Mohnish Pabrai: How cloning proven models beats new ideas

1. 0:00 – 2:14

   Intro

   1. SBSteven Bartlett0:00

      Why do they call you the Dhandho Investor?

   2. MPMohnish Pabrai0:01

      It's a way of doing business and making money without taking risk. Like, for example, Mr. Gates, Mr. Walton, Mr. Branson, all of these people followed these simple mental models. So if they won, they would win big, and if they lost, they'd lose nothing.

   3. SBSteven Bartlett0:17

      So I want to know everything.

   4. MPMohnish Pabrai0:18

      Okay, let's start with this.

   5. SBSteven Bartlett0:20

      Mohnish Pabrai is the self-made millionaire who built one of the most respected investment firms in the world, managing over a billion dollars.

   6. SBSteven Bartlett0:28

      And now he's giving us the simple tools and frameworks to create life-changing wealth.

   7. MPMohnish Pabrai0:33

      If humans understood that if I embark on a business in a format where the risk is close to zero, more people would do it, and that's what these mental models do. For example, cloning. We are taught if you want to start a business, you need to come up with something new. But actually, if you are a great cloner, you will be ninety percent ahead of the rest of humanity. And in fact, everything that Microsoft has done well at has come from copying someone on the outside. And then there's time. When you're starting a business, don't quit the day job because some other yo-yo is paying your rent. But it does mean that you need to find time to work on your business. But I will show you the perfect way to allocate your time, and that's not all. There's models like low-hanging fruit, skin in the game, givers versus takers, and the circle of competence, and I'll, I'll explain all of them.

   8. SBSteven Bartlett1:23

      What about investing? Because you're very well known for being an excellent investor.

   9. MPMohnish Pabrai1:27

      There are three things that matter with investing, and there's also something known as the rule of seventy-two, but I wish they would teach it more in high school, and it tells us how long it takes money to double. Now, this is exciting.

   10. SBSteven Bartlett1:43

       I see messages all the time in the comment section that some of you didn't realize you didn't subscribe. So if you could do me a favor and double-check if you're a subscriber to this channel, that would be tremendously appreciated. It's the simple, it's the free thing that anybody that watches this show frequently can do to help us here, to keep everything going in this show, in the trajectory it's on. So please do double-check if you've subscribed, and, uh, thank you so much, because in a strange way, you are- you're part of our history, and you're on this journey with us, and I appreciate you for that. So yeah, thank you. [upbeat music]

2. 2:14 – 13:55

   Mental Models for Business and Investing

   1. SBSteven Bartlett2:14

      Mohnish Pabrai, with the work that you do and the sort of public educating that you've done more recently in your career, what is the message you're trying to convey, if you had to summarize that message, and exactly who are you trying to convey it to?

   2. MPMohnish Pabrai2:30

      It really depends on, uh, what message. There are, uh, a few different mental models that I've figured out over the last few decades. When you have, uh, kind of clarity on these mental models, and especially when you can start overlaying them, that's when you get one plus one becomes eleven. And, uh, so these mental models are not all in the same direction or in the same genre.

   3. SBSteven Bartlett3:02

      So just to pause there for a second.

   4. MPMohnish Pabrai3:03

      Yeah.

   5. SBSteven Bartlett3:03

      So the, the word mental models-

   6. MPMohnish Pabrai3:05

      Yeah

   7. SBSteven Bartlett3:06

      ... means it's basically a framework for thinking.

   8. MPMohnish Pabrai3:09

      Yes.

   9. SBSteven Bartlett3:09

      So one framework for thinking is this idea of cloning-

   10. MPMohnish Pabrai3:12

       Yes

   11. SBSteven Bartlett3:12

       -um, as one such example.

   12. MPMohnish Pabrai3:14

       Yes. Let's take the mental model of cloning.

   13. SBSteven Bartlett3:18

       Cloning?

   14. MPMohnish Pabrai3:18

       Cloning, right. So, um, wh- what we are taught is that if you want to start a business, you need to come up with something new, something that hasn't been done before. But the reality is that the world will very easily accept three of the same thing or five of the same thing. And usually, it is an advantage to look at something that already exists and say, "Can another one of those exist," for example, "or can I take what's there and tweak it a little bit?" So there's something peculiar in the human psyche, maybe going back into our history and our ancestral evolution, where humans look down upon cloning. But if you look at it... So, for example, two of the greatest cloners, I think, in human history, were Bill Gates and Sam Walton. Now, we think of Bill Gates as an innovator, and we think Sam Walton created Walmart, which was also new, but actually, they're both me-too models, and Microsoft would not have existed without being a great cloner. So when we look at, um, Microsoft Word, it came from WordPerfect.

   15. SBSteven Bartlett4:41

       Which was a com- company before.

