Mohnish Pabrai's Interview at the Meb Faber Show on July 28, 2023.
 

 (00:00:00) - Introduction
 
 (00:00:58) - My education at Clemson University
 
 (00:04:51) - My introduction to Warren Buffett and Bridge
 
 (00:12:32) - Compounding must be taught to 9th graders
 
 (00:17:51) - The Dakshana Foundation
 
 (00:29:27) - Holding on to your high conviction bets
 
 (00:31:14) - Shelby Davis
 
 (00:33:18) - Think like an entrepreneur when investing
 
 (00:38:38) - Investing in Turkey
 
 (00:44:42) - Macro Risks
 
 (00:47:40) - Investing in global markets
 
 (00:51:56) - Dinner with Bill Gates
 
 (00:54:41) - IPSCO
 
 (00:57:21) - Funeral businesses
 
  (01:00:17) - John Arrillaga

It's been too many years, so I'm looking forward to it.

Just got back from 2 weeks on the road, so I'm a little out of sorts.

So my family, my mom's side is from North Carolina.

So they do an annual, It's like salmon, an annual trip back to this tiny little beach called Topso Island.

So we went there, saw a bunch of family, Winston-Salem.

Well, I went to Clemson, so I spent a lot of time in the Carolinas.

Well, I always felt when the Clemson Carolina game took place, everything changed.

I mean, it literally like the sky color changed and it is just that the whole atmosphere, there's no other day like that.

I mean, there's no other football game or anything else you could go there that would give you that.

It was just so, the whole place felt completely different.

I remember getting, receiving $2 bills when I was a kid.

Never seen a $2 bill, but it had 2 orange paw prints on them.

So I just like assume that's what came on a $2 bill.

When my brother and I were coming to the US for studying, we had 1 distant relative.

And my parents asked, hey, the boys are coming, what schools?

No, he said, oh, of course they should come to Clemson.

And, you know, that's how I ended up there.

And I actually never realized I got parachuted in to Clemson from Dubai and India.

I actually never realized a couple of things.

1 is how pretty that part of the country was till I left.

Because I just assumed this was the US and all of the US was like this.

In a slightly different, you know, multiverse timeline, you would end up being agriculture guy.

That could have been a different path for you.

I actually didn't even know what to study.

So I studied computer engineering and that was that.

I really didn't have a good idea what I should be doing or what I should be studying.

Yeah, and 1 of the things that happened to me at Clemson is I had a deep interest in economics, accounting, business in general.

My father was an entrepreneur, So I tried to take as many elective courses as I could in the business school.

So I used to just look at whatever I could take in the business school just because I just had an interest.

And I remember I was taking an investing class.

It was actually, I didn't realize at the time, this was 1985 and the markets has just started to turn, right?

The professor got us all a student subscription to the Wall Street Journal.

And then I remember we used to like, he was doing these case studies like Disney, for example, some of the parts, everything was, I mean, I was surprised how cheap things were.

I had 106% average in that class going into the final.

And so the professor called me to his office.

He said, you know, I was really surprised I looked you up that you're not a business major and you're topping my class.

He said, well, so he said, I called you here for 2 reasons.

He says, first, you don't need to show up to the final.

And the second is, he said, I think you're in the wrong major.

He said, I don't know what kind of engineer you're going to be, but I know you'd be great at investing.

My perspective at that time was that these business school students were so stupid.

My perception as a 20 year old was when I used to go and take my engineering classes, I was really challenged.

But the business school, it came so easy to me with a cakewalk.

So I'd say, I can't have a major with these guys.

So I just said, well, thanks for the input, but I'm just gonna stay where it is.

And then, you know, after 9 or 10 years, 9 years after that, 8 years after that, is when I heard about Buffett for the first time.

And then I did a pivot about 13 years after graduating.

So it's funny, I kind of went and caught the year around like this, instead of just going straight and that way, so that was kind of funny.

