OtherI'm excited about today's speaker as one of the list of folks that we've been having in on these Zoom chats and just the opportunity to get some time and and pick brain of some of these wonderful investors and authors has just really been exciting to me and I hope to you as well. So our guest today is Mohnish Pabrai and the Pabrai Investment Funds were inspired by the original 1950s Buffett Partnerships and are a close replica of that original partnership with its rules. The Pabrai Funds Managing Partner is our speaker today and is an ardent disciple Warren Buffett and closely follows his principles of value investing and capital allocation. From inception in 1999 through December of 2020, a $100,000 investment in the Pabrai Pabrai Funds has grown to over $1.4 million after fees and expenses. The funds beat the Dow, Nasdaq, S&P 500
OtherThe funds beat the Dow, Nasdaq, S&P 500 and vast majority of mutual fund managers over the long term. Mr. Pabrai, before being a an investor, was the founder and CEO of TransTech, which was an IT consulting system integration company. He founded that in his home in 1990. He bootstrapped the company to over 20 million in revenues before it was sold in 2000. TransTech received the Inc. 500 It was recognized as an Inc. 500 company in 1996. Mr. Pabrai has been profiled in Forbes and Barron's. He appears frequently in CNN, and PBS, CNBC, Bloomberg Television, Bloomberg Radio. He's been quoted by various leading newspapers including USA Today, Wall Street Journal, Financial Times, Economic Times, Times of India. He's an author of two books on value investing, Mosaic the Perspectives on Investing and the The Dhandho Investor, which many of you are
OtherDhandho Investor, which many of you are or have read and that's been translated to many different languages including German, Mandarin, Japanese, Thai, Korean, Vietnamese, Spanish. Mr. Pabrai is the winner of the 1999 KPMG Illinois High Tech Entrepreneur Award given by KPMG, State of Illinois and the City of Chicago. He's a member of the Young Presidents' Organization. He is founder and chairman of the Dakshana Foundation, which is a public 501c3 corp that focuses on poverty alleviation through education. He they alleviate poverty by identifying brilliant but impoverished teenagers and providing intensive coaching for the IIT and medical entrance exams in India. He loves playing duplicate bridge and he also was recently received a lifetime ban for playing Jack Blackjack at one of the Las Vegas casinos cuz he was winning too much with his system. We might have to have him
Otherhis system. We might have to have him back and talk to us about that system sometime. But here's a gentleman who's not only an accomplished author, investor, entrepreneur and philanthropist and I'm excited to introduce Mohnish Pabrai to the class. So with that I'll open it up for some opening comments Mohnish and then we can go into some Q&A whenever you like.
QuestionerAll right. Well, that's wonderful Eric. Thanks for that uh generous introduction. I used to run a IT services firm in Chicago in the 1990s and uh maybe around 96 97 we had hired uh the first couple of IU grads kind of young kids who were out of school maybe a year or two and I was really impressed with them. They were really good and so I asked them how can I get more of you? And they said we should go on campus and recruit and TransTech was growing really fast
Ted WeschlerTransTech was growing really fast at the time we were hiring almost like one person a day and so we uh set up a campus recruiting program at IU and uh for a few years I accompanied them to to Bloomington and uh those those were some fun trips and we did get some more IU talent, which was wonderful. So I had a little bit of a intersection with IU maybe close to a quarter century ago. But yeah, happy to be here and looking forward to the session. So please whatever is on your mind, let's let's go through it.
OtherAll right. So basically the way because it can be kind of tough on these Zoom sessions happen. I've got some questions if you guys submitted. If you'd like to ask a question, just throw something on the chat and I can call on you. So don't be shy about that. But I'll start us off with a couple of our students you know, I kind of aggregated some of the
QuestionerI kind of aggregated some of the questions if they were they were similar questions if they were they were similar questions if they were they were similar and Shawn Mahan in our Kelly Direct and and Shawn Mahan in our Kelly Direct and and Shawn Mahan in our Kelly Direct and Jay Goering in the MBA program wanted to Jay Goering in the MBA program wanted to Jay Goering in the MBA program wanted to you to talk a little bit about just you to talk a little bit about just you to talk a little bit about just given all the investment opportunities given all the investment opportunities given all the investment opportunities out there, out there, out there, how do you identify which ones you want how do you identify which ones you want how do you identify which ones you want to dig in on further to dig in on further to dig in on further before deciding what to buy? So you before deciding what to buy? So you before deciding what to buy? So you know, what types of screens might you know, what types of screens might you know, what types of screens might you run? What are there are there multiples run? What are there are there multiples run? What are there are there multiples or ratios that you really favor or or ratios that you really favor or or ratios that you really favor or avoid? How do you go from this huge avoid? How do you go from this huge avoid? How do you go from this huge universe of stocks to the ones you're universe of stocks to the ones you're universe of stocks to the ones you're actually going to spend your time on? actually going to spend your time on? actually going to spend your time on?
Todd CombsYeah, that's a good question. Yeah, that's a good question. Yeah, that's a good question. And uh And uh And uh well, there are a number of different well, there are a number of different well, there are a number of different ways one can go about it. Number of ways one can go about it. Number of ways one can go about it. Number of different ways I go about it. different ways I go about it. different ways I go about it. One needs a system where one can One needs a system where one can One needs a system where one can eliminate eliminate eliminate large swaths of companies large swaths of companies large swaths of companies where each company doesn't take more where each company doesn't take more where each company doesn't take more than than than a few seconds a few seconds a few seconds or maybe a minute.
Questioneror maybe a minute.or maybe a minute. So when I when I look at a businessSo when I when I look at a businessSo when I when I look at a business uh the first question that's goinguh the first question that's goinguh the first question that's going through my head is is it within mythrough my head is is it within mythrough my head is is it within my circle of competence?circle of competence?circle of competence? And a lot of companiesAnd a lot of companiesAnd a lot of companies would disappearwould disappearwould disappear based on that question. There are alsobased on that question. There are alsobased on that question. There are also entire industries I don't have muchentire industries I don't have muchentire industries I don't have much interest in. Sointerest in. Sointerest in. So US healthcareUS healthcareUS healthcare is very corruptis very corruptis very corrupt and does not operate with market forces.and does not operate with market forces.and does not operate with market forces. And so pretty much anything in USAnd so pretty much anything in USAnd so pretty much anything in US healthcare I either consider outside myhealthcare I either consider outside myhealthcare I either consider outside my circle of competence or no interest. Socircle of competence or no interest. Socircle of competence or no interest. So if there's a biotech company, if there'sif there's a biotech company, if there'sif there's a biotech company, if there's a hospital, if there's a pharma companya hospital, if there's a pharma companya hospital, if there's a pharma company uh if there's some you knowuh if there's some you knowuh if there's some you know uhuhuh you know, CVS, Walgreens, that sort ofyou know, CVS, Walgreens, that sort ofyou know, CVS, Walgreens, that sort of thing. I'm basically generally speakingthing. I'm basically generally speakingthing. I'm basically generally speaking not interested in in those kinds ofnot interested in in those kinds ofnot interested in in those kinds of businesses. So it's a very quickbusinesses. So it's a very quickbusinesses. So it's a very quick pass. Similarly for defense contractors,pass. Similarly for defense contractors,pass. Similarly for defense contractors, I'm a little skeptical about theI'm a little skeptical about theI'm a little skeptical about the uh kind of the long-term nuances anduh kind of the long-term nuances anduh kind of the long-term nuances and whether things are as clean as they
Questionerwhether things are as clean as they should be and so on. So not of much interest and also you know a lot of tech names tend to be high flyers and they tend to lose me on on valuation and such. So even there uh we're done pretty pretty quickly. I mean if I look at Snowflake, it would take me like about 15 seconds uh to move on. And so so a lot of things get eliminated relatively quickly. There has to be some uh something that's drawing me in. So one of the things I do is I I look at Value Investors Club and they have you know, thousands of uh companies posted on on the club and people are continuously adding ideas. Generally that is a somewhat filtered list because there's a lot of restrictions on who can post ideas and the rules there of. So it's a good place to go uh hunting. It's also a very good place to learn because uh many of the write-ups and then the
Questionermany of the write-ups and then the comments are very insightful. So Value Investors Club is one possible source. Value Line is another source. Uh I have a subscription to SumZero, which is another source. And then uh I typically get several investment ideas emailed to me uh pretty much every day by uh folks across the world. And I look at those as well and again, you know, uh many of those may not fit for a variety of reasons. But when you go through all of this, some some ideas and some companies stick out. And and then then you know, I'll spend more time on them. The objective when I'm looking at a business is to as quickly as possible say no and move on. So if I can say no in 15 seconds, that's great. In some cases might take a minute. In some cases it might go to 15 minutes and then I might say no. In some cases it might go to a few days.
Todd Combsit might go to a few days. But the idea is that uh to be really good at saying no. So the business should be able to convince a very deep skeptic that it deserves deserves more time and a spot in the portfolio. So, that's generally how I go about it.
QuestionerAs a follow-up, uh, one of our students Justin Joyce, uh, you mentioned your circle of competence. How do you kind of balance the idea of circle of competence and diversification within your portfolio?
Todd CombsYeah, so I don't think one needs to be Uh, so one would not compromise on circle of competence for diversification. Diversification actually is overrated and, uh, if you look at most entrepreneurs, you know, Sam Walton and others, through their entire lives they had no diversification. And they didn't have any sleepless nights because of that. So, there are also examples I I always give the example of Charlie Munger's friend
Otherthe example of Charlie Munger's friend John Arrillaga, who only invests in, uh, real estate within 2 mi of the Stanford campus and he's a billionaire. And, uh, his circle of competence is extremely narrow. It's not even real estate, it's real estate in a very specific geography. And, uh, if you, you know, looked at his portfolio, you would say, "Well, this looks very concentrated." But, uh, that has not stopped him from doing extremely well. So, even if you understand just a couple of things or a couple of industries or even a single industry, and, uh, your portfolio was focused on that industry or even focused on just two or three stocks, as long as the competence is solid, one should not be compromising to to get more diversified. Could you just touch on, you know, where how how do you, you know, judge if you're if you're, you know, as you're
Questioneryou're if you're, you know, as you're trying to look through your circle of competence, where you you feel that you have competence and not? What, you know, what kind of level of knowledge do you have to feel like you get to in order to feel comfortable that that's included in your circle of competence?
