Mohnish Pabrai's Q&A with members of the Finance and Investment Cell at SRCC, Delhi on June 14, 2023.
  
   (00:00:00) - Introduction
 
  (00:02:25) - Investing basics in school curriculums
 
  (00:05:58) - Investing in improving yourself
 
  (00:12:21) - Dhandho investing; Jugaad
 
  (00:15:30) - Employment opportunities in India vs the US
 
  (00:19:55) - Moving from passive investing to active management
 
  (00:23:33) - Handling investing mistakes
 
  (00:24:39) - Nvidia
 
  (00:26:30) - Microsoft
 
  (00:31:51) - Democratizing investing
 
  (00:33:56) - Better off focussing on the micro versus the macro
 
  (00:41:46) - Quality is more important than quantity
 
  (00:44:08) - ESG
 
  (00:47:28) - Venture Capital
 
  (00:52:27) - Bill Gates

On behalf of the Finance and Investment Cell at Sriram College of Commerce, I extend a warm greeting to each and every 1 of you and thank you so much for joining us today for yet another thought-provoking speaker session organized by the Finance and Investment Cell of SRCC.

Today We are absolutely thrilled to have Mr.

We also welcome our esteemed faculty advisor, Dr.

Saroj Joshi, and thank her for her unwavering support in all our endeavors.

Visionary in finance and philanthropy, Sir has an audacious entrepreneurial spirit.

He has founded several successful companies and pioneered the Munger Buffett focused value investing approach.

He's the founder and managing partner for Brian Westman Funds and manages over $500 million in assets.

Yet, the impact he has created extends beyond finance.

Being the founder and chairman of the Dakshina Foundation, he has transformed the lives of thousands of economically and socially disadvantaged but gifted students worldwide by providing them with world-class educational opportunities.

Having mastered the art of balanced living, he cherishes family, literature and the strategic complexities of duplicate bridge.

Being someone who carries the pursuit of excellence and the power to create lasting change, it is our utmost pleasure to be able to learn from your wisdom, sir.

We are honored to have you, and this honestly feels extremely surreal for all of us.

And just want to put it out there, please do excuse us if our questions are maybe redundant or if they seem like childish curiosities.

A note for the audience, please do put your questions in the chat box and we'll try our best to entertain them if time permits.

Now, given that a good number of our audience today are high school and college students, we have some questions tailored in that respect, right?

With that said, where do you think investing should be on the list of priorities for a teenager?

All right, Samarth and Urvi and everyone, it's great to be here.

So 2 score and 1 year ago, I was a student at SRCC and I had joined SRCC just like many of you have joined SRCC.

If you are confused about 2 score and 1 year ago, maybe because you haven't heard the Gettysburg Address of 4 score and 7 years ago.

when I finished high school and applied to various colleges at Delhi University and I was very excited to join Sriram And that year there were some very extended strikes at the university.

So I attended for a few weeks and then the whole place shut down for quite a few months.

And my brother and I basically applied to US universities and I switched from commerce to computer engineer, to computer science and then to computer engineering, and then basically finished my, my degree in the US and our life trajectory changed if you will.

But I have very fond memories of taking the U special buses, you know, the few weeks at Sriram at DU.

And in terms of, I think, investing and teenagers, you know, I think that educational systems around the world, I think, do a disservice because really kind of while we are taught compounding in a mathematical sense in math classes, there really is nothing taught in terms of investing and savings and runways and so on in, in high schools.

And I think it would be very beneficial because you know, there are, there are really 3 things that matter in terms of ending up being extremely wealthy over time, even if you have relatively modest earnings over your lifetime.

So the first is, you know, spending less than you earn is really important right from the beginning.

And Charlie Munger says that if you consistently spend 5% more than you earn, you will have a life of extreme misery.

But if you spend 5% less than what you earn or

less than what you earn, you're gonna have a very bountiful life.

So just a small difference there can lead to a huge delta in outcome.

So spending less than you earn is very important.