I mean, that was another serendipitous, right?

You came to Buffett just through grabbing a book, right?

I mean, I feel like I almost remember like you're on like an airplane and just grabbing a book or something.

I mean, I wonder if you end up grabbing some other book, maybe a romantic novel or something.

You'd be a romance novelist at this point.

No, I think it was that I think the data points were already there when I was doing my undergrad that I really liked the stuff.

It's just that I had a mental block and I didn't know what to do with going into investing or whatever.

I knew that I was on a student visa, I need to get a job.

It would be easier than engineer to get a job.

And it's really after a few years when I realized that, no, this, when I especially read the first Buffett biography, I felt like a lot of it was speaking to who I was.

About 8 or 9 years before I heard about Buffett, I had started playing bridge.

And then I find that he's, even now he's playing bridge 3, 4 nights a week.

And bridge really correlates a lot with investing.

I was always drawn to probabilities, math.

I grew up with the entrepreneur father, so I was always around business and all that.

So just a mix of all of that just worked for me.

You know, it's funny about the bridge topic because so I'm 46 and I feel like there's like a line somewhere around here where the generation that's slightly older to me all the way through my parents generate, like my parents met playing bridge, right?

I grew up playing, my grandmother called it 21, but blackjack and spades and poker and on and on and on, love playing games.

And by the way, Monish has a request on Twitter, listeners, for a solid ringer bridge partner.

So actually, I just, I just spent a week in Chicago.

So the ACB, American Contract Bridge League, has 3 national conferences every year in the US, spring, summer, and fall.

It's the first time I went to a bridge tournament in like 20 years.

I mean, I'd been, you know, busy with the family, playing online, et cetera.

I hadn't gone to actually live bridge in a long time.

So I said, you know what, I'm going to take a week off and just go play live bridge.

And I didn't even know whether I would like it because 1 of the problems with playing bridge live is it's a lot slower.

I didn't have a partner, So I had to do a pickup partner at a partnership desk.

I mean, there are many different bridge games, but you can play pairs where you and your partner play a bunch of other people and whatever, or you can play teams.

And it would take some time to describe, but it's a 4 person team.

So I had the partner, this guy was a good guy from New York.

And then every day we were finding 2 others to make up our Swiss team, which is a particular kind of a game, which is difficult to play online.

Basically, you're just the format is really good.

And what I felt like I said, what would really enhance this is if I had a regular partner, because it really takes a long time to build compatibility and understand what your partner means and all of that can take years.

So I said, if I can find a great partner, and then we can have a great team, 4 people who actually play 2, 3 times a year at these national tournaments, it would just be a blast.

So the funny thing is, what really surprised me, I have 188,000 Twitter followers.

I have 50,000 followers on LinkedIn, and I have about 5,000 on Facebook.

I mean, the people who follow me on Twitter are interested in investing.

Even when I go to the bridge tournament, you see a few young Chinese kids.

You see 12-year-old Chinese kids, 15-year-old Chinese kids.

But then the rest of the crowd is an over 70, over 80, oxygen tank, over 90.

Because there's other games that have translated to the younger crowd.

I mean, poker certainly has had its moment.

I mean, a lot of interest in clearly games in general.

It's a game that you can never master in your lifetime.

It's a game that will give you so much joy and pleasure.

I think the thing is, for the younger crowd, there are so many options that weren't there for your parents.

The range of options with video games and everything else that they can do with all the distractions of the phones and all that.

The interest level is not there, which is really sad.

It's a wonderful game and it's a game that will give you a lot of pleasure.

You know, I was really surprised that it happened to me.

I feel like Forrest Gump, that I spent a few years playing bridge with Charlie and his friends.

I have to pinch myself because that was a blast and a half.

And 1 time, quite accidentally, I played bridge with Warren.

The thing with bridge is that when you're playing with someone, you really have to have an understanding, right, the conventions.

And Warren and I start playing together online and there's a chat box.