QuestionerYeah, so uh, to ask the question is to answer it. So, if you find yourself asking yourself the question, "Is this within my circle of competence?" I can just make it very quick for you, it is not. And if you find yourself asking a question, "What is this business worth?" Again, it's not within your com- your circle of competence. So, if something is within your circle of competence, you would know it really well. Uh, you would know the two or three variables that would drive most of the outcome in the long term. The valuation of the business would be quite apparent.
Warrenof the business would be quite apparent. And so, it is very important to stay dead center in your circle of competence. Usually there is not a fine, uh, clear clear boundary between competence and incompetence. So, as you move away from the center, the degree of competence goes down and the risk factors on investing in those businesses goes up. So, as close as you can stay to the center of your circle of competence is is the critical part. So, don't be concerned that you don't understand many things. I'd say I probably don't understand 99% of stocks. And, uh, I'm not particularly breaking out in hives about it. And, uh, so so you don't need to understand a lot of things. You just need to understand a few things well and stick to those few things.
OtherChris, uh, Martin, uh, asked the question in chat. Are you able to ask it or do you need me to, uh, ask it, Chris?
Questioneror do you need me to, uh, ask it, Chris?
OtherUh, yeah, I can ask it if you want.
QuestionerYeah. Um, so in the Dhandho Investor, uh, you had an example of a business you had to research to become competent. I think it was shipping barges. Um, so my question basically is in the context of that example in the book, when you're first starting out in the investment world, when do you recommend digging in to become competent in a business versus taking a pass? Does that make sense?
OtherAbsolutely. So, I think the the shipping company, you know, at the highest level shipping isn't that complicated. And, uh, I was intrigued about a few things I had read. So, I said, "Let me, uh, let me dig in some more here to understand." So, I believe the business was, uh, in the these are ships that were VLCCs, very large crude carriers. And at the time there were like, you
QuestionerAnd at the time there were like, you know, 400 of those ships in the world. And, uh, so these, uh, uh, these VLCCs are specialized ships that transport crude. And, uh, so yeah, I mean, I I didn't think shipping was too difficult business for me to get my arms around. I wasn't very familiar or I wasn't familiar at all with, uh, crude shipping. But I was curious about it. So, I said, "Okay, you know, let me see if I can read up on this and understand how the business and the industry works." And, uh, it didn't seem that complicated uh, to figure out. And, uh, you know, I was able to use a heuristic that, uh, one of my friends in commercial real estate had told me and I realized that that same heuristic and that same mental model would work in shipping. And so, there was an insight, uh, which I had gleaned and I thought that that insight would work in this area as well.
Questionerinsight would work in this area as well. So, in commercial real estate, especially if you're talking about tall office towers, you know, 30-50 story office towers in, uh, large metro areas, generally speaking, those office towers may take, uh, 4 to 6 years to get built or come to fruition from the time that the, uh, you know, someone has the land and creates a plan and tries to get the permits, it might be, uh, easily 5 years before the the building is ready. And generally speaking, what happens in in real estate is that when the market is really tight and when rents are rising a lot, uh, a lot of these projects get started because the economics look so favorable. And generally what happens is because there's lemming behavior, all these towers get started about the same time and they get delivered about at around the same time.
Greg Abelthe same time. And so you go from a very tight market to a depressed market because there's too much supply. So, this 5-year or 5-to-6-year gestation period in office towers leads to booms and busts in commercial real estate. We don't see that same, uh, that same nuance in, for example, let's say industrial space or commercial warehouses and those sorts of structures because there, uh, you could be done with construction in 12 to 18 months. So, there the because the the time frames are so short, you're typically able to turn on and turn off the spigot relatively soon versus, uh, while looking at what the what the situation is. But, you know, you're putting up a 50-story tower, you're already up to the 25th story, it doesn't matter what the market is doing. That baby's going to get delivered. And it's coming out, uh, regardless of
QuestionerAnd it's coming out, uh, regardless of whether people want that child or not, that baby's coming out. And, uh, so that same I noticed that when I was looking at the VLCC market, it had a similar attribute. So, there are only three or four places where these ships get built, mainly the Korean shipyards. And if you wanted to get a new VLCC, you'd go to one of the Korean shipyards typically and, uh, put down a deposit and then, uh, in about 3 years or so, they would deliver you a ship. And if the if the queue was long, it might take longer. And so, these shipping rates in VLCCs I noticed had very extreme fluctuations. They could go as low as $5,000 a day to as much as 200 or 250,000 dollars a day. So, there was a very wide range, uh, way more than commercial rents. Commercial rents in office towers do not have a 50-to-1 variance in rents over even
Other50-to-1 variance in rents over even decades. But in the shipping business, you can see pretty large variances. So, whatever I had learned about the office tower business, I realized that there was it was on steroids in the VLCC business. And the booms and busts would get even more exaggerated because of that huge variance. So, these were some of the factors that made it interesting to look at that business. So, it was just it was really understanding the dynamics of how daily rates are determined for shipping crude oil and how you couldn't instantaneously increase the fleet even if demand went up because it would just take time to build those ships, etc. So, I think what you can do is if you're curious I think that learning about different businesses and learning about different industries and nuances is is always been
Questionerindustries and nuances is is always been of interest to me. I love to kind ofof interest to me. I love to kind ofof interest to me. I love to kind of know how the world works.know how the world works.know how the world works. Whether we get to the point whether weWhether we get to the point whether weWhether we get to the point whether we can make an investment or not is thecan make an investment or not is thecan make an investment or not is the second question. So, sometimes we can wesecond question. So, sometimes we can wesecond question. So, sometimes we can we can read or learn enoughcan read or learn enoughcan read or learn enough where we feel we've really got itwhere we feel we've really got itwhere we feel we've really got it nailed. We understand the dynamics thatnailed. We understand the dynamics thatnailed. We understand the dynamics that would would drive that result. And justwould would drive that result. And justwould would drive that result. And just to just to go a little further uhto just to go a little further uhto just to go a little further uh because it's such a there's so much umbecause it's such a there's so much umbecause it's such a there's so much um great learning in that shipping examplegreat learning in that shipping examplegreat learning in that shipping example is the company I was looking at at theis the company I was looking at at theis the company I was looking at at the time is called Frontline and they weretime is called Frontline and they weretime is called Frontline and they were the largest operator of VLCCs in thethe largest operator of VLCCs in thethe largest operator of VLCCs in the world at the time. I think the fleet theworld at the time. I think the fleet theworld at the time. I think the fleet the global fleet was around three 350 to 400global fleet was around three 350 to 400global fleet was around three 350 to 400 ships and they had about 80 ships.ships and they had about 80 ships.ships and they had about 80 ships. And the unusual thing about FrontlineAnd the unusual thing about FrontlineAnd the unusual thing about Frontline waswaswas that 100% of their fleet was on the spotthat 100% of their fleet was on the spotthat 100% of their fleet was on the spot market.market.market. So, there are two ways if you are a shipSo, there are two ways if you are a shipSo, there are two ways if you are a ship ownerownerowner that you can run your fleet. One way is
Questionerthat you can run your fleet. One way is you can sign long-term lease agreements with let's say for example Aramco or Exxon or whoever, you know, some refiner so that they would say, "Yeah, I will lease your ship at, you know, $20,000 a day for the next 2 years, for example." And in that case whether they're using the ship or not or whatever is happening, you're getting paid. And so it it your your cash flows are really stable. Or you could be at the other end of the spectrum where you're saying "I'm only willing to rent for voyage." And so when you have a ship that needs to go from Saudi Arabia to Louisiana and that journey may take maybe 25 days or something you can rent the ship for 25 days on the spot market at that time. So, Frontline had uh their entire fleet on the spot market. They also had debt on their on their ships, but the debt was
Questioneron their ships, but the debt was tied to individual ships. So, it was like a mortgage on each ship and there was it was not it was non-recourse to the parent. So, at the time I was looking at Frontline shipping rates had collapsed uh mainly because demand for oil had gone down and shipping rates had collapsed to less than $10,000 a day. Eight or $10,000. And at that at that at those prices they're losing money. They cannot make ends meet at that price. So, when when shipping rates collapse like that there's a second nuance that kicks in. So, I'm sorry I'm taking a little bit of time, but just to explain kind of how things work because these are all things I I learned when I was looking at it. Is after the Exxon Valdez went aground in in Alaska uh there were a set of new regulations that came out around oil carrying ships. And they mandated that
Questionercarrying ships. And they mandated that all the new ships that get built needed to be double hulled. So, all the ships that were built after the Exxon Valdez crash were required to be double hulled. And the ships before that Exxon Valdez incident were single hulled. And in the shipping business when you rented these ships single hulled ships which still existed, they were older rented for lower rates per day than double hulled ships. But when rates collapsed like below 10,000 what that meant was there were too many ships. And so, nobody was renting single hulled ships because the delta between single and double hulled disappeared. And so, typically there were these maverick Greek owners of these single hulled rust buckets. And they're sitting on this fleet and no one's renting it. And scrapping of those ships skyrockets during those times. So, the ship owners