And I wish that was reinforced in high school.

Putting the savings in a low cost index fund is also a very good idea.

So you don't need to really understand, you know, how to pick stocks or, you know, find out what are good investments or any of that, just, you know, buy a low cost index fund and there are plenty of them available in India.

And the third is the length of the runway, you know, so it's really important to start early.

And as, as early as you can and start putting money away.

And basically what's going to end up happening is a few decades later, you look to your right and you look to your left and you left all your peers way behind and life is great.

So yeah I wish these basics were part of core high school curriculums around the world but sadly they are not.

What value do you call to investing in oneself when there are other options of investing as well?

For example, if I'm interning and earning a certain stipend, would you advocate for upscaling or investing in some securities instead?

Also, do you think people ascribe lesser value to self-learning because returns are not exactly as evident as opposed to the many getting examples of how financial investments can reap healthy profits?

Yeah, well, I mean, usually an investment in improving yourself is usually gonna deliver the greatest returns.

And especially if those investments are made very early in life.

But I think the most important factor is to pursue your passion.

So 1 should not do an MBA because it's going to raise your, you know, compensation or open up more opportunities or any of that.

1 should be doing that is 1, if 1 is very passionate about management and, you know, investing or just in general commerce and industry in general.

So it is not, it is not easy as a young person to have clarity on what is your calling in life and the more time you can spend early in life to try to get clarity on who you are and what, you know, excites you and doesn't excite you is really important.

And I think some clues of that will come to you when you notice that maybe in high school, you're excited about certain classes and certain subjects and not so excited about other classes and other subjects.

So start spending more time on the things that you're excited about.

And I think the self-learning, I think self-learning is extremely important.

If I look back at my undergraduate computer engineering degree, there are really just a couple of courses I can think of that had a huge lifelong impact on me.

1 was an elective class I took on public speaking.

And I really enjoyed that class and it was a wonderful, and I actually, I just tossed a coin, take whether that class or technical writing and it turned out public speaking was excellent.

So I think to the extent that you can, because when we go through formal degrees and such, when you look back after 5, 10, 15 years, very little of what you learned during your school days is going to be relevant in the real world.

What is really going to help you a lot in the real world is if you go to sleep every day a little wiser than when you woke up and that you make reading a lifelong activity.

And I think it's just like compounding what happens in 10, 15, 20 years is that you look to your right, look to your left and your peers are so far behind.

And you've gone so far ahead and you didn't go ahead because you just, you know, sprinted really fast.

It's more of a marathon than a sprint, but that distance keeps increasing daily.

So yeah, definitely I'd say invest in yourself through formal degrees and through self-learning.

I mean, we have a limited time on planet earth, try to make the most of it and try to enjoy the journey.

So I think I just have a follow up question.

So you say we should, we should become wiser every day and find what our true calling is what drives us right.

But, do you think 1 should do anything at all for the sake of it, or do you think like you said, inherent motivation and inclination should drive all our endeavors and I'm asking this against the backdrop that you know while crafting one's career there are several options and opportunities that may you know fast track one's career right but they they at the core of it they have a hollow impact on one's personal growth.

So do you think those opportunities are maybe worth pursuing or is it just the become wiser everyday approach you would maybe suggest?

Well, you know, there are practicalities in the sense that basically, when we pursue degrees, we don't have a lot of choice about, you know, what courses we take and what professors we get and which classes are interesting, which classes are not.

So a lot of that is going to be hit or miss.

We don't have a whole lot of choice in there because, you know, the only choice we have is whether we do the degree or not.

So try to make sure that the degree is as closely aligned to what you're interested in.

And I think beyond that, I think if you follow your nose, it will lead, it will lead to great things.

I think that what I've always found is that when I'm really curious about something And I'll go down a rabbit hole of trying to figure it out.

In fact, I ended up in the investment business just because I accidentally picked up a book on investing to read on a flight from Heathrow to Chicago.

And I really picked it up at random and I never worked in the industry.