You can even chat with your partner and others.

So I'm like really quickly trying to message him, trying to get his conventions.

And I'm saying, I'm going to like blow this game so badly that he's never going to have 1 having to do with me.

And we actually, and the funny thing is the other 2 people we're playing with had no idea that it's Warren Buffett playing.

Because his handle is T-Bone and people don't know T-Bone is Buffett, right?

We really, really, amazingly, I didn't screw up.

And then 3 days later, I get a message from Buffett's assistant.

So when you play online, you can go back and review all the hands, you can do everything, there's a record of it, right?

So I get this long email from his assistant, Debbie, saying, hey, Warren really enjoyed the session with you, and he was really impressed with the play and especially, you know, board 6, you know, the way you did the bidding and then the kind of end play with the hands and all that.

And I said, he's got like a zillion other things to do.

Come on, T-Bone was going through those and he was saying, you know, Monish, board 4, I don't know, we may have to evict you as the partner.

I've never played, but I love games in general.

Leading into that, if you were to go back and teach, I mean, I know you do a lot of student Q&As and talks but 1 of the things, we don't really teach money in schools in the US.

It's starting to, I think it's like up to maybe a third of high schools teach some form of personal finance and investing is sort of like a rounding error of that.

But what would your kind of idea or advice as you talk to your kids, your friends' kids, college students today, how do you put them on the right path?

Or if you're an administrator of Clemson, let's say the president of Clemson is like, Manish, we really got to, you know, lay this out the right way.

Correct age to start this is in high school.

I think like ninth or tenth grade is just perfect.

And it's really a big failing of the education system that it's not given because it wouldn't take much time.

It would not be a very long curriculum or course or even a discussion.

But the important thing to really get across is the power of compounding.

And you know what Einstein says, the eighth wonder of the world.

And the thing about compounding is We are all taught compounding in math.

We understand from a mathematical point of view what it is.

From a money point of view and impact on your life point of view, because it's on a log scale and because of how the numbers change over the decades, No 1 ever goes through that.

So just the simple thing about the rule of 72, about telling people, look, if you have a 10% return a year, your money doubles every 7 years.

If you have a 7% return, it doubles every 10 years.

And even if you get a 7% return, the power of starting early, basically it's how many doubles that's, we know that, but the high school kids need to know that.

And what is lost in all of this is that if an 18 year old is fully familiar with this, and he knows he or she knows they have a 60, 70, 80 year runway, you're even doing like 10% a year or something or somewhere around that, you could have close to 10 doubles in a lifetime.

I mean, whatever you save at the age of 18, it's multiplied by 1,000.

If you saved $1,000 when you were 18, that would be a million 70 years from now.

And at 19, you would save some more, at 20, you would save some more.

So the important thing about spending less than you earn, putting it into a compounding engine and not messing with it.

You know, people have 401ks, they leave jobs, they go to Hawaii, they pull all the money out, they pay a penalty and then it's gone.

And then by the time you get to 70 year olds, their 401k is $40,000, you know, or $100,000.

This is such a simple, low-hanging fruit.

But there's this very obvious challenge, which is 18-year-old me wants an iPhone, sick new truck, go out with my friends, I want to go on spring break, new surfboard, whatever it may be.

There's the allure and seduction of the hedonic treadmill.

There's a certain percentage that hear that statement, they hear you talk to their high school class and they're like, damn it, I'm in.

Like the Buffett inoculation, they just heard it once, they're in.

But for the vast majority of everyone else, having some sort of like a Thaler nudge behavioral system in place, because a lot of it right now is opt-in, you know, as far as retirement.

Yeah, so the first thing is it becomes opt-out.

It becomes opt-out, the 401k money gets taken out, you don't get to see it, it goes automatically into an index if you do nothing, and you cannot take a loan against it unless it's really important and there's some real hardship.

I mean, you just put those pieces in place and the employer match goes in and that you cannot even pull out no matter what.