Charlieduring those times. So, the ship owners look at it. So, one thing that really look at it. So, one thing that really look at it. So, one thing that real estate guys do estate guys do estate guys do is they project present circumstances to is they project present circumstances to is they project present circumstances to infinity. infinity. infinity. If current rents are high If current rents are high If current rents are high they believe rents will always be high. they believe rents will always be high. they believe rents will always be high. And the ship owners are even more And the ship owners are even more And the ship owners are even more extreme than the real estate guys. extreme than the real estate guys. extreme than the real estate guys. So, if the shipping rates are quarter So, if the shipping rates are quarter So, if the shipping rates are quarter million a day million a day million a day they believe they will always be quarter they believe they will always be quarter they believe they will always be quarter million a day and they all go to the million a day and they all go to the million a day and they all go to the Korean shipyards and place a gazillion Korean shipyards and place a gazillion Korean shipyards and place a gazillion orders for ships all at the same time. orders for ships all at the same time. orders for ships all at the same time. Okay? So, when the ship rates are low Okay? So, when the ship rates are low Okay? So, when the ship rates are low like eight or 10,000 all these, you like eight or 10,000 all these, you like eight or 10,000 all these, you know, know, know, Greek ship owners Greek ship owners Greek ship owners rush to all the scrapping yards and say, rush to all the scrapping yards and say, rush to all the scrapping yards and say, "Take my ship and give me the price of "Take my ship and give me the price of "Take my ship and give me the price of the metal." the metal." the metal." Because they they just assume they'll Because they they just assume they'll Because they they just assume they'll never be rented or whatever else and so never be rented or whatever else and so never be rented or whatever else and so on and they anyway know that there these on and they anyway know that there these on and they anyway know that there these maritime regulations that make it harder maritime regulations that make it harder maritime regulations that make it harder and so on. So, what ends up happening
Questionerand so on. So, what ends up happening when rates are low is the fleet might decline from 400 ships to 370 ships or 350 ships because of all the scrapping. Then when oil demand comes back up now you don't have those 50 ships. So, typically what what you would see is that it would go even more asymptotic than Bitcoin. It the the shipping rates would go from 10,000 a day to 200,000 a day in the space of 3 weeks or 2 weeks. It would go really fast because literally you couldn't find a ship. Right? So, everyone's clamoring for them. So, when I looked at Frontline I did a really simple calculation. I said there was a website which would tell you what the selling price of these ships were. So, I just looked at their fleet and said, "Okay, you know, if you shut down the business and sold all the ships what would you get and how much is the debt
Questionerwould you get and how much is the debt and what would you end up with andand what would you end up with andand what would you end up with and what's the stock price?" And the stockwhat's the stock price?" And the stockwhat's the stock price?" And the stock price was like $3, $4, $5. Andprice was like $3, $4, $5. Andprice was like $3, $4, $5. And liquidation value was like $8 or $9liquidation value was like $8 or $9liquidation value was like $8 or $9 per share. So, I said, "There's no wayper share. So, I said, "There's no wayper share. So, I said, "There's no way to really lose money over here becauseto really lose money over here becauseto really lose money over here because ififif all hell breaks loose they can keepall hell breaks loose they can keepall hell breaks loose they can keep selling ships. And as they keep sellingselling ships. And as they keep sellingselling ships. And as they keep selling ships they'll they'll make more than theships they'll they'll make more than theships they'll they'll make more than the stock price. Andstock price. Andstock price. And so, I put about 10% of the fund's assetsso, I put about 10% of the fund's assetsso, I put about 10% of the fund's assets into Frontlineinto Frontlineinto Frontline and in a few months it it, you know,and in a few months it it, you know,and in a few months it it, you know, shipping rates started to go up and itshipping rates started to go up and itshipping rates started to go up and it went up to like $10 or $11 a share. Iwent up to like $10 or $11 a share. Iwent up to like $10 or $11 a share. I had a very nice gainhad a very nice gainhad a very nice gain in a relatively short period of time.in a relatively short period of time.in a relatively short period of time. AndAndAnd III exited Frontlineexited Frontlineexited Frontline patted myself on the back and moved on.patted myself on the back and moved on.patted myself on the back and moved on. Then when I looked at Frontline I thinkThen when I looked at Frontline I thinkThen when I looked at Frontline I think a year or two latera year or two latera year or two later it was over $150 a share.it was over $150 a share.it was over $150 a share. AndAndAnd I missed that entire ride. Because likeI missed that entire ride. Because likeI missed that entire ride. Because like I said, it went to the other end whichI said, it went to the other end whichI said, it went to the other end which was euphoria.
Questionerwas euphoria.was euphoria. And of course my whole my whole thesisAnd of course my whole my whole thesisAnd of course my whole my whole thesis was aroundwas aroundwas around just something where I couldn't losejust something where I couldn't losejust something where I couldn't lose money, but I um could have been a littlemoney, but I um could have been a littlemoney, but I um could have been a little bit more savvy about the fact that whenbit more savvy about the fact that whenbit more savvy about the fact that when you have these extreme compressionsyou have these extreme compressionsyou have these extreme compressions you're probably going to see a pop onyou're probably going to see a pop onyou're probably going to see a pop on the other end. And I could have forthe other end. And I could have forthe other end. And I could have for example kept a small positionexample kept a small positionexample kept a small position or or something, butor or something, butor or something, but such is life. So, sorry to tell you moresuch is life. So, sorry to tell you moresuch is life. So, sorry to tell you more about shipping than you ever wanted toabout shipping than you ever wanted toabout shipping than you ever wanted to know.
OtherNo, that's good. I would like toknow. No, that's good. I would like toknow. No, that's good. I would like to circle back around a little bitcircle back around a little bitcircle back around a little bit in in talking about diversification.in in talking about diversification.in in talking about diversification. Obviously, we you know, in in in theObviously, we you know, in in in theObviously, we you know, in in in the academy we're we're quite big on it andacademy we're we're quite big on it andacademy we're we're quite big on it and then if you look at the most of thethen if you look at the most of thethen if you look at the most of the money management industry they've takenmoney management industry they've takenmoney management industry they've taken thatthatthat to where folks hold, you know, sometimesto where folks hold, you know, sometimesto where folks hold, you know, sometimes hundreds of names in a portfolio. How dohundreds of names in a portfolio. How dohundreds of names in a portfolio. How do you think about diversification?you think about diversification?you think about diversification? How many stocks will you hold? You know,How many stocks will you hold? You know,
QuestionerHow many stocks will you hold? You know, you mentioned Frontline you had it 10%.you mentioned Frontline you had it 10%.you mentioned Frontline you had it 10%. How do you think about kind of portfolioHow do you think about kind of portfolioHow do you think about kind of portfolio construction?
OtherYeah, so I think at atconstruction? Yeah, so I think at atconstruction? Yeah, so I think at at Pabrai Funds we have never invested morePabrai Funds we have never invested morePabrai Funds we have never invested more than 10% of assets in one position. Andthan 10% of assets in one position. Andthan 10% of assets in one position. And typically that's our preferredtypically that's our preferredtypically that's our preferred situation. So, kind of a 10 by 10situation. So, kind of a 10 by 10situation. So, kind of a 10 by 10 portfolio if if you will.portfolio if if you will.portfolio if if you will. But what I have historically beenBut what I have historically beenBut what I have historically been unwilling to dounwilling to dounwilling to do is cut the position back.is cut the position back.is cut the position back. So, we have had situations in the pastSo, we have had situations in the pastSo, we have had situations in the past where two stocks make up 70%.where two stocks make up 70%.where two stocks make up 70%. And I don't lose any sleep over that.And I don't lose any sleep over that.And I don't lose any sleep over that. AndAndAnd so,so,so, I'm not a big proponent ofI'm not a big proponent ofI'm not a big proponent of cutting the flowers and watering thecutting the flowers and watering thecutting the flowers and watering the weeds. I'm just not very interested inweeds. I'm just not very interested inweeds. I'm just not very interested in doing that. So, the portfolios will tenddoing that. So, the portfolios will tenddoing that. So, the portfolios will tend to get more concentrated. Andto get more concentrated. Andto get more concentrated. And I would not make a change purely fromI would not make a change purely fromI would not make a change purely from the perspective of quote and quote riskthe perspective of quote and quote riskthe perspective of quote and quote risk management or anything like that. Imanagement or anything like that. Imanagement or anything like that. I would look at the business and look atwould look at the business and look atwould look at the business and look at the nuances around those businesses and
Ted Weschlerthe nuances around those businesses and see what made the most sense. In my personal portfolios, I rarely have more than three stocks. Many times I have one stock. And uh and even in our in our foundation, we tend to be quite concentrated. Because they're not just they just aren't that many ideas that you can find that you understand well and are deeply mispriced and so on. So, most people would not be able to sleep well at night doing what I did or doing doing what I do. Uh you definitely have to do things that give you comfort.
QuestionerOne one of the students uh I think Mike McCarthy in our Kelly Direct program had uh listened to an interview that you did and uh talked about how you you focus a lot on India and emerging nations and it's harder to find some mispriced securities in the US and and there were a number of questions that were put in of what is your view
Questionerof what is your view you know, on efficient markets? Is the US an efficient market where we should only be looking in other places or or are are there various levels of inefficiency and and maybe you could touch on some of that?
Todd CombsSure. Yeah, I mean I think it's efficiency or inefficiency is not directly related to specific markets. There are and there were times and there will be times in the future when US markets will be very inefficient. I don't believe that the inefficiency that exists today in the US markets are leading to a lot of securities that are undervalued. I believe the inefficiencies currently in the US markets are in sectors which I believe are overheated and overvalued. So, there are pockets where I think it's probable that things are over Since I don't short, that's just academic. It's irrelevant. So, when I look at specifically looking for
Questionerlook at specifically looking for undervalued names in the US presently, those are few and far between that I can find right now. And especially I'm looking for significant discounts. Uh so, I'm not looking for something that's worth 10 and selling for eight or something like that. Uh I'm looking for something worth 10 and selling for four. So, that's uh that doesn't exist much today, but it has existed in the past and it will exist in the future. And different markets around the world are in different points in that cycle. So, some markets uh the whole markets are very cheap. And in others, there's just more inefficiency on both sides, undervalued and overvalued. So, uh so, I think that other markets are being able to uh look into markets outside the of the US could be of some advantage to an investor.