   16. MPMohnish Pabrai4:42

       Which a competitor that he took out. Uh, we look at Excel, it came from Lotus. Uh, we look at Bing, came from Google, and you know what Bing is, but it's not Google. Everything that Microsoft has done well at has come from copying someone on the outside. And when we look at Sam Walton, who was... You know, the Walton family, if you pull them all together, it's the richest family in the world. It's richer than, uh, Elon and everyone. And Sam Walton, by his own admission, would tell you that he has no original ideas. So originally, Walmart cloned Sears and Kmart.

   17. SBSteven Bartlett5:25

       For my international listeners, these are two big supermarket chains.

   18. MPMohnish Pabrai5:28

       Yeah, and they're both gone. They've, they've-- And in fact, Walmart buried them. And, um, and Sam Walton was one of the most intense cloners ever. So if he was driving on vacation with his family and he's passing some retail store, he would tell his family to stay in the car, and he would go in the store just to check it out. And he said that there is, there is no human who has lived in history or will live in the future who has visited more retail stores than he has.... One time there was a manager of his, and he would go in with his managers to these stores. Retail is one of the most transparent businesses. You can go into your competitor's store, and you'll figure out the entire business model in ten minutes. You don't need to talk to them, okay? It's beautiful. So he went into this retail store, and the manager says to him, "Oh, what a terrible operation!" The whole store was topsy-turvy. It was really bad. And Sam says to him, "Yeah, but did you see the candle display? The candle display was fantastic." So Sam felt that he could learn from anyone. It didn't matter if you were a useless operator or a great operator or whatever, anyone in the middle. Walmart is just an amalgamation of ideas from other places. If we look at-- if you look at a company like Starbucks, we think of Starbucks as innovative, but actually, what Howard Schultz did is he saw a concept in Italy, and his idea was that, "I think this would work in the US," right? And so he cloned, he cloned that idea from Italy and brought that coffee shop experience to the US. If you are a great cloner, you will be ninety percent ahead or ninety-five percent of the rest of humanity. Now, another mental model. Humans have this perspective that starting a business is risky. In reality, entrepreneurs do not take risk. They do everything in their power to minimize risk, and in many cases, when they embark on a business, the risk approach is zero. What is extremely risky is a nine-to-five job, because we have one life, right? And it goes away, and you may not get to do what's in your heart. You may not get your music out, right? And so getting our music out is really important. So, so this notion, which is drilled into us, that if you're an entrepreneur, you're taking risk, really kind of does a big disservice to most humans. And if, if humans understood that if I embark on a business, I can do it in a format where the risk is zero or close to zero, and I can clone an existing business, right? Now, you've combined two mental models, and we can start adding more to them, but two has become eleven. One plus one has already become eleven. It's nonlinear. And why is it that... Why is, why am I saying that entrepreneurs do not take risk? So if I take my own case as an example, and I can give you a hundred cases like that, but if I take my own case as an example, I was working nine to five at a company, and I had a business idea. My employer expected me to work forty hours a week, right? There's a hundred and sixty-eight hours in the week. So I felt like there must be at least another thirty, forty hours that I could work on my startup.

   19. SBSteven Bartlett9:34

       Could you show me this in context, please?

   20. MPMohnish Pabrai9:35

       Right. So if we look at our whole week, for example, these beautifully arranged Legos. If I take one of these blocks of Legos, so each one of those blocks in there is two hours, so eight hours a day. We are sleeping eight hours a day, right?

   21. SBSteven Bartlett9:51

       Mm-hmm.

   22. MPMohnish Pabrai9:52

       And, uh, and we're doing that seven days a week, right? So basically, we've got seven days a week, eight hours a day, we are sleeping. The blue Legos are showing our forty hours a week, uh, eight hours a day, five days a week, we're working, right? Then we get to other, you know, uh, preparing dinner and showering, shaving, getting ready, whatever else. So that's about four hours a day on the weekdays, which is, uh, including commute time, and about eight hours a day on the weekend. Then we get to free time, you know, social media and watching Netflix and hanging out with friends, going for dinner. And we've got quite a bit. We've got about four hours a day of doing that and about eight hours a day on the weekend. So this is kinda typical, what a typical week for most people would look like, right?

   23. SBSteven Bartlett10:47

       Mm-hmm.

   24. MPMohnish Pabrai10:48

       Now, when you're starting a business, the important thing is don't shut off the cash flow. Some other yo-yo is paying your rent, and some other yo-yo is paying your grocery, so we don't want to rock the boat. But we're going to make one change to blue.

   25. SBSteven Bartlett11:06

       Which is the amount of hours I'm working for my nine to five.

   26. MPMohnish Pabrai11:08

       Yeah. Now, before I started my startup, um, I used to get top reviews as an employee. Uh, you know, I was very focused on doing a great job for my employer, all in, right? The day I decided I'm going to run, do my startup, I decided I need to be just above firing level. My performance needs to be just good enough so they don't can me, but nothing beyond that, because I need all my energy to go into my startup. So that's the only tweak I'm making, is the blue stays, but we're not doing extra blues like we were doing before, right? Now-

   27. SBSteven Bartlett11:48

       And blue, for anybody that doesn't-- can't see, 'cause you're listening on audio, is work.