I didn't have degrees in finance and so on.

And it was really that, That book led me down a rabbit hole of other readings and other books and other writings.

And here we are, you know, so, so I think, I think it's really important to, to pursue what you are really interested in and pursue it to the fullest extent that you can.

Right, thank you so much for that answer.

So, you're evidently an advocate of dhandho, right?

You say it's the approach to doing business that guarantees an upside without the possibility of a downside.

Now another word that really fascinates me is Jugaad, right?

And I just want to understand from you, what do you think Jugaad's relevance is for an entrepreneur and an entrepreneur's journey?

Well, I think the Indian word Jugaad is kind of difficult to directly translate.

But I think most of you know what, what it means.

I mean, hacks in life are really important.

And when we're, you know, when I'm looking at a particular business or a particular industry, what, what I'm, you know, the, the data set is very large.

So when you're, when you're looking at a, you know, some industry, I think just the amount of information and what is going on can be daunting.

But the important thing is that you have to get to the 3 or 4 important factors that will drive most of the outcome and the result of that investment or of that business.

And that's where a lot of the jugaad and hacks come in.

So you have to be sensitive to how can you accelerate the process if you can.

There's obviously the base path that you can take, which is you can read a lot of historic annual reports, and you can read a lot of historic transcripts, and you look at a lot of things the company has said in the past, et cetera.

You can read industry reports and you can read competitors annual reports and all of those things over time will give you a picture in your head of what's going on and what's important and so on.

It can be accelerated sometimes when, if you can read something that someone else has written about the business or the industry, where they've digested a lot of facts already.

And so it can accelerate the learning, but you have to be careful that you're kind of reading the right stuff or weighting the right stuff in the right amount of weightage that should be given.

So basically, I would say that in investing, what is really important is that we started a very large data set.

And what you need to end up with is 234 factors that are etched in your brain that are going to drive outcome And why those factors are going to likely to work out in a certain way.

Now, the reality of investing is that it's a high error rate.

So even when we do all of that, because businesses are uncertain, we may have

of the time that they're just wrong and that's okay.

But if you're right half the time and hang on and so on, life will end up, I mean, the end result will be just fine.

Being a global investor, what's the India story that you see?

What is the future that you envision for the people of India?

And what would you probably say to somebody who wishes to settle abroad because of maybe like better prospects.

So just an add on, what do you think, or how do you envision your, your life or your career would be had you probably stayed in Sriram and not gone to US?

You know, let me take the second question first and then I'll get to Purvi's question.

So when I was in India in high school, etc, I changed a lot of different schools, moved to a lot of different places.

But I would say none of my classmates or I, when we were growing up, had ever expected that we would live any part of our life outside India.

That pretty much just wasn't part of the equation.

You know, the idea was that you would finish college and so on.

And I lost touch with a lot of my high school friends and so on.

And then Facebook came around and after many decades, I was reunited with many.

And what I, what I noticed is that more than half of my classmates in the different schools I went to ended up outside India.

I had not expected that, but it was a large number.

And I think part of the reason that happened was that if I had gone to Sriram, probably what would have happened is 1 way or another, I would have probably ended up in the IT field because it was growing so fast and you know, a lot of people were doing like these diploma courses at an IT and so on and so forth.

And there was a huge boom of, of people coming to the U S because there was a large amount of IT jobs that had opened up outside India.

And so probably the likely trajectory may have been that I may have ended up in the US many years later with a somewhat different trajectory than where I ended up.

So, but I think that when we look at the situation today, I think the situation today is a little bit different in the sense that, you know, the IITs when they were graduating a lot of students in the 70s and 80s, and maybe even in the early 90s, they just weren't a lot of opportunities in India.

So a large portion of those folks ended up going for master's degrees in the US and they ended up staying and so on.

I think today the opportunity set in India is very different.

A lot of multinationals have come into India.

A lot of Indian companies have grown a lot and they're pretty world-class in terms of how they operate and the opportunities they offer.