QuestionerYou mentioned uh a philosophy against
QuestionerYou mentioned uh a philosophy against shorting. I know uh I think Eddie had a shorting. I know uh I think Eddie had a shorting. I know uh I think Eddie had a question on that from an article he had question on that from an article he had question on that from an article he had read on the uh read on the uh read on the uh on the website um that you had written a on the website um that you had written a on the website um that you had written a number of years ago. Eddie, are you able number of years ago. Eddie, are you able number of years ago. Eddie, are you able to uh come on and ask your question? to uh come on and ask your question? to uh come on and ask your question? Okay, thanks. Okay, thanks. Okay, thanks.
QuestionerYeah, in one of your articles, you said Yeah, in one of your articles, you said Yeah, in one of your articles, you said when you look carefully at the economics when you look carefully at the economics when you look carefully at the economics of shorting, of shorting, of shorting, it makes no sense to take the bet. it makes no sense to take the bet. it makes no sense to take the bet. However, uh some advocates However, uh some advocates However, uh some advocates say that the use of short selling as a say that the use of short selling as a say that the use of short selling as a long-term strategy in combination with long-term strategy in combination with long-term strategy in combination with long position long position long position can help balance can help balance can help balance your returns. In other words, you make your returns. In other words, you make your returns. In other words, you make profit in both rising and falling profit in both rising and falling profit in both rising and falling markets. markets. markets. Uh my question is has your view changed Uh my question is has your view changed Uh my question is has your view changed in the light of this philosophy? Thank in the light of this philosophy? Thank in the light of this philosophy? Thank you.
WarrenIf you look at the top 10 wealthiest If you look at the top 10 wealthiest If you look at the top 10 wealthiest people on the planet, people on the planet, people on the planet, top 20 wealthiest people on the planet, top 20 wealthiest people on the planet, top 20 wealthiest people on the planet, top 50 wealthiest people on a planet, top 50 wealthiest people on a planet, top 50 wealthiest people on a planet, I don't see any short sellers in there.
WarrenI don't see any short sellers in there. And if shorting is such a great activity, why don't I see these awesome short sellers in the Forbes 400? Why don't I see them there? That list is dominated by people it's dominated with people with with two characteristics. People who are long only and people who are non-diversified. For example, my hero Sam Walton and the Walton family. And and so on. And uh or Bill Gates and or Jeff Bezos and so on. These are all long only players. So, if you're mathematically inclined, you know, on paper it looks really nice that I can go long 10 10 stocks that I think are undervalued and then short 10 stocks that I think are overvalued and uh you know, create alpha and all of that. And uh there are some people who are very gifted at that and who can do very well. But the issue with shorting is that it comes with uh a need to be
Questionerthat it comes with uh a need to be really good at risk management. Let's say for example, you shorted Tesla at $50 a share. So, typically what a short seller would do if they kind of would they knew what they were doing is is is each time Tesla went up 10% in price, for example, for example, for example, they would they would they would cut their short position by 10%. So, by the time it got to 100 or something there of, they're out in effect. Right? That's how you manage the risk because as it's going up in price, your your losses are your losses are you know, magnified quite significantly. On the other hand, typically the way they manage it is that if they manage it is that if Tesla goes down in price, as it goes down in price, they increase the short position. So, if they had shorted 1,000 shares at 50, they'd at 45, they might make it 1,100 and at 40, they might make it 1,200. And so, you're typically playing this game where you're
Questionerthis game where you're doing this. And and I think even the best short sellers uh the way they measure their results, they would say, "Look, if the S&P long-term has done 9% a year, and I have long-term lost 3% a year, it's an exceptional result because I created 6% alpha." Well, I don't see how that gets you on the Forbes 400 other than by convincing people to give you fees for losing 3% a year. So, so, shorting is just something uh you know, I have a couple of gurus, Warren and Charlie. Uh what they say for the most part makes a lot of sense to me. They say specifically when they had companies that they believed were great short candidates, they were almost always right about the company, but always wrong on the timing. And uh so, it's really hard to get the both the timing and the direction correct. So, it is so much easier
WarrenSo, it is so much easier to make money on the long side. The other thing is that if you're short, you got umbilical cord linked to a quote machine. Okay, when the market's open. Like I have no idea what's happening to my portfolio right now. I mean, I have no leverage, I have no shorts, and quite frankly, it's irrelevant what happens today or tomorrow or next month and so on. And even if I never got to see any stock quotes, it's perfectly fine. That is not how a short seller lives his life.
QuestionerVery true. Uh um so, um Patrick O'Neal, one of our MBA uh students, wanted to know more just about how your process you you've started to identify the name and how you go through the research process and specifically what kind of sources of information do you find are the most impactful? Is it going through the K's, the earnings calls, research reports? How do you go through your process and
QuestionerHow do you go through your process and what are the uh important items that uh you get the most out of?
QuestionerYeah, I mean I think it depends uh with each situation is different. I mean, sometimes there's a great write-up on Value Investors Club and that'll get you quite a quite a ways along and then you can uh you know, dig through the companies' filings and uh and especially what they've been saying a few years ago about their business, maybe five years or 10 years ago and versus what has transpired. So, do they under-promise and over-deliver or vice versa? So, I think the idea is that it's kind of like a it's a treasure hunt in the sense that or it's a jigsaw puzzle more where you got some understanding of business, have some thesis about why this could be interesting and then you're looking for evidence that uh confirms and denies that.
Questionerconfirms and denies that.confirms and denies that. And andAnd andAnd and just keep absorbing and I'm alwaysjust keep absorbing and I'm alwaysjust keep absorbing and I'm always looking forlooking forlooking for a flimsy reasona flimsy reasona flimsy reason to stop research and be doneto stop research and be doneto stop research and be done and move on.and move on.and move on. And like like recently I was looking atAnd like like recently I was looking atAnd like like recently I was looking at a company and it looked interesting, buta company and it looked interesting, buta company and it looked interesting, but after about 3 days of digging it wasafter about 3 days of digging it wasafter about 3 days of digging it was like uhlike uhlike uh yeah, this is not interesting. We'reyeah, this is not interesting. We'reyeah, this is not interesting. We're moving on. Butmoving on. Butmoving on. But uh the good news was I I learned a lotuh the good news was I I learned a lotuh the good news was I I learned a lot about the industry.about the industry.about the industry. I learned a lot about the company andI learned a lot about the company andI learned a lot about the company and the uh the CEO.the uh the CEO.the uh the CEO. So, those are all good things. It gaveSo, those are all good things. It gaveSo, those are all good things. It gave me a good amount ofme a good amount ofme a good amount of data and knowledge and I enjoyed thedata and knowledge and I enjoyed thedata and knowledge and I enjoyed the process.process.process. How long do you typically hold a stock?Well, there's a quote which I ran intoWell, there's a quote which I ran intoWell, there's a quote which I ran into last year, which I wish I had run intolast year, which I wish I had run intolast year, which I wish I had run into 20 years ago, uh which is I think a20 years ago, uh which is I think a20 years ago, uh which is I think a quote by Thomas Phelps, who wrote uhquote by Thomas Phelps, who wrote uhquote by Thomas Phelps, who wrote uh 100 to 1 in the stock market. It's a100 to 1 in the stock market. It's a100 to 1 in the stock market. It's a great book he wrote in 1972, I think.great book he wrote in 1972, I think.great book he wrote in 1972, I think. And I I I can't recall the exact quote,And I I I can't recall the exact quote,And I I I can't recall the exact quote, but basically he's said to the effectbut basically he's said to the effect
Questionerbut basically he's said to the effect thatthatthat every sell decisionevery sell decisionevery sell decision is in fact a investing mistake.is in fact a investing mistake.is in fact a investing mistake. Anytime you sell, you're in effect inAnytime you sell, you're in effect inAnytime you sell, you're in effect in effect acknowledgingeffect acknowledgingeffect acknowledging that you made an investing mistake. So,that you made an investing mistake. So,that you made an investing mistake. So, utopia would beutopia would beutopia would be that youthat youthat you made an investmentmade an investmentmade an investment that you could hold for a few decadesthat you could hold for a few decadesthat you could hold for a few decades and that would be compounding atand that would be compounding atand that would be compounding at a solid double-digit rate over thata solid double-digit rate over thata solid double-digit rate over that period.period.period. And you didn't have to do anything. YouAnd you didn't have to do anything. YouAnd you didn't have to do anything. You just sit on your ass andjust sit on your ass andjust sit on your ass and the company just kicks ass for you.the company just kicks ass for you.the company just kicks ass for you. And uh such businesses do exist.And uh such businesses do exist.And uh such businesses do exist. And it's easy to identify them inAnd it's easy to identify them inAnd it's easy to identify them in hindsight. Uh it's a lot harder tohindsight. Uh it's a lot harder tohindsight. Uh it's a lot harder to identify themidentify themidentify them uh before that's happened. But that'suh before that's happened. But that'suh before that's happened. But that's the holy grail. So, my holding periods,the holy grail. So, my holding periods,the holy grail. So, my holding periods, you know, I went through quite ayou know, I went through quite ayou know, I went through quite a significant changesignificant changesignificant change in my thinking last year. I always Iin my thinking last year. I always Iin my thinking last year. I always I think for for a couple of decadesthink for for a couple of decadesthink for for a couple of decades my thinking was like with Frontline, youmy thinking was like with Frontline, youmy thinking was like with Frontline, you know, you buy it kind of half off. Andknow, you buy it kind of half off. Andknow, you buy it kind of half off. And then you double your money and you move
Todd Combsthen you double your money and you move on and and uh soak rinse and repeat. And that is fine. Uh it can certainly be a good way to make a buck, but it is tax efficient inefficient and you're on a treadmill of activity. And and even in the case of Frontline, I missed the big run. You know, I I captured my double, but I didn't capture the big run. And uh my thinking now is much more around compounders. It's around uh questions like what is the destination of this business in 10 or 20 years? What what does this business look like in 10 10 or 20 years? And of course, a business like Frontline, uh that you just couldn't get there. I mean, the only thing you could do with a business like that from my point of view was play this arbitrage game of uh liquidation value versus the stock price. Uh it'd be very hard to hold it on earnings because it was so volatile.