   28. MPMohnish Pabrai11:52

       Exactly. Yeah. Blue is work, exactly. Now, when we embark on a startup, we should never do a startup to make money. It's the worst reason.... to start a company. The purpose of business is not to make money. The purpose of business is to deliver an incredible product or service to humanity. If you do that, the money is a side effect. It'll happen. We don't need to focus on it. So what we are looking for is, do we have a product or a service that we are thinking about that we could bring into this world that is going to improve the world in some way?

   29. SBSteven Bartlett12:40

       How do I know if it's a good idea?

   30. MPMohnish Pabrai12:43

       Whatever idea you have come up with is not going to work.
3. 13:55 – 16:13

   Never Start a Company for This Reason—It'll Fail

   1. MPMohnish Pabrai13:55

      came to the tenth slide, said my spiel, went to slide eleven. So the boss who was sitting in the meeting said, "Go back to slide ten." So I went back to slide ten, again, gave my speech that I had for slide ten and took it to eleven. He said, "Go back to slide ten and do not change the slide. I don't have an interest in any other slide." Okay? So I took it back to slide ten, and all he wanted to talk about was what was on slide ten. My deck was talking about seven things we could do. Slide ten was one of those seven. It was an extreme pain point for him. He needed help on that one thing. He didn't need help on all the other riffraff stuff I was talking about. So when you're doing a startup, you have to be listening very carefully. Your c-customers or potential customers will tell you exactly what you need to do. Whatever you came up with, maybe eighty percent right or seventy percent right or forty percent right, but your customer will tell you what is a hundred percent right.

   2. SBSteven Bartlett15:19

      Mm-hmm.

   3. MPMohnish Pabrai15:19

      Okay, because that's a real pain point. So I went back and thought about it, and I realized that his pain point, and I could see it was a severe pain point because he gave me a purchase order at the end of that meeting, um, was going to be a pain point for a lot of people. So I went back, I took slide ten, blew it up into twenty slides, and that became the deck.

   4. SBSteven Bartlett15:45

      [chuckles]

   5. MPMohnish Pabrai15:46

      Okay? Everything else got thrown out. Right now, I couldn't have done that without him. My brain is too small to have figured that out. So anytime you're doing a startup of any kind, and you have a prototype or an early product or something going on, your users are going to tell you exactly what tweak they want.

4. 16:13 – 20:41

   How to Focus Your Sales and Pitches

   1. SBSteven Bartlett16:13

      You've just reminded me of a conversation I had this morning-

   2. MPMohnish Pabrai16:16

      Okay.

   3. SBSteven Bartlett16:16

      -where I interviewed someone, because much of what you're saying is orientated towards startups-

   4. MPMohnish Pabrai16:20

      Mm.

   5. SBSteven Bartlett16:20

      -but it's actually every single day of everyone's life. Because I interviewed someone this morning for a really critical role in the company, and this person has spent twenty years at one of the biggest companies in the world. And when I was doing the interview, she was telling me about lots of things she's done in those twenty years, and I was just trying to get to this one thing: Can you put on events? And she was telling me about this and that and the other thing, and this and this and the other thing, and I was just act-- I'd only come to this interview to figure out if she could do... put on big-scale events.

   6. MPMohnish Pabrai16:46

      [chuckles]

   7. SBSteven Bartlett16:46

      So we spent f-- of an hour conversation, we spent fifty-five minutes talking about a bunch of things I wasn't interested in, and actually, as you were speaking, I was going, "Do you know what she could have done at the start of that conversation? She could have gone, 'Steven, can I ask you one question? What is the m-- What are you looking for from-

   8. MPMohnish Pabrai17:00

      Right

   9. SBSteven Bartlett17:01

      ... from this person?'" And if-- And then I would have gone, "I just want someone that can put on events." And then the next fifty-five minutes could have been persuading me-

   10. MPMohnish Pabrai17:07

       Sure

   11. SBSteven Bartlett17:07

       ... that she can do that. [chuckles]

   12. MPMohnish Pabrai17:08

       Sure.

   13. SBSteven Bartlett17:09

       And it just applies to what you just said there. How could you, of this, as the salesperson that day in that meeting, with what you know now, how could you have done a better job without going through all of those slides?

   14. MPMohnish Pabrai17:21

       Well, I think what, what I would do now if I were doing something like that is that my, my radar on listening would be ten X. You know, we don't learn when we speak.

   15. SBSteven Bartlett17:36

       Mm.

   16. MPMohnish Pabrai17:37

       We learn when we listen. [chuckles]

   17. SBSteven Bartlett17:39

       Mm.

