Mohnish Pabrai's Presentation and Q&A at MDI, Gurgaon on December 22, 2015.
  
  (00:00:00) - Introduction
 
  (00:04:43) - The Motors bubble - 1921
 
  (00:06:56) - The Tronics bubble - 1959-62
 
  (00:08:23) - The Dot com bubble - 1997-2000
 
  (00:16:10) - The 1973-74 Nifty-Fifty crash
 
  (00:19:00) - Tesla vs. GM
 
  (00:21:07) - Netflix vs. Micron
 
  (00:26:11) - Go Pro
 
  (00:33:04) - Creation of stock market bubbles
 
  (00:55:01) - Super 30: Anand Kumar
 
  (01:00:34) - The Dakshana Foundation
 
  (01:05:39) - Warren's Too Hard Pile
 
  (01:07:52) - John Arrillaga's small circle of competence
 
  (01:09:15) - My daughter's introduction to compounding
 
  (01:16:22) - Tom Gayner
 
  (01:19:56) - Microcap vs. Large cap
 
  (01:25:06) - Focus on micro than macro
 
  (01:35:04) - Portfolio concentration

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Monish Babrai, accomplished investor, philanthropist, author, and entrepreneur has

the most dazzling accomplishments of Monish is the Dakshina Foundation which has a fantastic black report.

And I sent you some material on that, absolutely astonishing.

full years of operation, IITs have accepted 8, 8, 8 Dakshinath callers out of a total universe of 1715.

You know how astonishing this track record is.

After all, IITs, they have an acceptance ratio of just about

Last year, when we got along with him, a few Dakshina scholars,

they were sitting over there at the end of the room

and their presence absolutely electrified the audience because they spoke about their journey through Dakshina and through IIT And how their own lives and the lives of their family have been transformed thanks to the Dakshina Foundation.

I can guarantee wouldn't have finished you in high school without

Like everything else in life, Monish explained how we approached Dakshina Foundation as an investor.

1 who wants to get the best bank for his craft.

Where the bank was a thought in the context of the Dakshina, the change, the social impact of the investment.

And I think that's 1 of the most remarkable talks that

We also have with us, Shrimi Pulaverdi, who will

He is CIO of a very famous endowment of UCLA.

Shrini is the CIO and President of that foundation.

Both of them will speak to you about our topic, which I haven't told you,

Ladies and gentlemen, please welcome Aneesh.

There are very few places on the planet as far as graduate MBA programs go which actually have a focus on value-added education.

And it is quite a blessing for MBI and India to have such a place.

even going to fluff the piping with 1 hand in terms of the number of schools that focus on this area.

So When professors decide to focus on what they will specialize in, they generally want to focus on things where they attract sponsors.

And they attract a lot of money and grants and consulting and so on.

And that doesn't happen with value investing.

So then there's no natural response, which is why you don't have that much in academia.

It's the same reason why I asked the nursing once, because I'm not sure if they have MBA programs.

So the few places that do have it and what some get together is quite unique.

And so I think the quality of the students is world class.

So for those students who are studying there, it's

So what I'm going to do is I'm going to talk about cobbles.

So you know, history doesn't repeat itself, but it does rhyme.

So Sometimes it's kind of good to go through some history.

there was a big problem at work, which was the motors problem.

we had hundreds and hundreds of car companies.

looked at the United States at that time, so you would see the trend in terms of the number of cars being sold, it was being marginalized.

I mean, basically the whole country was going through industrialization, the highways were being built out, the population was going through rapidly.

And you can see that 1990, we had 1.3 million cars,

and especially from 21 to 22, you see that 50% jump from 1.7 to 2.5 million.

Even China in this day and age has not seen those types of jumps in autos.

So it was very significant in terms of the growth.

Basically, investors basically had a certain perspective, right, so they felt that autos were gonna grow, obviously the country was gonna grow, the population was gonna grow up, the country was gonna adapt, like all fronts, investors were absolutely right.

And what ended up happening is that nearly all the 1921 investors in the industry lost their entire investment.

So even though they were right on all the macro trends, you still couldn't make money.

It was a difficult time to make money even though every part of their forecast was correct.

And you know this is a listing of, it's not a complete list, a partial list of some of the companies that, there were literally hundreds of water companies at the time.

And they basically, so you see the name and you see the start and end date they existed over the years And you can just see that they pretty much, you know, most of them just disappeared.

And we haven't even heard of them over that period.

And then, you know, about 38 years after that bubble burst, there was another bubble, which is the electronics bubble.

And at that time, basically the expectation was that electronics and semiconductors and all the miniaturization of stuff that was gonna happen was gonna be huge.

And people were correct, they were absolutely correct.

All the investors were right that it was going to be a transformation.

Moore's law, the transistor, all the silicon on chips, and the rapid growth in brain power on silicon.

In fact, from 1959 to 2015, it still played out.

But even then, what ended up happening is the

investors in these chronic tech companies lost their entire wealth.

And if you look at some of these names, so what people did is they floated companies which either ended with the term Tron at the end or Onyx at the end.

So you have like Astron, Neutron, Vulcatron, and then you know, Circutron and Supertron, 1 with 4, you know, Powertron, Ultrasonics.

How would you use the Powertron, Ultrasonics?

And then of course, it didn't go so well.

And then, you know, about 40 years after that, we had the dot-com bubble.

I think many of you wouldn't have been adults in such, probably in your teenage years, even less than teenage years, maybe

But Srini and I are old enough to remember this, and Sanjay lives with it, of course.