Questioneron earnings because it was so volatile. So, I think the holy grail is to find these compounders that the rest of the world has not figured out are great compounders yet. And then you just sit on your ass. So, that's the game plan.
QuestionerThat sounds a lot to me like uh kind of the transition that that Buffett kind of had in his career, where he started out kind of looking at net nets from the the Ben Graham days and then kind of started transitioning in into more that. Obviously, when you're on the first side, where you're just you're trying to get something valued and buy it at 40, 50 cents on the dollar, that seems to be much more kind of formulaic uh than than finding that. So, so how has your process had to change, you know, what kind of valuation discounts? Cuz cuz obviously those companies may not get down to 40, 50% as often as a
Questionerget down to 40, 50% as often as a commodity company might. So, how do you go about you know, how how is how is that philosophy changed how you do things?
WarrenYeah, you know, um I had dinner with Charlie this past weekend on Saturday at his place and uh he looks great and doing well. And uh many times when I see him, he will say uh XYZ company is a cinch or ABC company is not a cinch. And uh like for example, you know, if you asked him about American Express, for example, uh Charlie would say, "It's not a cinch." But if you had asked Buffett and Munger about American Express maybe 20 years ago, they would have said, "It's a cinch." It's uh you know, what what he means is that there the odds that you had would have something destroy that franchise was just so infinitesimal at that point, which which is not the case in their minds today. So, it's a very good business. It probably does
Warrenvery good business. It probably does really well, but in the definition that he uses of a cinch, which is a pretty high bar, he doesn't think it's a cinch. So, it's very funny when I have these conversations with Charlie, I'll ask him, "Is it a cinch, Charlie?" Charlie, "No, this is not a cinch. This is a cinch." Blah blah. So, once Charlie says something is a cinch and if it's sitting at a cheap price, I know all I got to do is back up the truck and uh and life is good. Uh so, one thing that changes, you know, between when you're looking at these 50 cent dollar bills versus these long-term compounders is you need to get as close as possible to a cinch. So, I haven't asked Charlie this, but if I were to ask him, "Charlie, is Costco a cinch?" He would probably say, "Yes, Costco is a cinch." Okay? Because it's very hard to imagine forces
Todd Combsimagine forces that would destroy Costco today. And in fact, each time they open a store, the moat becomes that much more valuable. Each time they add a member, uh the moat becomes more valuable. So, on both sides, you've got this deepening moat effect taking place every day. So, the question I think when you're looking at these long-term compounders is a fanatical focus on cinches or near cinches, where you're you you need to if you're not going to sell the business for a very very long time, calculus is brutal. 99% of businesses that get started won't even last 10 years. Even the Fortune 500 companies won't last more than a few decades. Eventually, they'll almost all of them will die. And so, trying to find the exception to the rule is in many ways a fool's errand. But that's also the path to the path to getting to the promised
Questionerthe path to getting to the promised land. And uhland. And uhland. And uh so, cinches are very important. Anotherso, cinches are very important. Anotherso, cinches are very important. Another mental model, which I think is reallymental model, which I think is reallymental model, which I think is really interesting and important, isinteresting and important, isinteresting and important, is there's a good friend of mine and hethere's a good friend of mine and hethere's a good friend of mine and he used to work at aused to work at aused to work at a uh multi-billion dollar funduh multi-billion dollar funduh multi-billion dollar fund and uhand uhand uh many years ago, maybe this was even moremany years ago, maybe this was even moremany years ago, maybe this was even more than 10than 10than 10 10, 15 years ago, he was the analyst uh10, 15 years ago, he was the analyst uh10, 15 years ago, he was the analyst uh looking at American Tower,looking at American Tower,looking at American Tower, the company. And uhthe company. And uhthe company. And uh the company hadthe company hadthe company had organized a few analysts at these largeorganized a few analysts at these largeorganized a few analysts at these large firms to visit their headquarters.firms to visit their headquarters.firms to visit their headquarters. And uh they were going to have someAnd uh they were going to have someAnd uh they were going to have some presentations for maybe an hour, thenpresentations for maybe an hour, thenpresentations for maybe an hour, then they were going to have lunch and thenthey were going to have lunch and thenthey were going to have lunch and then they were going to have a golf game withthey were going to have a golf game withthey were going to have a golf game with the CEO, CFO and a few other people.the CEO, CFO and a few other people.the CEO, CFO and a few other people. So, he showed up a little earlySo, he showed up a little earlySo, he showed up a little early and he was sitting with the CFO in hisand he was sitting with the CFO in hisand he was sitting with the CFO in his office.office.office. And the CFO hadAnd the CFO hadAnd the CFO had his feet on his desk.his feet on his desk.his feet on his desk. And it didn't appear to my friend likeAnd it didn't appear to my friend likeAnd it didn't appear to my friend like the CFO had anything to do.the CFO had anything to do.the CFO had anything to do. He's just sitting there relaxing.
QuestionerHe's just sitting there relaxing. So, my friend asked him um "Don't you have deals to do? Like you're just sitting here. Don't you have things to do?"
QuestionerHe said um Because you know, they're they're very acquisitive company. They buy lots of towers. That's how they grow. He said, "Look, anyone who owns a tower has our phone number. And anytime they want to sell a tower, they can call us and we already know what we're going to pay for the towers. So, we just sit here. The calls come in. We give them our term sheet and life goes on. And then we keep, you know, acquiring more and more towers and and each tower is getting more and more valuable over time because they're hanging more and more tenants off it. All of this stuff, right? So, uh there was another company called Bandag, which was in Iowa, which you know, retreading tires, and Chuck Akre
Questionerknow, retreading tires, and Chuck Akre had visited their headquarters few decades ago. And again, when he went in to see the CEO, he saw the guy had his feet up on his desk. And so, if the CEO has his feet up on the desk, generally speaking, that's a kick-ass business to invest in. So, the first question to ask is, "Is it a cinch?" Okay? And you know, like Amex is not a cinch and Costco is a cinch, so that's a high bar. The second question, "Is this a business that the guy can run with his feet on his desk?" And most businesses cannot be run that way. If the guy puts his feet on his desk for half a day, in 3 months he'll be out of business. That's the reality with most with most businesses. And then there was a third one. What was I was thinking of there's a third uh uh the third point I was thinking of. Uh it'll come to me. Let me think about that. But I was just thinking that So if
Otherthat. But I was just thinking that So if you, you know, it's a very different way of thinking about it, right? One way of thinking about it is these 50-cent dollar bills, blah blah blah. The other way is you're going after these long runways. And basically the way I look at my portfolio now, it's a museum. And eventually what that museum has to have is only cinches and only feet on desk businesses. Let me give you something be very candid with you. I am not in the promised land right now. I only have two businesses that I can think of where they are cinches and the feet are on the desk. But two is not bad. The idea is hopefully in the next few years all these Mickey Mouse businesses go out of the portfolio and they get replaced with these awesome businesses. And the Oh yeah, the third the third question to ask is what is the destination?
Questionerwhat is the destination?
Todd CombsSo if I look at a business like Costco, you know, they just entered China. They opened one store in China and the store got mobbed. They had to put restrictions on how many people could come in because they just couldn't handle it. So if you fast forward 20 years, what does Costco look like? And I don't know what it looks like, but it's possible China has a thousand stores. Could easily be within the realm of possibility. There's probably more than 160 or 170 countries where Costco has no presence. So could they have a presence in 10 more countries in 20 years? Maybe. So what does that business look like in 20 years? It probably looks a lot better as long as the culture stays set and the core DNA of Costco remains intact. Uh so that's a business that at least looking at it in 2021 looks like a cinch with a great
Otherlooks like a cinch with a great destination.
OtherSo the question to ask yourself is what is the destination? If you ask the question about what is the destination on Frontline, your head will go for a tailspin. You know? You got to deal with all that all the Greek owners and figure out what they're doing. And uh then you might get some ideas. So So that's the thing. Cinches, feet on the desk, and awesome destinations.
OtherSo Monish, then if you're looking at say Costco and that checks those boxes, then are you trying to value it on where it's at currently? How much are you giving it for its destination? How do you think about about the problem for someone like me is I want to have my cake and eat it, too. So I want Costco at three times earnings. And it's slightly above three times earnings. Let's look at what God Google says Costco's trailing
WarrenGod Google says Costco's trailing multiple is right now.multiple is right now.multiple is right now. So the trailing multiple according toSo the trailing multiple according toSo the trailing multiple according to Yahoo is 36.Yahoo is 36.Yahoo is 36. 36 is not bad for a kick-ass business36 is not bad for a kick-ass business36 is not bad for a kick-ass business like Costco.like Costco.like Costco. But for a cheapskate like me, you know,But for a cheapskate like me, you know,But for a cheapskate like me, you know, at 15 times earnings you lost me.at 15 times earnings you lost me.at 15 times earnings you lost me. You know? I I mean I would go aboveYou know? I I mean I would go aboveYou know? I I mean I would go above three for Costco.three for Costco.three for Costco. I might at I might be interested to evenI might at I might be interested to evenI might at I might be interested to even look further at,look further at,look further at, you know, low double digits.you know, low double digits.you know, low double digits. But when you get past that, you lose me.But when you get past that, you lose me.But when you get past that, you lose me. So such is life.So such is life.So such is life.