   18. MPMohnish Pabrai17:39

       So I would really be trying to talk less and extract more.

   19. SBSteven Bartlett17:45

       Mm-hmm.

   20. MPMohnish Pabrai17:46

       And, um, I wouldn't even rely so much on slides. I'd like to really try to bring them in into, into what they are trying to say. And, uh, and, and so basically, in, uh, if, if you study, if you study businesses, you know, venture-backed, non-venture backed, whatever, this is a very common thing. There are almost no businesses-... who end up with the business model that was originally conceived. I mean, that just is, would be such an anomaly. It's really the interplay between the founding team and the early customers, which really leads to taking this wet clay and making it into something that people want.

   21. SBSteven Bartlett18:30

       Mm.

   22. MPMohnish Pabrai18:31

       You know, and so, you know, if you think of something like, uh, Google Glass, you know, when they came up with those glasses that they thought the whole world was gonna wear.

   23. SBSteven Bartlett18:40

       Yeah.

   24. MPMohnish Pabrai18:41

       So it didn't work. Well, why didn't it work? Well, the reason it didn't work is you're talking about something extremely personal, okay? Like, for example, Wrigley's chewing gum, okay? My mouth is a very personal space. I'm not gonna put Glot's chewing gum in there.

   25. SBSteven Bartlett19:01

       What's Glot's chewing gum?

   26. MPMohnish Pabrai19:03

       Exactly.

   27. SBSteven Bartlett19:04

       Okay. [chuckles]

   28. MPMohnish Pabrai19:04

       Okay. [chuckles]

   29. SBSteven Bartlett19:05

       Yeah.

   30. MPMohnish Pabrai19:05

       You're not gonna put some brand that's half the price of Wrigley's-
5. 20:41 – 26:27

   The Importance of Attention to Detail

   1. SBSteven Bartlett20:41

      The other thing that's kind of a model maybe woven into there was this idea of just, like, attention to detail. I'm not even sure if that's a model, but when you told me about the Walmart founders laying between the aisles to measure the exact centimeter of length-

   2. MPMohnish Pabrai20:54

      Yeah

   3. SBSteven Bartlett20:54

      ... the model there for me was just, like, precision and detail.

   4. MPMohnish Pabrai20:58

      It's a game of inches. I mean, what I'm saying is that, uh, s- when, when Sam Walton was trying to figure out the name of the company, one of the reasons he went with Walmart was it was seven letters, and he was looking at the cost of putting up signage, [chuckles] in his stores, and he was trying to come up with a name with the fewest letters because it'd cost less.

   5. SBSteven Bartlett21:26

      Mm-hmm.

   6. MPMohnish Pabrai21:27

      Okay? And so, I mean, uh, cost, cost sensitivity is all over the place in Walmart, right? I mean, that's just front and center with what they do, right? They just really squeeze blood out of a rock, you know. So basically, I mean, I think that was... And that's the reason why they became so successful. One of the things you can always control in business is your costs. You, you may not be able to control your margins and selling prices and a lot of other things, but you can always control costs. So that's another model where you have to have discipline.

   7. SBSteven Bartlett22:02

      Mm-hmm.

   8. MPMohnish Pabrai22:02

      You have to have very strong discipline on the cost side. If you look at something like LVMH, you know, uh, the guy who runs it, I mean, he's in luxury goods, he's in high-end, but-

   9. SBSteven Bartlett22:15

      LVMH make Louis Vuitton and-

   10. MPMohnish Pabrai22:16

       Yeah, yeah, yeah. I mean, everything, you know. Uh, you know, they've taken over Tiffany's, everyone. Um, but when you look at how the company is run, it's very tight. He spends money on the best real estate, because that's important, but the deals he negotiates on those real estate is mind-blowing, you know? So it's, it's a very tightly run operation on a product category that doesn't necessarily need it.

   11. SBSteven Bartlett22:47

       Mm.

   12. MPMohnish Pabrai22:48

       But that's why they- that's why he's become the wealthiest guy in Europe.

   13. SBSteven Bartlett22:51

       Because that mentality will then apply to every decision.

   14. MPMohnish Pabrai22:54

       Absolutely.

   15. SBSteven Bartlett22:55

       And if you apply it to a hundred things, it does matter.

   16. MPMohnish Pabrai22:57

       Oh, it does matter, big time. Yes.

   17. SBSteven Bartlett22:59

       So I have these yellow blocks here-

   18. MPMohnish Pabrai23:01

       Yes

   19. SBSteven Bartlett23:01

       ... which represent working, hours working on your own business.

   20. MPMohnish Pabrai23:05

       Yes.

   21. SBSteven Bartlett23:05

       So show me how you would take some of these blocks away-

   22. MPMohnish Pabrai23:08

       Yes

   23. SBSteven Bartlett23:08

       ... and introduce hours working on your own business.

