and because I had seen this business up close and I probably underestimated what Francis was all about if if he made that offer to me again I would take it okay but at the time and he and he actually repeatedly kept asking me because there were earn outs we had to you know we had our future payments were based on how the business performed and each time he was making an earnout payment to us because the business performed extremely well he again asked me do you want to roll this into a stake you know and I kept saying no yeah so I mean I think that Francis is a exceptional underwriter and operator and I think he's a good good investor but I think he's an example of a guy who's always stayed with gr you know he's a classic Graham investor and and yeah I mean I think that a situation where
Questionerthat a situation where Francis is the operator on the insurance side and someone like me is on the investment side I think it would do even better I think it would it would do very well that would be a good that'd be a good marriage and part of the reason to be good marriage is because he's such a great guy so I think in terms of chemistry you know in terms of trust and chemistry and competence I think we would we would have a lot of fun with that I would have thought who knows we're both young it might happen at some point see I I would have thought that the reason why you at the time thought that it wasn't going to work out was more related to how regulation has changed over the decades that might limit Your Capacity to make that a great business in the way that they were able to do it with Burkshire is that is that a misunderstanding well
Questioneris that is that a misunderstanding well
Questioneris that is that a misunderstanding well Burkshire Burkshire has some very subtle
WarrenBurkshire Burkshire has some very subtle aspects of its Insurance business that are not available to most other insurance company so Nebraska so you know insurance is regulated by state in the US the regulatory regulatory framework for insurers based in Nebraska is vastly superior to most other states one of the things I had almost finished doing before Francis had bought the business is I had redomicile we had started the effort to redomicile the business in Nebraska because I realized once I was in the business and I looked at the the different state laws was that it was a advantage to be domiciled in Nebraska even if you were not writing a lot of business in Nebraska there are reciprocal Arrangements that the different states have which give a Nebraska insurer some Advantage I don't know whether that Advantage came about
Questionerknow whether that Advantage came about because Warren was able to work with The Regulators to change some of the Frameworks over the years so the first is that the state of Nebraska has a a a better regime for insurers who are really good at the investing side the second the second big advantage that Burkshire has which people don't understand is the insurance companies Burkshire has are heavily over capitalized so if an if a regulator says that if you're writing a $100 of Premium I want to see $100 of equity in many cases in those businesses Berkshire has $500 of equity and when you have $500 of equity and you're writing $100 of Premium this is the same situation that now Francis finds himself in at Stone trust because their premium volumes have dropped so much and their Surplus has increased so much the regulator is going to give you a lot of leway so to give
Questionerto give you a lot of leway so to give you an example when Burkshire bought the Burlington Northern rail normally just at the highest level what Regulators want in terms of an insurance framework is they want the float invested very conservatively into fixed income because that's going to be used to pay people in the future and they don't have a problem with the Surplus being invested in equities because that's kind of the backup right for the insurance in the case of Burkshire The Regulators in Nebraska have given them the freedom to even invest the float in equities and when burshire went to them and said look we're going to buy this Railroad and this railroad you need to think about it like a bond so if you think about the way the railroad operates and look at the long history of the railroad it's producing 5 to 10 billion a year in cash flow so it's a
Greg Abelbillion a year in cash flow so it's a bond with a variable and we're going to put this railroad inside the insurance company and when you think about the way the float is allocated and the Surplus is allocated please think of the railroad portion being part of the float and the Nebraska Regulators accepted that and what happened is that they paid about 40 billion or so for the railroad if they were to sell the railroad today my guess is it would sell for something north of 120 or 130 M billion its value has more than tripled excluding all the huge dividends it's paid out over the years and now the Nebraska Regulators absolutely love the whole railroad sitting inside because they can see the value compared to the publicly traded railroads and just recently interestingly just in the last few weeks Burkshire did a filing where they showed that they have moved
Questionerwhere they showed that they have moved the railroad out of the insurance company and I know that that would have been a fun conversation with the regulator because the regulator said no no no we like the insurance [Music] like the railroad and bsh would have said well look I got $700 of equity for $100 of Premium I'm still going to be $400 of equity 00 of Premium it's still like four times what anyone else has do you have any concern and one of the things that Buffett did a long time ago in the 80s they had a lot of trouble with some insurance operations I mean some of these things were really horrendous 130% combined ratios 140% combined ratio they were upside down these companies were eventually liquidated they did really terribly they could never fix them they liquidated them but what Burkshire did at the time when they liquidated these companies is