And at the same time, if I look at a place like the US, the immigration situation is such a mess over here that, you know, for people coming on a work visa, sometimes at least on paper, it looks like it would take 70 or 80 years to get a green card, you know, following the, the, the backlogs and waiting lists and all that, which is ridiculous, actually, I think the big strength of the US has been that it's attracted talent from all over the world and it's built the country.

And I wish the US would fix its immigration system.

So many other countries are, in fact, gaining what the US is losing at, which is unfortunate from my vantage point.

But I think looking at it from the point of view of being in India, I think probably the best way to make the decision is in terms of lifestyle and in terms of family and you know, what your personal preferences are and personal aspirations are.

But I think there's a lot of opportunities in India.

And there's also a lot of opportunities outside India.

So I think at this point it's up to the individual.

So I just want to go back to the youth investing perspective, right?

Do you think behavioral finance is maybe more important for teenagers when they start their investing journey?

Because as I see the technical aspects of investing, you know, ratios, analyzing financial statements, valuation, et cetera, can be picked up eventually too.

But is ingraining and investing temperament more important in the youth years?

And if so, how do you think the youth can learn about the psychology of investing?

So I think there's a, there's a pretty big demarcation that happens between, so 1 can do extremely well by just being a passive investor, you know, just investing in index funds and so on.

And 1 never needs to study a business or any of that, and you will end up with a great result.

Now, if you decide to cross over to the other side, where you actually want to analyze businesses and figure out investing and buy stocks and all of that, I think that is a very different game.

And I think that game would take some time to master and probably there's no better way to master it than to take arrows in your back.

So as you invest, as you make mistakes, you should endeavor to learn from those mistakes and you should endeavor to learn a lot from other people's mistakes.

So I think when you move from passive investing or index investing to active management and such, you have to have a framework.

So first few pieces of framework is How many stocks does your temperament say that you should hold?

So that needs to fit, you know, what your temperaments, et cetera.

The second is that many aspects of investing cannot be taught.

They are inborn traits that either exist or don't.

So if 1 has the natural tendency of a hyperactive trader who's going in and out of positions several times a day, it may be difficult to transform that person into someone who buys 1 stock a year, for example, and holds them for 10, 20, 30 years.

So I think knowing your temperament and knowing your aptitude and comfort level and style is really important.

So you start with some baseline of some things you read and figure out what kind of seems to be the, And I think reading everything you can that's been put out by Warren Buffett and Charlie Bunger and all the Berkshire Hathaway meetings, which are online at now at buffett.cnbc.com, which is a tremendous resource, hundreds of hours of video to get some greatest investors ever is a, is a great place to try to understand what your framework should be and, and yeah, then the, you know, the notion of behavioral finance versus, you know, the quantitative stuff, all that kind of naturally falls into place once you have a framework that you can work with and you need to come up with something that fits for you and can work for you.

Just to follow up to that, sir, if you were to give percentages as to why investors make mistakes because of their temperament or emotions or versus actual stock picking, what do you think that percentage would look like?

I'm not saying make more, but do they lose less when they don't care in investing?

I'm sorry, can you repeat that last sentence?

So, so I basically said, do investors lose less when they don't care?

I mean, I, I think that I think with investing, the reason the error rate is high is because of, I would say primarily 2 reasons.

1 is that humans have a tendency to basically project present circumstances to infinity.

So for example, we have a company in the US called Nvidia And Nvidia just hit a trillion dollar market cap.

And it's up almost like 200% this year in the first 5, 6 months.

And a lot of people think that Nvidia will do really well.

I don't have any position in Nvidia, and I'm not suggesting you should go buy the stock, but I'm just using it as an example.

So I would say that there's a lot of euphoria around Nvidia.

And if 1 were to do some type of analysis of a discounted cashflow model, where you look at the earnings of Nvidia today and you do some projections of what you think their earnings are in 3 years or 5 years or 10 years, and then you discount it back, I think it'd be difficult to justify the billion dollar or trillion dollar market cap.