   24. MPMohnish Pabrai23:11

       Yeah, so basically, it's, it's really quite simple. We're not, really not gonna mess with our sleep cycles. We're gonna leave that alone.

   25. SBSteven Bartlett23:19

       Sleep's staying the same.

   26. MPMohnish Pabrai23:19

       And, uh, we, we need our blue, which is our work- workspace, uh, forty hours, we need that to continue. One of the changes we're gonna make is we're gonna live close to work. So we're gonna cut down commute time as much as we can.

   27. SBSteven Bartlett23:33

       Okay.

   28. MPMohnish Pabrai23:34

       Because every hour matters. Okay, so the area that we're gonna focus on is the free time.

   29. SBSteven Bartlett23:41

       Okay.

   30. MPMohnish Pabrai23:41

       And the reason why taking out the free time is not a problem is because what we are embarking on, like we just discussed, is not about making money, it's getting our music out.
6. 26:27 – 34:31

   Why the Low Engagement in 9–5 Jobs

   1. SBSteven Bartlett26:27

      So to put some numbers to this, twelve percent of people, according to the stats, that are listening right now, are explicitly unsatisfied with their job, which means they hate it. Eighty-five percent of workers globally are disengaged, meaning they're not fully invested or happy at work. So it's a huge number of people. More than half of the US workers are at least somewhat satisfied, but engagement r- remains worryingly low. So if we look at that eighty-five percent number, eighty-five percent of workers globally are disengaged, meaning not fully invested or happy at work. So it's really those-

   2. MPMohnish Pabrai26:58

      Sure

   3. SBSteven Bartlett26:59

      ... people.

   4. MPMohnish Pabrai27:00

      And, and the thing is, it's not, it's not just enough to be unhappy at work. That's one piece of it. Uh, uh, the, the unhappiness can be a symptom, and, uh, one of the, one of the causes can be that you have a different calling in life, and you are not following, following your calling. Now, sometimes, for someone like Bill Gates, for example, and Paul Allen, they figured out their calling, and they just went, right? For many of us, it may not be that easy. So what we have to do is we have to, um, try a few things. You know, you try on different shoes to see what fits. And so, you know, have some thought experiments, talk to your friends, you know, say: "Okay, you know, I'm a UPS driver. This is what I do, and I really like playing the guitar, or I like to make these art figurines or something at home," whatever else, right? So you have to figure out what your calling is, and I'm probably not the best person to tell you how to figure out what the calling is. Maybe another guest of yours can- [laughing] ... can, uh, can help them with that.

   5. SBSteven Bartlett28:20

      Do you think everyone has a calling?

   6. MPMohnish Pabrai28:23

      Yeah, I mean, I think, I think we are all unique children of God, and I think we, uh, we all have some music we wanna get out. And, uh, k- knowing what that is and getting it out may not be the easiest thing, but it's a worthwhile journey to try to get there, right? So we can't do this just because we're dissatisfied, and we can't do this just because we wanna make money and get rich. We've got to have something that we think the world would be interested in. And, uh, you know, in my case, I'd, I'd gone through this, uh, session with a couple of industrial psychologists, and they told me, "Mohnish, you like to play games. You're a game player." And actually, they couldn't be more accurate. So when I was doing my startup, um... I'm, I'm a numbers guy and a math guy, so I actually like that. So what I used to do is, because I had no money, I used to send two hundred letters a week to the senior IT people at two hundred different companies. But what I did is, so all these people I was sending this letter to, they had a gatekeeper, some secretary, et cetera, whose job was to not let anything through. And my whole purpose was, I need this letter to get through. It needs to get through the gatekeeper. So I was using mail merge, which was mass producing these letters, but there was a customization in the mail word, wh- where if pers-- if some person's name was David Smith, it said, "Dear Dave." Okay? And then throughout the letter, it talked Dave. Dave's name came up, like, three, four times. When the assistant got the letter, she couldn't tell whether I know Dave or not.

   7. SBSteven Bartlett30:19

      ... because you used his shortened name?

   8. MPMohnish Pabrai30:20

      His shortened name, and she doesn't want to throw a letter that is somebody that he knows. So the letter would go through-

   9. SBSteven Bartlett30:28

      Mm.

   10. MPMohnish Pabrai30:29

       -enough times, right? Now, what I also did is, one week after those letters were delivered, I called... I made two hundred calls. I called all two hundred people. And basically, if I got voicemail, left a message, whatever else, right? Now, they have entered the sales funnel. Okay, so Dave Smith is in the sales funnel. If I get no response from Dave Smith, after one week, there's one more call. Then the calls start getting spaced out double time, two weeks out, then four weeks out, then eight weeks out, then sixteen weeks out. But Dave never leaves that funnel, okay? Until he tells me: "Do not bother me anymore, and I have no interest," they're going to stay in that funnel.

   11. SBSteven Bartlett31:21

       Yeah.