QuestionerSo Monish, uh Alex Gall, one of our MBASo Monish, uh Alex Gall, one of our MBASo Monish, uh Alex Gall, one of our MBA students,students,students, umumum in one of your interviews you talkedin one of your interviews you talkedin one of your interviews you talked about uh kind of a a pre-investmentabout uh kind of a a pre-investmentabout uh kind of a a pre-investment checklist you go through and uh hechecklist you go through and uh hechecklist you go through and uh he wanted to knowwanted to knowwanted to know kind of what items or questions might bekind of what items or questions might bekind of what items or questions might be on that list. Can you expand on that?on that list. Can you expand on that?on that list. Can you expand on that? Maybe the Is it a cinch is the firstMaybe the Is it a cinch is the firstMaybe the Is it a cinch is the first couple three?couple three?couple three? UmUmUm Could you go through kind of some ofCould you go through kind of some ofCould you go through kind of some of those uh attributes on yourthose uh attributes on yourthose uh attributes on your checklist andchecklist andchecklist and um how how those came about?um how how those came about?um how how those came about?
OtherYeah, so the the checklist is a living
QuestionerYeah, so the the checklist is a living breathing document. I just recently added these three questions to the moat section of the checklist. Is it a cinch? Are the feet on the desk? Is the destination awesome? Right? So you already have three out of the 170 questions already. The the the other 167, I'm not inclined to list here right now. Uh but but I would say that it's not it's not that difficult to come up with a good checklist. All I did was I looked at how great investors lost money. Like I looked at businesses that Buffett and Munger and other investors in in where the end result wasn't great. Then I looked at were there were there things known before the investment was made that could have prevented you from making that investment? So the the checklist basically asked the question that, you know, um um you know, for example, Buffett Buffett
Questioneryou know, for example, Buffett made an investment in Dexter shoes and it did not work out well. And they got decimated by foreign competition and cheap Chinese labor. So for example, the checklist question would be is this a business that could be negatively impacted by cheap overseas labor, for example. Right? So that's a checklist question that would come out from that. And when you look at a business like Amex, the answer would be no. Even if you look at a business like Costco, the answer would be no. But there are definitely manufacturing businesses in the US where you would want to ask that question and figure out what the reality is.
QuestionerSo Monish, in in your book you talked about kind of these infrequent big bads and I think it's a a form of the the Kelly formula. Is it Do you just have Do you use the actual Kelly formula or did you just Did
Questioneractual Kelly formula or did you just Did you just kind of figure out 10% is isyou just kind of figure out 10% is isyou just kind of figure out 10% is is kind of as much as you wouldkind of as much as you wouldkind of as much as you would put for uh for your customers? How howput for uh for your customers? How howput for uh for your customers? How how do youdo youdo you use the Kelly formula uh when you'reuse the Kelly formula uh when you'reuse the Kelly formula uh when you're trying to put together the portfolio?trying to put together the portfolio?trying to put together the portfolio?
Todd CombsYeah, in my book if I were to ever do a,Yeah, in my book if I were to ever do a,Yeah, in my book if I were to ever do a, you know, updated edition,you know, updated edition,you know, updated edition, I would take out the Kelly formula. TheI would take out the Kelly formula. TheI would take out the Kelly formula. The Kelly formula was actually a mistakeKelly formula was actually a mistakeKelly formula was actually a mistake in in my book. Basically, it does notin in my book. Basically, it does notin in my book. Basically, it does not applyapplyapply to making stock investments because itto making stock investments because itto making stock investments because it really works if you get to make the samereally works if you get to make the samereally works if you get to make the same bet 10,000 times.bet 10,000 times.bet 10,000 times. So uh if you knew that heads was 51%So uh if you knew that heads was 51%So uh if you knew that heads was 51% and tails was 49%and tails was 49%and tails was 49% and you were allowed to participate inand you were allowed to participate inand you were allowed to participate in 10,000 coin tosses,10,000 coin tosses,10,000 coin tosses, well, you would bet on heads all thewell, you would bet on heads all thewell, you would bet on heads all the timetimetime and and then the formula would allow youand and then the formula would allow youand and then the formula would allow you to determine that if you have $1,000,to determine that if you have $1,000,to determine that if you have $1,000, how much to bet each time so that yourhow much to bet each time so that yourhow much to bet each time so that your bankroll doesn't disappear and you mightbankroll doesn't disappear and you mightbankroll doesn't disappear and you might optimize the upside. So the Kellyoptimize the upside. So the Kelly
Otheroptimize the upside. So the Kelly formula works if you have those sorts of nuances in betting. That is not the nuances we have in stock picking because we don't get to make the same bet over and over. So I would just disregard everything related to the Kelly formula as far as stock investing goes. And that 10% just came about because it just felt comfortable uh to me. I just when I came up with it I said this sounds like a uh a good diversified portfolio. Uh I think what I've come to realize is that in my personal portfolio, I'm fine with even higher concentrations. But I really have to know the businesses extremely well. With other people's money, I think the 10% is fine for my point of view.
QuestionerSo Monish, how do you go about uh setting kind of the intrinsic value that you come on as Do you use a DCF? How do you go about that? And then I think in your book you talked about using some
Questioneryour book you talked about using some scenario analysis and, you know, what it would be valued under different scenarios. How many scenarios kind of make sense um if, you know, the business is simple versus complicated?
Todd CombsYeah, I think it depends again depends on the business. I mean, if you were looking at Costco, you would need to have some range of future stores, future memberships, future kind of profitability per store, all those sorts of metrics. So you'd have to have some uh numbers along those lines in your head. Then you could backtrack from that into what might be a reasonable price to pay and then what return you might expect. So I think with each business it is different. Uh I think it just depends on the business and depends on what's going on uh with the company. And so it's uh the analysis varies by the nature of the business. And these
Todd Combsby the nature of the business. And these numbers and uh I'm not a big fan of DCFs. I think anytime you reach for Excel, you know, I really gave a talk on the 10 Commandments, you know, Moses kind of made up the 10 Commandments, you know, the real 10 Commandments, one of them is thou shall not use Excel. You know, and so if you find yourself reaching for Excel, it means there's a problem. Like I know that if I can get Costco at nine times earnings, uh I don't need Excel to tell me I'm going to make money.
QuestionerHave Have you uh in term Do you use the the same hurdle rate um for all the investments and try to do uh a risk control just through your research process? Do you change it? And has your hurdle rate come down kind of as interest rates have come down? Or are you believer in more of a absolute hurdle rate for your investments?
Todd CombsWell, the hurdle rate also has changed
Todd CombsWell, the hurdle rate also has changed quite a bit with this approach of buy and hold forever. Because if you take the approach of holding a business forever, I mean, let's say for example, uh Costco went to nine times earnings and I bought it, etc. And then in a few years, it's at 40 times earnings, for example. My take on a business like that would be that just leave it alone. Don't sell it. Even though it is probably true that the returns from that 40 times earnings number aren't as spectacular as they were from the nine times earnings number and the risk is higher. Uh but the idea is that if the family that owned Costco probably would not be looking at that multiple and selling, my nuance needs to be like the family. So, the key The key question is is the business getting better? Is the moat getting deeper? And is the company becoming more
QuestionerAnd is the company becoming more valuable? And if those answers are yes, then I'll just leave it alone. And not worry too much about what I will return it will generate in the future.
OtherSo, Manish, uh have a question from uh Rohan Malpur. He's one of our MBA students and he he talks about, you know, some of your philanthropy work and how do you apply some of the investments from or or tenants from your investment? How How do those carry over into the social work at, you know, how do you do a return on investment if you're looking at philanthropy?
QuestionerYeah, so I think when I first started to look at, you know, giving back because I was seeing that the if the compounding works, you end up with more money than you can use, and giving it to a gene pool isn't the most smartest thing to do. You're actually hurting them more than they're helping them. I was very disappointed when I looked at
QuestionerI was very disappointed when I looked at a lot of charities uh because I wanted to find a charity that I could give money to. And I found that either they had many different initiatives, which itself is a problem because if you have three initiatives as a charity, and you measure the outcomes, um and one is better than the other two, well, then the following year you should be one initiative. Put it all into the one that has the highest return for society. But that's not how charities function. And the other thing that was uh you know, the thing is that if a business does not do well, does not service its customers well, it will eventually go out of business. But if you are the Rockefeller Foundation, and you have a billion-dollar endowment, for example, billion dollars in assets, the law only allow requires you to spend 5% of that in a year.