Questionerwhen they liquidated these companies is that the parent company uh stood behind the claims which they didn't need to do so even even though even though they had no obligation so these these companies were in real trouble you know horrendous combined ratios they were going to be liquidated the business model didn't work and Burkshire at the parent level did not have an obligation to pay off all claims it was non recourse so the claims are only to be paid to the extent that those companies had Capital but those companies ran out of capital and what bursha at the parent company did is they stood behind those claims and they paid every single one of them and so The Regulators basically believe that in the case of Burkshire there is an implicit guarantee on these claims it's not an explicit guarantee it's an implicit guarantee panel like
Questionerit's an implicit guarantee panel like like Freddy Mack and Fanny May you know like Freddy Mack and Fanny May you know like Freddy Mack and Fanny May you know being implicit guarantee of the of the being implicit guarantee of the of the being implicit guarantee of the of the US government and so The Regulators will US government and so The Regulators will US government and so The Regulators will always look very favorably upon always look very favorably upon always look very favorably upon Berkshire Berkshire Berkshire Hathaway because of that history and so Hathaway because of that history and so Hathaway because of that history and so so other insurance companies do not have so other insurance companies do not have so other insurance companies do not have that type of a that type of of a that type of a that type of of a that type of a that type of of a reputation with The reputation with The reputation with The Regulators that's really interesting I'm Regulators that's really interesting I'm Regulators that's really interesting I'm going to uh change topics a little bit going to uh change topics a little bit going to uh change topics a little bit here you have clearly been gifted with a here you have clearly been gifted with a here you have clearly been gifted with a mind that is very well suited for Math mind that is very well suited for Math mind that is very well suited for Math and thinking in terms of and thinking in terms of and thinking in terms of probabilities and that probably has probabilities and that probably has probabilities and that probably has helped your career in the way that helped your career in the way that helped your career in the way that you've made decisions over time for you've made decisions over time for you've made decisions over time for those that don't have that inclination those that don't have that inclination those that don't have that inclination or that have been educated to thinking or that have been educated to thinking or that have been educated to thinking probabilities what would be the best way probabilities what would be the best way probabilities what would be the best way for that person to learn to adopt for that person to learn to adopt for that person to learn to adopt probabilistic thinking
Charliewell I I think probabilistic thinking is very important
Otherprobabilistic thinking is very important for investing because everything is probabilities being a good bridge player is a great way to build that probability muscle so you can have fun Bridge is a very fun game it's a very easy game to learn I would say it probably won't take more than 30 minutes to learn the game and one cannot Master it even in a lifetime so it's a great game to continuously keep learning but I think that Buffett and Munger have gained a lot from playing games like bridge I I came to playing bridge separately from investing I actually was playing bridge many years before I became an investor so it was a coincidence for me that I was playing and love bridge but I think that that can really help the probabilistic thinking and and and I think even when one is studying businesses and studying histories of businesses and trying to extrapolate
Otherbusinesses and trying to extrapolate what they're going to go and where they're going to be one is going to see a range of outcomes you know that's just the nature of the way the world works and so one is just good at that type of thinking which games like Bridge or Blackjack can give you then you're that much ahead Mish you famously run very concentrated funds if we can go back to the topic that we started with which was around risk how do you arrive at that decision to run with those concentrated funds
Otheryeah well you know if you if you study the subject you know the amount of benefit you get in terms of diversification and reduction of risk starts to go down really quickly as you add more position so obviously if you had a single stock portfolio you know that's at the extreme end of the risk curve but once you're at about four or