And so basically when we had the dot-com bubble, you know the internet was going to be a game changer.

These were things that people believed the internet would do and

investors in Rotmans lost their entire investment.

And you end up with some not so good results, even though you had all the factors, macro factors behind.

And you know, so some of these companies, Google.com, you know, Webvan, and so on.

We had all these different companies that came on board at that time.

So for example, we look at some of the deals that were done at the time.

some of the interesting ones, you know, you see all these issues going on

You know, they bought broadcast.com for $507 billion.

And most of you probably never heard of broadcast.com.

How many of you have heard of Mark Cuban?

Yeah, see, some people have heard of Mark Cuban.

So Mark Cuban sold broadcast.com to Yahoo.

And The only smart thing he did after the sale, and he insisted on doing this after the sale, was being allowed to hedge 100% of Yahoo's stock because all these deals happened in Chinese money.

And so when he got Yahoo's Stock, also known as Chinese money, he hedged the entire position.

And the funny thing is, so his net worth was worth 5 billion, it was completely hedged.

And his net worth now is, I think, 2.3 billion.

So Somehow in the last 15 years of all his adventures, he didn't add to his net worth.

But you know, that 1 decision probably saved him a few billion dollars, bought him a private jet, bought him the Dallas Mavericks, and got him a spot on the Shark Tank.

How do you see your Indian version of Shaktan?

You know there is an offering, so anytime you know an entrepreneur, you go for offering.

So any time you run out of money, you go buffering.

So you have all these crazy things going on.

Ask a pump or a pump, the ISE Interactive for 1.9 billion.

I don't even know what ISE Interactive's current market capital is, but that's a huge portion that appeared at that time for this.

And so if you look at these 3 bubbles, the interesting thing is they are all about 38 to 40 years apart.

The reason why we are bubbled up that far apart is Because like Sanjay and I or Srini and I, we know what happened during the lockdown.

And so if there's another bubble like that, we would pound the table and say, hey guys, don't do this.

In fact, I remember that in early 2000, I think January 2000, I was living in Chicago and I got this cab and most of the cab drivers were Sikh or Pakistani.

So this Pakistani cab driver from Lahore, he says to me, aapka Cisco ke baare mein kya kya hai?

So He didn't know I'm an engineer and I would actually know something about Cisco.

So I said, in Cisco, He said, yes, I have heard about Cisco.

He named off all these Yahoo and all these things.

He said, it's a hard head because it's going

you knew, like, the 1929, the huge shine of Wall Street, if you stopped it, you pretty much knew There was a cab driver from Lahore and Chicago and San Francisco and you know, that's the 1 you should buy, that you were picking a top.

And so the reason that these things take this much time to happen is because The set of investors who saw it Need to have left the scene So if you think of human lifetimes inside, so if we looked at the dot-com bubble happening in 2000 and let's say the next bubble was coming in 2040 So a person who was 30 years old, for example, in 2000, would be about 70.

And whatever is the cause of the 2040 bubble, maybe transport to Mars, we don't know.

And so that the participants, in fact, Buffett raised the issue with the, the motors bubble during the North Congo War.

And I think Business Week ran a cover that says, What's wrong with the water?

1 of the authors had to tell them about the water bubble.

But He was seeing the parallel of the thermal properties of this.

So bubbles need that kind of 40 year period for the same type of thing.

But the thing is bubbles are very common.

And almost all the time, more than 1 bubble is building up.

That's, it doesn't actually surprise you how common the bubbles are.

Then you know we have a different sort of bubble which took place just about 40 years ago, in the late 60s, early 70s.

There was this concept, you're the sponsor of 50-50, and in India it's not the same

So, in the late 60s, early 70s, the idea was that you could buy the very high quality blue check names, and the price didn't matter.

So basically, the idea was you buy these companies and you hold them because they were so good and they were so entrenched in their traditions that the price didn't matter.

So you have things like, you know, so if you think about

and you think about a company like McDonald's and you look at it 45 years after.

McDonald's has dramatically increased the size of its mode, the size of its sales, products, all these offerings over that period of time.

We were all trading at 90-time earnings, 90-time earnings.

You had Disney at 80-time earnings, you had Coke at massive.

These P's were just huge, 70, 80, 90, 100-time earnings.

The idea was, And since everyone was being given this advice, you basically had a bipolar market.

You had the new 350, creating a very high valuation, and then everything else creating a, you know, who cares?

And then we had basically, we had a crash in slow motion.

So in 1974, we had a very significant crash in US stock.

But it wasn't like 1929 where you had 1 day, or

You didn't have a single day when you had a, you know, over a 2 year period, something like 40-50% of market value was gone.

So when you looked at the price drop from the peak of

to the bottom of 74, and of course what happened in the US in 73 and 74 was that it all grew and grew.

So for the first time we had the impeachment and resignation of the US President.

For the first time, you had the oil embargo.

For the first time, the US Americans had to queue up miles long lines near gas stations.

And you had a president who wanted all of this to impose price controls.

So you had this whole bunch of ugly stuff.

The Arab oil embargo, price control, all these things coming together.

So what happened is that when the market started to reoccur in 1973, the Nifty-Fifty stayed intact.

But then they were taken out back 1 by 1 and shot.

And so if you look at the situation today, we have some behavior and some things going on at least in US markets which are similar to the Nifty

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Mohnish Pabrai's Presentation and Q&A at MDI, Gurgaon on December 22, 2015