Questioner5% of that in a year.5% of that in a year. So, they'll spend 50 million.So, they'll spend 50 million.So, they'll spend 50 million. And it doesn't matter what happens toAnd it doesn't matter what happens toAnd it doesn't matter what happens to the 50 million, whether it helps societythe 50 million, whether it helps societythe 50 million, whether it helps society or not,or not,or not, the next year the 950 millionthe next year the 950 millionthe next year the 950 million would have probably grown to again overwould have probably grown to again overwould have probably grown to again over a billion because of the investmenta billion because of the investmenta billion because of the investment returns, you know, probably 4-5% is notreturns, you know, probably 4-5% is notreturns, you know, probably 4-5% is not that hard to get.that hard to get.that hard to get. So, you again have a billion, you againSo, you again have a billion, you againSo, you again have a billion, you again spend another 50 million. You could keepspend another 50 million. You could keepspend another 50 million. You could keep spending 50 million stupidly a year forspending 50 million stupidly a year forspending 50 million stupidly a year for 50 years,50 years,50 years, andandand the engine would keep going.the engine would keep going.the engine would keep going. A business like Costco, if it doesn'tA business like Costco, if it doesn'tA business like Costco, if it doesn't deliver value to its customers,deliver value to its customers,deliver value to its customers, in a in a few years it will disappear.in a in a few years it will disappear.in a in a few years it will disappear. So, there is no feedback loop inSo, there is no feedback loop inSo, there is no feedback loop in philanthropyphilanthropyphilanthropy thatthatthat auto corrects. You know, capitalismauto corrects. You know, capitalismauto corrects. You know, capitalism works because of the creativeworks because of the creativeworks because of the creative destruction.destruction.destruction. In philanthropy, that's not the case.In philanthropy, that's not the case.In philanthropy, that's not the case. And so, on top of it what happens isAnd so, on top of it what happens isAnd so, on top of it what happens is the principal Rockefeller created thethe principal Rockefeller created thethe principal Rockefeller created the wealth.wealth.wealth. Now it's a bunch of agents who are
OtherNow it's a bunch of agents who are running everything. So, what do the agents care about? Well, the number one thing they care about is getting paid. So, they have nice jobs, they get paid well, everything is stable. Uh they're not going to spend the whole billion in one year. They'll just keep rolling out the 50 million. And it doesn't Nobody, you know, put out a glitzy annual report, show some pictures of some good things that you've done, and life goes on. And no no real measurements of impact. So, what I did when I when I started Dakshana was that I did not want to go down that path. I wanted impact to be known and measured. So, most most endeavors in philanthropy do not lend themselves to easy measurement. Uh I mean, if you're distributing needles in some inner city to, you know, help people not get HIV and such, it's a very good initiative.
Otherand such, it's a very good initiative. The measurements become much tougher. You know, what was the impact? How much did this did this help or hurt or whatever? Those things become really hard. So, what I decided is that I would limit myself to programs that lent themselves to easy measurement. So, I inverted the problem. So, I said, "Even if an initiative is really good, if it doesn't lend itself to easy measurement, we're not going to do it." Because then there's no feedback. And so, Dakshana went down a path of, you know, education was near and dear to me. I saw the multiplier effect it could have. And then we have a system where we get uh independent third parties giving us a report card every year. And that report card is very valuable to us. I pay a lot of attention to it. Our management teams pay very a lot of attention. And now recently we put in
Otherattention. And now recently we put in incentives where a significant portion of our faculty comp and all of that is based on the results uh that they don't control. And uh so, I think those are important things for nonprofits to look at and consider.
QuestionerUm we had some different questions kind of about uh behavioral finance and so forth. One of them came from Max Kim who who wanted to know uh if you could maybe talk about maybe a large setback you you've had uh in investments. How did that impact your confidence? And And how does your process keep you from overreacting to something like that and and still keeping with your discipline?
WarrenYeah, so there's a saying, you know, if if wealth is lost, nothing is lost. If health is lost, something is lost. And if character is lost, everything is lost. So, the question relates to wealth being lost, which quite frankly in the large scheme
Questionerwhich quite frankly in the large scheme of things isn't that meaningful. So, it is in the nature of investing that if you make 10 investments, at least four of them probably won't work out the way you expected. They'll work out worse than you expected. And it could be five or six out of 10 that work out worse than you expected. So, anytime you're trying to project the future of a business, it's not an easy endeavor. The future I mean, who could have predicted we'd have a pandemic? You know, it just came out of the blue. So, and if you had asked me once we knew we had a pandemic, what stock prices would look like a year from now, I would say they'd look terrible. And I'd be completely wrong. So, the way the future unfolds is so different than the way we might rationally think um it ought to unfold. And the And so, I think that having investments not work out
Questionerhaving investments not work out or having investments go south or having investments go south is just par for the course. Um so, obviously I would not like to lose money and not like to lose money on investments, but it has happened It has happened many, many times in the past. In fact, at Proprietary Funds I've had several zeros uh where company has gone bankrupt and we collected next to nothing uh versus what we invested. I made an investment in a mortgage company in 2007 uh 2006 to 2007, Delta Financial. I think 50-60 million-dollar investment went to zero. Uh we used to have an investment in a a zinc recycler, uh Horsehead Holdings. uh significant investment went to zero. So, uh and then countless investments which either went flat or declined somewhat and didn't have a you know, zero, but they might have been down 20% or 30% when we sold. So, that's happened
Otherhappened a gazillion times. And so, this is all par for the course. I think all we can do is have discipline and process. And one of the reasons why we have 10 bets is so we can uh we can ride these out. And um so, that's uh but but I think for me personally uh it doesn't it doesn't really rattle me or anything like that. I just uh I'm just not wired that way.
QuestionerSo, we had one question on on what do you think the uh best trade is for an investor to have and and what is the most kind of valuable skill that they can try to develop?
OtherThe single most important trait for an investor to have is extreme patience. So, the time frames in which businesses go through change is very different from the time frames with which your brain processes information. So, business change change takes years and decades. And your processing time is in seconds or minutes.
Questioneror minutes.or minutes. And so, if you are the kind of personAnd so, if you are the kind of personAnd so, if you are the kind of person who loves to watch paint drywho loves to watch paint drywho loves to watch paint dry like especially a wall that's just beenlike especially a wall that's just beenlike especially a wall that's just been painted white and you can just sit therepainted white and you can just sit therepainted white and you can just sit there and watch that wall you areand watch that wall you areand watch that wall you are ideally suited to be a great investor.ideally suited to be a great investor.ideally suited to be a great investor. If you are the kind of person whoIf you are the kind of person whoIf you are the kind of person who thrives on inactivitythrives on inactivitythrives on inactivity of doing nothingof doing nothingof doing nothing it's great. I think you can you can doit's great. I think you can you can doit's great. I think you can you can do very well. It reminds me of a Seinfeldvery well. It reminds me of a Seinfeldvery well. It reminds me of a Seinfeld episode.episode.episode. You know, Seinfeld might be past theYou know, Seinfeld might be past theYou know, Seinfeld might be past the the genre thatthe genre thatthe genre that the viewers here havethe viewers here havethe viewers here have looked at.looked at.looked at. it anyway, Mohnish. But but Eric mightit anyway, Mohnish. But but Eric mightit anyway, Mohnish. But but Eric might have seen a couple episodes.have seen a couple episodes.have seen a couple episodes. Uh so, there was one episode whereUh so, there was one episode whereUh so, there was one episode where Elaine is on a flightElaine is on a flightElaine is on a flight with her boyfriendwith her boyfriendwith her boyfriend and her boyfriend is just looking at theand her boyfriend is just looking at theand her boyfriend is just looking at the back of the seat in front of him.back of the seat in front of him.back of the seat in front of him. He's doing nothing. He just his eyes areHe's doing nothing. He just his eyes areHe's doing nothing. He just his eyes are open. He's just looking at the seat backopen. He's just looking at the seat backopen. He's just looking at the seat back in front of him.in front of him.in front of him. So, Elaine asked him "What are youSo, Elaine asked him "What are youSo, Elaine asked him "What are you thinking?"
Otherthinking?" And like all of us men, he said "Nothing." So, she said, "No, what are you thinking?" He says, "Nothing. I'm just looking ahead." "Yes, but you have to be thinking about something." By the time the flight ended, they had broken up. She had broken up with him. Okay? And in reality, he was so well suited to being a great value investor. Because he was so happy just looking at the seat back in front of him. He was in bliss. And she couldn't handle it.
QuestionerSo, what was it? Puddy? Was that the character's name, I think?
OtherYeah. The value investor. Puddy is a value investor. All right.
QuestionerOh, so um uh I you know, obviously I think I think it was you and Guy who had the lunch with Warren Buffett. So, um one question couple questions on that, you know, do you think it was worth it number one and and what was the main takeaway you got from uh having lunch with Warren
Ted Weschlergot from uh having lunch with Warren Buffett? Oh, yeah. I mean, I think I think the uh the or fair share amount? Well, I mean, I think my my only uh expectation for bidding for the lunch and meeting Warren was to just thank him. I felt like I had used his intellectual property and was earning a livelihood with his intellectual property. And it was a way to maybe kind of pay at least part of the tuition bill. And and to look him in the eye and just say, "Hey, thank you very much. It was it's been exceptional." So, I didn't really have any expectations beyond that. I went for the lunch with my family. My daughters were at a great age at that time, 9 and 11, which is a good age. And um and Guy Spier came with his wife. And uh so, we had a we had a wonderful lunch. I think the first thing Buffett did when he got there, he said, "Look, uh
WarrenLook, uh I have nothing on my calendar all afternoon. And so, when you guys get sick and tired of me, I'm happy to leave. But uh I don't have to be anywhere. So, it can go on as long as you want.
Ted WeschlerAnd then very quickly he tries to put you at ease and you think you're just having lunch with your grandfather. So, yeah, the lunch was on many levels uh uh spectacular. I mean, I think that uh the takeaways from the lunch, you know, I have a decent friendship with Warren now. It's been uh 13 years since we met for lunch. The lunch also meant led to a friendship with Charlie and to many other relationships uh in my life. Uh so, it's been uh it's been really spectacular. And I think even the the takeaways have been uh uh there were so many takeaways. I think uh after the lunch I made some notes. I think we asked him like 55 different questions
Questionerlike 55 different questions that we could recall. So, and Buffett tries really hard to make sure that you feel like you got a bargain. So, for example, he told both my daughters who were sitting on both sides of him that the single most important decision you will make in your lives is who you decide to marry. And uh they are now young ladies and they remember that message quite well. And I don't think that message would have would have resonated as much if I told them that or their mom told them that and so on. So, they heard that and they appreciate that and I think uh they I think will make sensible choices on that front.
QuestionerSorry, I'm laughing. I have three uh daughters who are transitioning from uh you know, into college and and young adulthood. So, uh yeah, it'd be good to have uh surrogate grandfather give them good advice, right?