Questionercurve but once you're at about four or five positions in different Industriesfive positions in different Industriesfive positions in different Industries you're already quite Diversified onceyou're already quite Diversified onceyou're already quite Diversified once you take that number up to 10 that's ayou take that number up to 10 that's ayou take that number up to 10 that's a significant well Diversified portfoliosignificant well Diversified portfoliosignificant well Diversified portfolio but when you take it from 10 to 20 or 30but when you take it from 10 to 20 or 30but when you take it from 10 to 20 or 30 or 50 now you're hurting yourselfor 50 now you're hurting yourselfor 50 now you're hurting yourself because the minimum benefits you wouldbecause the minimum benefits you wouldbecause the minimum benefits you would get fromget fromget from diversification would be more thandiversification would be more thandiversification would be more than offset with the lack of knowledge ofoffset with the lack of knowledge ofoffset with the lack of knowledge of those businesses so when we when we staythose businesses so when we when we staythose businesses so when we when we stay very narrow we are basically going to bevery narrow we are basically going to bevery narrow we are basically going to be at the epicenter of our circle ofat the epicenter of our circle ofat the epicenter of our circle of competence we understand thosecompetence we understand thosecompetence we understand those businesses really well as you startbusinesses really well as you startbusinesses really well as you start layering on more things and morelayering on more things and morelayering on more things and more companies there's going to be a variancecompanies there's going to be a variancecompanies there's going to be a variance in in terms of how well you know thein in terms of how well you know thein in terms of how well you know the businesses and not knowing thebusinesses and not knowing thebusinesses and not knowing the businesses well enough even in a highlybusinesses well enough even in a highlybusinesses well enough even in a highly Diversified portfolio is risky so fromDiversified portfolio is risky so fromDiversified portfolio is risky so from my point of view once we get past a fewmy point of view once we get past a fewmy point of view once we get past a few names the risk profile really does go
Questionernames the risk profile really does go down there which is one thing which has come up on the the podcast a number of times is the idea of ergodicity the idea that there's a difference between your your time weighted returns and just any ensemble average and so that has implications for the chance of Ruin over time so something which is on an expected value basis looks like a good trade to make if there's a chance of Ruin then obvious that may not be as appealing as as you think and if you run with a concentrated number of of Holdings in your portfolio there's obviously an increased risk that you have that that chance to ruin so how have you thought about that risk and managing that risk through your concentrated portfolios
Warrenyeah so you know any number multiplied by Zero no matter how big is zero so we obviously don't want to go there it is in the nature of
Questionerwant to go there it is in the nature of equity investing that a few of the decisions that you're going to make are are are going to generate outsize returns and so for example if I were to look at let's say the Walton family owning stock in Walmart they you know Sam Walton during his lifetime when Walmart was not very valuable he distributed the stock to his kids and all of that and he passed away there have been no Walton running the business for several decades there might be one Walton on the board but I'm not even sure if that's true anymore but they've all held the stock and they've held the stock and it probably makes up 90 95% of their total assets so you know when you look at it from the outside you would say oh this is terrible so non- Diversified Etc they probably know Walmart better than anything else and from from that
Questionerthan anything else and from from that point of view so I think the if if we step away from the public market for a second and we look at Founders and Founders who create a lot of wealth with successful businesses by definition the overwhelming majority of the them are not diversive in many cases the companies may not even be public so you know they may have 90 95% or more of their net worth in a single stock even when the company is public they may have a significant portion in a single stock so and of course they can be hurt and we have plenty of cases where they can be hurt but the the other side of the coin which is that great investment opportunities are rare and when you find yourself in the happy position of owning a great business and it's it's not overpriced Etc I mean that's like you know really a big sin if you start trimming because oh it's more than 25%
Questionertrimming because oh it's more than 25% of the pie I fa this issue in real time we invested in a business in Turkey Ras which was around 3% of liquidation value when we invested I think the market cap was around 20 20 million or so liquidation value was like 600 to 800 million and of course it was a no-brainer investment and I was surprised we were able to get a lot of stock so we ended up getting about a third of the company for about $8 million Ras now is valued at about 5 or 600 million and it used to be I think until a few weeks ago it used to be close to 800 million but the the value of the business today is even higher because they've done a few things in the last few years so liquidation value of that business is well beyond a billion and and if I look at intrinsic Val and not liquidation Val it goes well beyond that and so it makes up a significant portion