   12. MPMohnish Pabrai31:21

       So the second week, I send out another two hundred letters, make another two hundred calls, right? And now I've got the first week, second week. So you can see as time goes on, I'm calling nonstop.

   13. SBSteven Bartlett31:36

       Mm-hmm.

   14. MPMohnish Pabrai31:36

       Right? Because this thing is... But what I was tracking, because I'm a math guy, what I was tracking is, okay, these two hundred letters went out, how many people did I get any kind of positive response from, right? Because not everyone's telling me to get lost, okay? And how many meetings am I having? And what is the ratio of calls to meetings, meetings to close, et cetera. And my ticket size of the item I was selling was very large, hundreds of thousands of dollars, right? Nine months after doing this, where... Now let's go back here. So we're going to take our free time. So what I've tried to describe is that what I'm doing is actually more exciting than the orange. The yellow is more exciting than the orange. So basically, we are-

   15. SBSteven Bartlett32:29

       What is the yellow?

   16. MPMohnish Pabrai32:30

       The yellow is our startup.

   17. SBSteven Bartlett32:33

       So that's working on your startup?

   18. MPMohnish Pabrai32:34

       So on, on the weekends, I'm going to do ten hours a day because I'm not working, right? And on the weekdays, I'm going to do four hours a day because I've got other things to do, because I have a job and whatever else is going on. So there's my weekdays, five days there, where I'm putting in four hours a day, and then I'm putting in ten hours on the weekend. And the free time, this is not as exciting as pounding Dave. Pounding Dave continuously till he says either, "Get off my back," or, "Here's your purchase order," is very exciting. It's way more exciting than playing some social media or watching Netflix or whatever else.

   19. SBSteven Bartlett33:21

       Which is what people currently do with their free time.

   20. MPMohnish Pabrai33:23

       Right. So one of your-- one of the litmus tests of whether you need to-- you should be doing a startup or not is yellow needs to be more exciting than orange.

   21. SBSteven Bartlett33:37

       Your startup needs to be more exciting than your free time.

   22. MPMohnish Pabrai33:40

       Like Netflix should be so painfully boring for you, and going on Facebook or Instagram, whatever, should be very boring for you.

   23. SBSteven Bartlett33:49

       Compared to...

   24. MPMohnish Pabrai33:51

       This is exciting.

   25. SBSteven Bartlett33:52

       Compared to building your company?

   26. MPMohnish Pabrai33:53

       Yes. So you know, um, the Pink Floyd's song: We Don't Need No Education?

   27. SBSteven Bartlett34:03

       Yeah.

   28. MPMohnish Pabrai34:03

       We don't need no thought control.

   29. SBSteven Bartlett34:04

       Yeah.

   30. MPMohnish Pabrai34:05

       We don't need none of this. [objects clattering] This is so useless. You understand how useless this is? Yellow is where it's at. It's not, [objects clattering] it's not in the orange stuff. We don't need this. Thank you, Steven.
7. 34:31 – 42:57

   How to Reach Financial Freedom

   1. SBSteven Bartlett34:31

      Uh, uh, much of what I do here when I'm ha- having these conversations, is I'm trying to put myself in the shoes of the person who is currently sat in a, in a nine-to-five job, and they've, they've got an idea, and their idea is, isn't really-- hasn't really gone anywhere yet necessarily. And the, the pressure they're feeling in their lives is, is probably now a financial one. Like, they want financial freedom. They want more optionality in their lives to be able to go on holiday, make more choices, and have more freedom. If you're that person, um, what are the mental models that we haven't discussed yet that you need to be thinking about-

   2. MPMohnish Pabrai35:01

      Yeah

   3. SBSteven Bartlett35:01

      ... to get from zero to one?

   4. MPMohnish Pabrai35:02

      So one of the things to keep in mind is that we live in a world now where most things that you would want to do in terms of starting a business are not capital intensive.

   5. SBSteven Bartlett35:14

      What does that mean?

   6. MPMohnish Pabrai35:16

      Doesn't take much money. In fact, what's been happening over time is startups need less and less and less money because they need more and more and more brainpower, right? So the good news is that a gating factor is not that you need money. When, when I started my business, I took on... I signed up for every credit card that would come to me. So I had seventy thousand in unused credit lines and, uh, probably a dozen Visa and MasterCards, right? I had about thirty thousand dollars in my retirement account, my 401 (k) , which I also took out. I said, "At twenty-five, I can make that up later," right? So basically, I had a hundred thousand dollars of capital. And, uh, that hundred thousand got used because once I got going, I needed working capital and so on. And but then the business was, the business was actually cash flow positive. Nine months after I was doing this, I was able to get rid of this.... So after nine months, my business was producing enough cash flow that I went and resigned, okay? And, uh, yeah, we can, we can put that in here as well. So what happened is that I went to my boss and his boss and basically told them that I'm- started a business, it's not competitive with the company, and I'm gonna be leaving in two weeks, and this is my two weeks' notice. And basically, that was that, right? And, you know, they, they sat me down and said: "You know, Mohnish, we were so confused for the last nine months, because we met several times, because we saw a big drop-off in your performance, but it was never so low that we wanted to fire you." I said, "Exactly. That was exactly what I was trying to do. I was trying to stay just above firing level." He said, "Well, you mastered it, because [chuckles] we, we met several times, but we couldn't get rid of you." So they-- What they told me is... They said, "Look, when your business fails, not if your business fails, when your business fails, please come back. We'll give you more money. You're going to get a promotion, and we'd love to have you back."