Questioneradvice, right? UmUmUm Mohnish, there's been a number of questions uh just on kind of career advice and so forth. You know, there's a couple folks who would who would love to kind of start a fund at some point and could you talk a little bit about how you got your fund started? Um you know, how how you attracted investors, how you set it up. I know you have some uh thoughts on on fees with how you did it similar to the Buffett partnership. Could you expand on some of those for the students?
OtherSure. Yeah, uh I mean, Pabrai Funds started in 1999 and um I really wasn't planning to start a fund or anything. I uh had done quite well investing my own money. I think a million had been had turned into 12 or 13 million uh in about 5 years from '94 to '99. So, things had gone quite well. And um and I I enjoyed that whole process and such and I used to give my friends stock
Othersuch and I used to give my friends stock tips. So, they approached me in '99 and basically said, "Look, this stock tip business is random. Uh sometimes we don't see you for a while and we don't know whether to buy or sell or whatever. So, they wanted to give me money to manage. And um and I wanted to make sure that if I took their money that I wouldn't lose my friends. And so, I wanted to set up a a mechanism by which uh their downside was very limited. And so, actually when Pabrai Funds started, it really started as a hobby. I had no plans to grow and scale it. I just started as a little million dollar pool of capital of my friends which is easy for me to invest that when I'm making my own investments. And um so, I I actually guaranteed their principal. And I also guaranteed them 6% a year. And above that I would take 1/4, they would get 3/4. And
Otherwould get 3/4. And would get 3/4. And about 15 16 months into the funds, we about 15 16 months into the funds, we about 15 16 months into the funds, we had about had about had about close to 3 million in assets. close to 3 million in assets. close to 3 million in assets. I decided, you know, it would be good to I decided, you know, it would be good to I decided, you know, it would be good to actually run it as a real business. actually run it as a real business. actually run it as a real business. And I couldn't do that with these And I couldn't do that with these And I couldn't do that with these guarantees and such. It wouldn't scale. guarantees and such. It wouldn't scale. guarantees and such. It wouldn't scale. So, I requested my friends that we would So, I requested my friends that we would So, I requested my friends that we would make an amendment and we would take out make an amendment and we would take out make an amendment and we would take out the guarantees. They said, "No, no, no. the guarantees. They said, "No, no, no. the guarantees. They said, "No, no, no. We like the guarantees. The guarantees We like the guarantees. The guarantees We like the guarantees. The guarantees are great." are great." are great." So, what I did is I set up another fund. So, what I did is I set up another fund. So, what I did is I set up another fund. And then I just told them And then I just told them And then I just told them uh this fund is going to close down. uh this fund is going to close down. uh this fund is going to close down. And the other fund has the same rules And the other fund has the same rules And the other fund has the same rules except there are no guarantees. except there are no guarantees. except there are no guarantees. Principal and the 6% is not guaranteed. Principal and the 6% is not guaranteed. Principal and the 6% is not guaranteed. So, they all moved over there. So, they all moved over there. So, they all moved over there. You know, when when the funds were when You know, when when the funds were when You know, when when the funds were when they had no choice, they all moved over they had no choice, they all moved over they had no choice, they all moved over there. there. there. Uh and so, that worked out fine. And uh Uh and so, that worked out fine. And uh Uh and so, that worked out fine. And uh I mean, I would just say this that you I mean, I would just say this that you I mean, I would just say this that you know, Buffett says that you could be a
Questionerknow, Buffett says that you could be a leper in the middle of the Atlantic in a rowboat and they will swim to you in shark-infested waters to invest with you if you deliver above average returns. So, if you have had a history where you've done well, and you know, it's a horrible track record, I think that that is the key to attracting assets and getting a fund business off the ground. So, I think some prerequisites to get a fund business off the ground is number one, if you're good at it, you should already be independently wealthy. Number two, you should have had done quite well, had a good track record, etc. And then, beyond that, I think the friends and family should be very willing to have you manage some of their assets. And then, once that's going, then others should have an interest as well. So, it it's almost automatic if the pieces
Otherit it's almost automatic if the pieces are in place.are in place.are in place. And it's very uphillAnd it's very uphillAnd it's very uphill if those pieces are missing.
QuestionerSo, Monish, you know, a lot of the theSo, Monish, you know, a lot of the theSo, Monish, you know, a lot of the the students, obviously, they're early instudents, obviously, they're early instudents, obviously, they're early in their careers. There's a lot of noisetheir careers. There's a lot of noisetheir careers. There's a lot of noise about how things uhabout how things uhabout how things uh how one should go abouthow one should go abouthow one should go about the business.the business.the business. How should they think about developingHow should they think about developingHow should they think about developing their own investment strategy as theytheir own investment strategy as theytheir own investment strategy as they work through the business?work through the business?work through the business?
OtherWell, I think theWell, I think theWell, I think the the the best way to learnthe the best way to learnthe the best way to learn is to actually have a brokerage accountis to actually have a brokerage accountis to actually have a brokerage account which has a meaningful portion of yourwhich has a meaningful portion of yourwhich has a meaningful portion of your assets,assets,assets, andandand you start making investments when youyou start making investments when youyou start making investments when you have high conviction,have high conviction,have high conviction, and you make the mistakes, and you learnand you make the mistakes, and you learnand you make the mistakes, and you learn from the mistakes,from the mistakes,from the mistakes, and you keep going. I think that's howand you keep going. I think that's howand you keep going. I think that's how you get going. I think you got to getyou get going. I think you got to getyou get going. I think you got to get You cannot do this on aYou cannot do this on aYou cannot do this on a on an Excel spreadsheet with someon an Excel spreadsheet with someon an Excel spreadsheet with some hypothetical portfolios.hypothetical portfolios.hypothetical portfolios. It has to be real,It has to be real,It has to be real, and it has to be real with meaningfuland it has to be real with meaningfuland it has to be real with meaningful portion of your assets.
QuestionerWhat umSomeone wanted to ask kind of in your
QuestionerSomeone wanted to ask kind of in your your career, what what was kind of the the biggest mistake you made in your career, and what lessons you learned from that?
OtherWell, I mean, I think uh The career has My career has had a lot of left and right turns. And for the most part, I think the journey has been very good and very rewarding. I think the one mistake I made a few years back, I think in 2014, is I had the idea to set up a holding company and to acquire insurance businesses, and then, you know, invest and have float and all of that. And uh I did set up that entity. We did raise more than 150 million of capital, and then we bought an insurance company. And then, I realized it was all a mistake. That there were a number of things that were that I was learning that uh I knew that this would not work out as I had planned. So, then I made the decision to unwind
Questionermade the decision to unwind and salvage and get back the capital. And thankfully, we were able to sell the insurance company for a little more than we bought it for, which was good. And we've returned most of the capital back. And I think that whatever is left, I think we will return more than we took in. So, the end result for the investors is not going to be great, but it but there's no loss of capital. So, I I think that's a anytime I make a mistake in investing where there's no loss of capital, it's a home run. And so, I I I think in recent years in investing, that would be the But I also learned a lot from that whole experience. I learned a lot from actually uh owning an insurance business, and actually sitting in the board meetings and looking at claims and uh really got a great understanding of the business. So, I think from a
Questionerof the business. So, I think from a learning point of view, it was exceptional. Okay, great. Um I know we're coming up close to the end of our time, but uh uh you know, I'd love for you just any kind of broad career life advice for the students, and any closing statements or thoughts you might have.
OtherYeah, well, I think IU is a great place. I think you guys uh do a great job of uh sending forth. I think the Kelley School does a does a exceptional job. I I think that, you know, when I was a student in early 20s, I really had no clue about many things, including what to do and so on. Kind of drifting through life, if you will. I think the key is that uh you go to work for uh someone you like, admire, and trust. That's what Buffett says. You know, focus on So, the normal tendency for students finishing school is to go for name brands. You know,
OtherYou know, the the large name brands look great, the the large name brands look great, the the large name brands look great, and those name brands are also great to and those name brands are also great to and those name brands are also great to talk to with your friends. talk to with your friends. talk to with your friends. Hey, I'm going to work for Alphabet, or Hey, I'm going to work for Alphabet, or Hey, I'm going to work for Alphabet, or I'm going here and there. I'm going here and there. I'm going here and there. Uh which is fine, but Uh which is fine, but Uh which is fine, but I think a better way to approach it is I think a better way to approach it is I think a better way to approach it is to ask yourself what you really like to to ask yourself what you really like to to ask yourself what you really like to do. do. do. And if you could could find somebody you And if you could could find somebody you And if you could could find somebody you really admire really admire really admire that you go to work under. So, more than that you go to work under. So, more than that you go to work under. So, more than the great brands, what matters is who the great brands, what matters is who the great brands, what matters is who are the people you would work for, are the people you would work for, are the people you would work for, and who are the people you would work and who are the people you would work and who are the people you would work with. with. with. And those are important things, and the And those are important things, and the And those are important things, and the kind of work you would be doing. kind of work you would be doing. kind of work you would be doing. So, the focus should be not so much on So, the focus should be not so much on So, the focus should be not so much on what would look good on a resume, what would look good on a resume, what would look good on a resume, uh but what would uh uh but what would uh uh but what would uh allow you to allow you to allow you to maximize your potential, maximize your potential, maximize your potential, and and accelerate your learning. I and and accelerate your learning. I and and accelerate your learning. I think that's really the key.
QuestionerGreat advice. Thank you so much for your Great advice. Thank you so much for your Great advice. Thank you so much for your time today, Monish. I didn't realize time today, Monish. I didn't realize time today, Monish. I didn't realize you'd been on our campus before. We'd
Questioneryou'd been on our campus before. We'd love to get you back to Bloomington sometime back in the Midwest, but thanks so much for taking the time today uh to talk about your investment philosophy and process with our students. It's really appreciated.
OtherThank you, Eric. Looking forward. All right. Thank you again. All right. Bye-bye.