Questionerand so it makes up a significant portion of some of our funds every quarter when I write to my investor they let them know we've got this issue and I let them know listen if you're uncomfortable you should get off the bus because we're not going to lighten up and I can't I can't really justify lightening up Ras when it's undervalued when it has great management a lot of great Tailwinds and yeah that comes with risk but we're not going to find you know a Ras every two years that's not just not going to happen so anything I replace it with first of all there'll going to be a big tax bill but then anything I replace with with is likely to be inferior and the other thing that has happened is in the last four odd years of owning it we've gotten to know the business a lot better than we knew before we invested and so even though I'm not a
Questionerinvested and so even though I'm not a founder or a person in management of race does I think of it like a business my family owns and and if if there's a business like Walmart that your family owns you know it's probably not the best decision to start looking at okay you know let me diversify and this is that so it is a double-edged sword it does come with risks but also one of the things about investing is that if I look at my friend Nick sleep in the UK and Nick basically was very early in investing in Amazon and Amazon became a big part of the portfolio for him and the UK Regulators were giving him some grief about that and and he and his partner looked at each other and said look we have hundreds of millions of dollars each we never thought we'd have this or even anything close to this and why should we let other people tell us what to do so what if we just returned
Questionerwhat to do so what if we just returned everyone's money we just manage our own money and then whatever Amazon becomes is nobody's business you know whatever percentage of the portfolio and and Nick returns everyone's money and basically I think at the time he returned the money he put everything in three stocks right so put a third in Burkshire a third into Costco and a third into Amazon and of course what happened is Amazon kept going it the energize the bunny it never stops and and it again became a very large portion of the portfol folio that he personally was running it became more than 50 60% of the pie and at that point he himself got a little antsy about that and sold off half the Amazon position and bought a company called Asos also in the UK which between us girls is not a good business it will never be a good business from my
Questionernever be a good business from my perspective I think it's a mistake forperspective I think it's a mistake forperspective I think it's a mistake for Nick to be invested in a s and that's aNick to be invested in a s and that's aNick to be invested in a s and that's a greater risk than a business like Amazongreater risk than a business like Amazongreater risk than a business like Amazon going to zero if I really look at agoing to zero if I really look at agoing to zero if I really look at a business like Amazon it's reallybusiness like Amazon it's reallybusiness like Amazon it's really multiple businesses it's not a singlemultiple businesses it's not a singlemultiple businesses it's not a single business and if you look at someone likebusiness and if you look at someone likebusiness and if you look at someone like Jeff Bezos what percentage of his netJeff Bezos what percentage of his netJeff Bezos what percentage of his net worth is an Amazon or Andrew jasse andworth is an Amazon or Andrew jasse andworth is an Amazon or Andrew jasse and so on so my perspective if I were toso on so my perspective if I were toso on so my perspective if I were to critique that be so bold as to critiquecritique that be so bold as to critiquecritique that be so bold as to critique that for with Nick is he had a very wellthat for with Nick is he had a very wellthat for with Nick is he had a very well Diversified portfolio with those threeDiversified portfolio with those threeDiversified portfolio with those three stocks each one of those three companiesstocks each one of those three companiesstocks each one of those three companies isisis exceptional and even if one of the threeexceptional and even if one of the threeexceptional and even if one of the three survived he wouldn't be in the poorsurvived he wouldn't be in the poorsurvived he wouldn't be in the poor house he would still be fine so myhouse he would still be fine so myhouse he would still be fine so my perspective if I were him would be thatperspective if I were him would be thatperspective if I were him would be that you know just leave them all alone letyou know just leave them all alone letyou know just leave them all alone let them all be and if Amazon becomes 80% sothem all be and if Amazon becomes 80% sothem all be and if Amazon becomes 80% so be it that's okay that's a good thingbe it that's okay that's a good thingbe it that's okay that's a good thing it's really interesting thank you very
Questionerit's really interesting thank you very much Manish given the levels of concentration that you feel comfortable running as per what you just explain wouldn't it be better for you to run a vehicle with permanent Capital rather than the current structure that you have
Otheryeah I mean I think eventually what happens with all of us if we become very successful is the vehicles eventually become permanent so if I look at Nick sleep again you know it's a permanent vehicle because it's his own money now and the same thing happened in many ways to to Warren Buffett with bah hatway you know he was such a large portion of the pie and I'm I'm not particularly concerned about uh this I don't I don't get a lot of sleepless nights thinking about you know permanent versus non-permanent capital I think that at the back of my mind I always feel that okay if everybody took all the capital