   7. SBSteven Bartlett37:40

      You could come back.

   8. MPMohnish Pabrai37:40

      I could immediately come back. So I said, "I got one free shot-

   9. SBSteven Bartlett37:43

      Yeah.

   10. MPMohnish Pabrai37:44

       -where I leave my job, I go, I do this thing, and if it doesn't work, I'm back to almost exactly where I was."

   11. SBSteven Bartlett37:52

       Mm.

   12. MPMohnish Pabrai37:53

       Almost no change, right?

   13. SBSteven Bartlett37:54

       So Amazon's type one, type two decision-making.

   14. MPMohnish Pabrai37:56

       Yeah.

   15. SBSteven Bartlett37:57

       Yeah.

   16. MPMohnish Pabrai37:57

       And so... And this is not just me. What risk does Bill Gates take? Okay, Bill Gates, what is his value as a Harvard freshman in the job market? Zero. Okay. He-- Nobody would pay him anything, and he could come back anytime and finish that degree. So let's say he went to New Mexico, things didn't work out. He's got wealthy parents in Seattle, okay? He just comes back, graduates a year later, and he goes on. So what was the risk? There was no risk. And if you study entrepreneur after entrepreneur after entrepreneur, what you're gonna find... So if we look at Sir Richard Branson, he wants to start an airline. Okay? Now, to start the airline, you need a jumbo seven four seven. That costs, like, a hundred and fifty million.

   17. SBSteven Bartlett38:51

       The plane?

   18. MPMohnish Pabrai38:52

       The plane, right. That's some serious money. Richard Branson got Virgin Atlantic off the ground with zero, and with zero risk. So here's what he did. You replace capital with creative thinking. So he calls two oh six five five five one two one two, which is directory assistance in Seattle, Washington, and he asks for the phone number for Boeing. Okay, so he calls the main Boeing switchboard.

   19. SBSteven Bartlett39:23

       Boeing sell the planes, right?

   20. MPMohnish Pabrai39:24

       Yeah, Boeing makes the seven four seven. So he calls the main switchboard of Boeing, giant, huge company, and says, "Uh, I'd like to lease a jumbo." And they hang up on him, okay? He calls about thirty times, and they keep hanging up, and finally, they get tired of his calls, and the lady says: "Let me put you in touch with somebody who's in charge of leasing, and they can tell you to get lost." Okay, so she transfers him to a person who's actually leasing jumbos. This person tells Richard, says: "Look, Mr. Branson, in every country, we have one customer, and in the UK, that is the British-- that is British Airways, so we have nothing to talk about." So he says: "Well, just humor me for a second." He said: "If British Airways called you and said that they wanted to lease a old used jumbo, do you have one lying around?" So the guy said: "As a matter of fact, we do, but that's academic." He said, "Well, what would you lease it to British Airways for, just since we're having a conversation?" What ended up happening is Boeing leased him that jumbo, and the reason they leased him the jumbo is they had one just sitting around. So they didn't really have any risk because they said, "The moment the guy doesn't make any payments, we're gonna pull the plane."

   21. SBSteven Bartlett40:46

       Mm-hmm.

   22. MPMohnish Pabrai40:46

       Right? So now, when you have an airline, you sell all the seats four months in advance. The cash has already come in. You pay for the fuel thirty days after the plane lands, and you pay for the lease after the plane lands. You don't need any capital. Virgin Atlantic got off the ground with zero capital, okay? Now, if you can start an airline which needs a jumbo with zero capital, you can start any business with zero capital. [chuckles] Okay? So, so basically, when you look at business after business after business, all of them, what they do is they start small, they're embryonic, they minimize risk, they get a few customers, and then after that, they just roll with the customers, right? And then that's how they get going. So, so the important thing is that when we take the blue out, when blue is no longer here-

   23. SBSteven Bartlett41:44

       Which is work.

   24. MPMohnish Pabrai41:44

       Which work is gone, yellow is gonna almost double or triple, because this is where all the orgasmic activity is.

   25. SBSteven Bartlett41:52

       So we move the work. We quit the nine-to-five job, and we move that time over to working on our startup.