It'd be difficult to come up with a future cash flow stream in the next 10 years or so that would exceed that.

I have no idea what would happen to Nvidia, but I would just say that what I have noticed in, in, in equity markets is that they vacillate a lot between fear and greed.

They, they tend to at times get very overheated and overvalued and they tend to get very depressed at other times.

And because it's auction driven markets where prices are set by the sentiments of investors, there's a lot of positive sentiment about Nvidia.

It's a great business, but similar sentiment existed in early 2000 with Microsoft.

And so I remember that When I started my fund in 99, 1 of the first individuals, probably the first 20, 30 investors I had was a guy who, Indian guy who had risen quite high in Microsoft and had retired early.

And he was 1 of the very early employees of Microsoft.

He knew Bill Gates well, closely with him and so on.

And he had made an investment in Pabrai Funds and he told me, hey listen, if you're ever in Seattle, I can introduce you to a bunch of current and former Microsoft people.

They've got a lot of stock options from a long time ago.

And some of them may be interested in investing in your fund.

And Pabrai Funds was very new, just like, you know, a couple of million dollars, 2, $3 million in assets.

And I said, oh, I'm going to be in Seattle day after tomorrow.

So he walked me around Microsoft, introduced me to different people.

A bunch of them later invested in me, but I told many of those individuals I met that their livelihood was coming from Microsoft.

Most of their net worth was in Microsoft stock or in Microsoft options that had been granted.

And when I looked at the Microsoft market cap at that time in early 2000, it was over 600 billion.

It was in the top 3 most valuable companies in the world at that time.

The top 3 most valuable companies were Cisco, Microsoft, and General Electric.

None of those would have been a great investment if you put a portfolio 1 third each in these 3 investments.

GE has basically, for practical purposes, disappeared.

Microsoft never saw that 600 billion market cap for the next 13 years.

I mean, the 600 billion went down to, I think, less than 100 billion or so, thereabouts.

So it's done really well, but I think from 2000 to 2012 or 2013, it would have been a very, very rough and bumpy ride.

And I don't know anyone who would have held onto their stock through that ride.

And the Nvidia situation today, so the history doesn't repeat itself, but it does rhyme.

And when I look at the Nvidia situation today, to me, it rhymes a lot with the way Microsoft was at that time.

It was just the blue, so the blue chips, great business, recurring revenues, how can you do without Word and Windows and Excel and all of that.

And so it's an important, I mean now the other thing about investing is that there are no called strikes.

You can let a lot of balls go by and there's no penalty.

You only could possibly get a penalty if you try to hit something.

So if I don't make an investment in Nvidia, and Nvidia ends up being a $10 trillion company 10 years from now, I don't really lose anything.

But what matters is what I actually invested in, what happened with those things.

So Nvidia could be 10 trillion a few years from now.

It could be a few hundred billion a few years from now, or even less, we don't know.

And so 1 of the reasons for the error rate is, like I said, people get caught up in the euphoria, flavor of the day, fear of missing out, and all of these things.

Another reason why there's a high error rate in investing is we are trying to predict the future trajectory of a business.

The future trajectory of a business has so many different unknowns and variables.

A great manager leaves or a great manager comes in or government regulations change, or There were duties which prevented competitors from abroad coming in and those duties go away.

So there are myriad of factors internal to the company, external to the company that are with competitors that could affect the future outcomes.

And so when we are trying to look at a business and say, oh, I think 5 or 10 years from now, this will be worth 3 times what it's worth today, that's an exercise that's prone to, by definition, a high error rate.

And I think that in general, having a strong dose of pessimism, investing in the interesting art, you need to be a pessimist and an optimist at the same time.

Kind of keep 2 thoughts in your head at the same time.

And if you can do that, then that can work out quite well.

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Mohnish Pabrai's Q&A with members of the Finance and Investment Cell at SRCC, Delhi on June 14, 2023