Otherokay if everybody took all the capital away right I still have a decent amount of my own capital and if I never ever manage anyone else's money I would still have a happy existence so it is possible at some point I could involuntarily be turned into a permanent Capital vehicle and if that happened such as life no problem I think that if the investors choose not to have the confidence in having some of their hard-earned assets with you it's a choice they have and they can continue with their choice and that's perfectly okay so I don't see a big compelling need or Reason to change things from the way I'm doing things right now I like the families that I that have invested with me I like the most of our assets are first generation entrepreneurs who are still Building Wealth few of them have retired and such but it's a great mix so if that mix
Questionerbut it's a great mix so if that mix continues for a while that's okay and if it comes to an end it will not be the end of the world either way is fine if I may ask a followup question on the Turkish example that you provided before when you are investing outside of the US in places like a marine markets you are running a risk which is not only the business risk itself but also you are exposed to the currency and turkey has been going through a rough time over the course of the last I would say two to three years how how do you think about that in the context of what you were explaining and this the subject of ergodicity in fact Ras is a really good example to study that from a currency point of view
Otherbefore we made the investment I fully expected that the Turkish lra would get decimated I expected absolute clobbering of the lra and it had no impact on the
Otherof the lra and it had no impact on the investment decision because I said if I have a a warehouse in a prime location in Istanbul with a long-term inflation index lease with Amazon or car for or Ikea that has a global value and that value will prevail so cement has a global value and steel has a global value and Prime real estate in a place like estanbul has has a global value so my take was that even in extreme scenarios of currency decimation we should be okay and in reality what happened is that when we invested in Ras it was five L to the dollar today it is more than 28 L to the dollar so we you know 80 plus per devaluation in dollars we are up you know 203x and in lra we are up infinite X but who cares about that and then there are two other Investments I made in Turkey one was a hoke bottler and the other was an airport operator in both those cases
Ted Weschleran airport operator in both those cases is well in the case of the airport is well in the case of the airport is well in the case of the airport airport operator was very simple because all of their revenues are contractually in Euros very little of tab airports revenue is in local lra their expenses a lot of the expenses staff salaries Etc are in L so actually in that case a decimating currency would give them Tailwinds because their costs would go down while their revenues would stay intact which is exactly what has happened and one of the things that markets do is they stereotype and they use broad brush strokes and turkey was considered uninvestable it was considered you know very investor unfriendly and you know obviously any place you go to where the currency has a problem most Investments aren't going to work well so what I noticed is that the baby got thrown out of the bath water and what I when I when I sifted through
Questionerand what I when I when I sifted through you know we I think I met with maybe 60 or 70 listed Turkish businesses over the last few years most of those companies are not investor I think they would face real headwinds in this environment but there were there were a few that the baby got thrown out irrationally and that's what we're looking for we're looking for irrational Behavior amongst Market participants and so I I'm not so concerned about overweighing risk of Emerging Markets or overweighing risk of currencies I think what one needs to be a rational investor and accurately weigh those risks not be paranoid about those about those situations in the case of the coke bottler something like 70% of the revenue is not even from Turkey it's coming from you know a dozen other countries and and the same with Tav airports even though the their currency
Otherairports even though the their currency is Euros a large portion of revenues are coming from outside turkey so that was actually excellent because now it's a business listed in Istanbul facing all the negative perceptions of investors leading to ridiculous un undervaluation and irrational undervaluation and then the second thing what I noticed is that these three businesses each one of them had off the charts management off the charts owners and just incredible Capital allocation better than what I would find in a lot of developed markets the quality of the people was extremely high the competence of the people was very high the Integrity of the people was very high so I think a rational investor should weigh all of these factors in making a decision I have a lot of comfort in the investment we made and the funny thing is that in the last four
Questionerthe funny thing is that in the last four years the clouds over turkey have not lifted there's still lot of big clouds over turkey it didn't stop Ras from going up 20x in dollars didn't stop it still still got there somehow I don't know how it got there but somehow it got there so that's that's kind of how I think about it thanks very much I I can see from your background and for listeners who can't see it you've got a wonderful Library behind you and our signature question we ask all our guests is is whether you got a book recommendation so I've got high hopes for for your book recommendation
Questioneryeah I think the book I read this year that I really enjoyed a lot is the title is what I learned about investing from Darin and it's written by this guy in Singapore poak Prasad his last name is p sad it's an exceptionally well written book He's a exceptional investor I