It's too easy to shut off the engine today and or do not even start it.

There seems to be ways that the capitalism free market could solve this, presuming the government doesn't get its act together, but TBD.

But also what doesn't happen today is even when people join 401ks or whatever else, nobody really explains the logarithmic nature of compounding.

They just say, oh, you do this and you get 10% a year or whatever else.

That piece is just left hanging to figure it out on your own.

And even for me, I was always great at math and all that.

It was surprising, you know, when I actually studied it and I looked at it and I looked at Buffett and looked at what he had been doing, it was a revelation for me.

And I mean, I was always good at math and I always was, he always understood all that, but I still never really properly understood it.

I want to hear a little bit about this big school initiative that you've been doing.

I was actually watching 1 of your YouTube videos and it was fun because the comment sections, which some reason on YouTube are actually like very pleasant now.

1 of them was a doctor who said, I had actually been through this program.

Finally, the fruits of doing this for so long.

Tell the listeners what I'm talking about and give us kind of an update and overview of what's been going on there.

Yeah, actually our oldest alums now are 32 years old and they're starting to make their mark, which is really fun to see.

But basically the idea is that we identify very poor kids who are really bright and we identify them between the age of 16 and 18.

And we basically prep them for the engineering and medical entrance exams in India.

And 1 of the things about India is that the engineering and medical schools are really good.

They are run by the government, and they are pretty much almost free to attend.

Basically, very heavy government subsidy.

But getting into those schools is really hard.

So for example, the IITs, you know, Bill Gates says that if he was only allowed to recruit from 1 school, he would only recruit from the IIT.

I've worked with a couple of IIT guys and they are definitely smarter and more capable than I am.

They negotiate every single possible thing in the world, even when you're not even supposed to be negotiating?

Well, there's 1.3 million kids, 18 year olds, who take that entrance exam for 16,000 seats.

And if I look at Princeton, it's a 5% admit rate.

And the thing is that they give priority to legacies and they give priorities to all kinds of donors and whatever else is going on, which Now they're getting clobbered in the head by it.

But the IITs are purely a quantitative measure.

It doesn't matter if you are the prime minister's son or daughter or the richest person in India, whatever, how much you're willing to donate.

It's based on your test score, on that test.

That entrance exam test is the hardest test in the world.

If you score 34% on that test, you have a seat at IIT.

Kind of makes me want to take it right now.

I'm a little curious to see how bad I would.

So the thing is, if you get a wrong answer, they take away a quarter point for a wrong answer.

So like 70% of test takers end up below 0.

They would have been better off just turning in the empty paper.

But anyway, the thing is that we identify these kids.

Most of these kids are illiterate parents, kind of laborers, farmers, and so on.

Parents don't even know what we're doing with the kids.

And we bring them into a boarding school system so we can completely control, because they don't have electricity, they don't have a desk, they don't have a computer, there's nothing, There's no infrastructure where they're at.

And so we bring them to our centers, which are fully equipped.

We've got the best faculty, best everything.

And we are testing is really good that we identify that they have horsepower.

And then we spend 2 years prepping them for the test.

And actually, If I include the next level of schools, the NITs, which are right below the IITs, it's over 90%.

What is the lag time on how long they're in the program?

They are with us for 2 years, And then they go into the IITs for a standard four-year undergraduate degree.

So basically, we usually start with them at 16.

They finish with the IITs at 22, and then they enter the workforce, and then we go from there.

And basically, they have been recruited, our kids have been recruited straight from the IIT campuses, directly by Google and Microsoft and Amazon and all of these companies all over the world.

They end up with Samsung in Korea, different companies in Singapore and all over the place.

These kids are coming from less than $3 a day family income.

So they go from something like $1,000 a year of family income to 150, 200,000 when they start.

See all Chai with Pabrai transcripts on Applepodcasts

Mohnish Pabrai's Interview at the Meb Faber Show on July 28, 2023