QuestionerHe's a exceptional investor I actually read it twice you know because I I just enjoyed it so much and I felt like maybe I missed a few things but pulak is he's got a good sense of humor so I think it's a page Turner it'll keep you occupied and I think some tremendous lessons and I mean I I made some changes to the way I invest after reading the book which is you know if I can make even iot of a change after reading a book that's a that's a huge home run and so there was a lot of take-home value so I I recommend that what sort of changes did you make to your process after this long that a book had so much such influence in in you so one of the things like poock brought up he said that you know the Investments he makes one of his rules is that the companies cannot have any leverage right I mean his his perspective of Leverage needs to be zero
Questionerperspective of Leverage needs to be zero right it's an it's an extreme view his Logic for that is that he feels that all companies are going to face tough times you know times are good and times are bad that's just the nature of business and when times are bad and the business has no leverage it can play offense whereas a highly levered company when times get tough which I saw with my dad who are you know just trying to survive and you're trying to keep the Wolves at Bay and so that you know the I think the concept of having I mean if you're looking at companies that you want want to be around for a long time you know to finish first you have to first finish then definitely reducing leverage or eliminating Leverage is going to give you a lot of levers that you can pull now I haven't I haven't gone 100% down the pullup path and of
Questionergone 100% down the pullup path and of course the portfolio takes time to you know change and such but it's definitely a very important consideration much more important than it was before where in the past I say okay you know the market cap is 5 billion and they got you know 400 million of debt or 500 million debt and I just say okay that's fine and you know just move on but I wouldn't ask myself the question can this business be run without debt can they just eliminate dividends for a couple of years and wipe the debt out you know why aren't they doing that how do they think about it you know those sorts of things and and I think yeah I mean I think if you look at companies like Booka haway and really the great businesses around they have architected themselves around that so obviously if you lever up a business you're going to juice the returns but
Otheryou're going to juice the returns but you also take away the resilience and you also take away the resilience and you also take away the resilience and this is just one of the points he makes this is just one of the points he makes this is just one of the points he makes I think he is he has many other points I think he is he has many other points I think he is he has many other points another interesting point which I also adopted is he does not project he has no adopted is he does not project he has no adopted is he does not project he has no projections into the future of what the projections into the future of what the projections into the future of what the earnings or cash flows of any of his earnings or cash flows of any of his earnings or cash flows of any of his portfolio companies are going to be and portfolio companies are going to be and portfolio companies are going to be and now that might sound like ask of me like now that might sound like ask of me like now that might sound like ask of me like how can you run a portfolio without how can you run a portfolio without how can you run a portfolio without peering into the future and his answer peering into the future and his answer peering into the future and his answer is that basically it's a exercise and is that basically it's a exercise and is that basically it's a exercise and futility because you know we are making futility because you know we are making futility because you know we are making assumptions if the assumptions each assumptions if the assumptions each assumptions if the assumptions each assumption is off by 20% what you have assumption is off by 20% what you have assumption is off by 20% what you have in the end is garbage you know you you in the end is garbage you know you you in the end is garbage you know you you got four or five assumptions and each got four or five assumptions and each got four or five assumptions and each one's off by some small number it's one's off by some small number it's one's off by some small number it's going to create a big error rate and so going to create a big error rate and so going to create a big error rate and so you know pulock approach is to buy and you know pulock approach is to buy and you know pulock approach is to buy and hold forever he he views any cell hold forever he he views any cell hold forever he he views any cell decision as a mistake and actually if
Otherdecision as a mistake and actually if you go on his website they've listed their entire portfolio you know they run a hedge fund it's closed they don't take new money but they've listed their entire portfolio including every exit and and so the whole thing is public and basically their perspective is that when we're going to go into a business and invest in a business the holding period is forever and if the holding period is forever why are we messing around with DCFS and all that it's irrelevant so good food for thought hope you enjoy the book really interesting Mish P thank you very much for coming to the value perspective podcast oh it was my pleasure thank you very much