   26. MPMohnish Pabrai41:55

       I was, I, I was working on my startup, like, from seven to nine in the morning, and then I would come back six pm and work till ten or twelve in the evening.

   27. SBSteven Bartlett42:05

       When you had a job?

   28. MPMohnish Pabrai42:06

       When I had my job, and then I'd work on the weekends. And I was so desperate to just go full-time into it, because I just said: "If you just let me go full time, I can tear it up." And that's exactly what happened. I mean, we... In about five-- First year, we did four hundred thousand revenue, second year, one point four million, third year, three million, and by the sixth or seventh year, we were at about-...15, 17 million. It just grew because basically, then I had no shackles on me. You know-

   29. SBSteven Bartlett42:36

       Mm-hmm.

   30. MPMohnish Pabrai42:36

       -I could just go full out, right? And the engine, I knew all the statistics of these letters, so many calls, so many this, so much this, means this, and all of that.
8. 42:57 – 45:15

   You Have to Reach Out to Thousands of Places

   1. SBSteven Bartlett42:57

      I think that's a really unappreciated framework, as you call it, or mental model, which is... Because you said you sent two hundred letters. I-- So many times kids come up to me in the street, and they say: "Look, I've been looking for a job. I've sent six emails."

   2. MPMohnish Pabrai43:10

      Yeah.

   3. SBSteven Bartlett43:11

      And they go: "No one's got back to me."

   4. MPMohnish Pabrai43:12

      Yeah.

   5. SBSteven Bartlett43:13

      And you can see that it's hi- hit their confidence, and now they've actually arrived at the conclusion that getting a job is, like, hard or impossible because they sent six.

   6. MPMohnish Pabrai43:21

      Yeah.

   7. SBSteven Bartlett43:21

      Now, when I interview people like you, they all give me much bigger numbers. They say two hundred, three hundred, five, you know, and there's something in this sort of law of averages, which is just like, just take more swings. You know, you see it in, like, cricket.

   8. MPMohnish Pabrai43:32

      My, my daughter, when she was, uh, graduating from Berkeley, came to me, and I was really surprised. She said: "I want to work at a hedge fund." And so I s- I said, "Okay." And her degree was not in business, so she was not a natural candidate to be even considered. I said, Uh, "Can you make a list of every hedge fund in New York and LA and put it in Excel, managing partner's name, address?" Now, we don't know people's email addresses, but we know everyone's mailing address. Okay? The mailing address is a public piece of data.

   9. SBSteven Bartlett44:10

      The address.

   10. MPMohnish Pabrai44:11

       The address is easy.

   11. SBSteven Bartlett44:12

       Yeah.

   12. MPMohnish Pabrai44:12

       Right? And I, I said that, uh... So she, she got a list of about twelve hundred funds in LA and New York, and I said: "What you're going to do is, uh, you're going to ask for the job, but you're going to have two pages behind that, giving them a stock tip. You're going to give them a pitch that you have written up of a company that if they invest in, they're likely to make money." We sent the twelve hundred letters, physical letters. Okay? All physical letters. No email, right? And, um, there's a eighty-five-year-old guy in New York who gets the letter. He's retired. The fund doesn't exist. It shouldn't have been on the list, whatever. But he has a friend in LA. He says, "Hey, Jamie, weren't, aren't you looking for an analyst? And this girl, she seems to have the perfect kind of background." And she ends up with a higher salary than anyone who went to Berkeley Business School with a much higher GPA than hers.

9. 45:15 – 47:35

   Signal vs. Noise Ratio

   1. SBSteven Bartlett45:15

      I was thinking about s- what you're saying, um, and I made a video the other day, which I think is somewhat relevant, where I was trying to describe to people how to send a message to someone in a way that creates impact. And the framework that I came up with, which I'll, I'll we'll animate on the screen, but is basically, so this axis here is the signal versus noise of the channel you're using.

   2. MPMohnish Pabrai45:41

      Mm-hmm.

   3. SBSteven Bartlett45:42

      So a high signal channel is one where it gets past the PA.

   4. MPMohnish Pabrai45:46

      Mm-hmm.

   5. SBSteven Bartlett45:47

      It's less saturated, less busy. A high noise channel, which is the opposite, would be sending a, an email-

   6. MPMohnish Pabrai45:53

      Yeah

   7. SBSteven Bartlett45:53

      -to the, like, press@yourcompany.com email.

   8. MPMohnish Pabrai45:56

      Sure.

   9. SBSteven Bartlett45:57

      So, like, everyone goes through that path and doesn't get, doesn't get to the person. And then the other axis is basically the emotional impact of the message.

   10. MPMohnish Pabrai46:03

       Yeah.

   11. SBSteven Bartlett46:04

       So high emotional impact is doing what you said, put a stock tip in there. You're going to stand out. They're going to think you're a little bit strange, or what you said about, like, shortening the name-

   12. MPMohnish Pabrai46:12

       Yeah

   13. SBSteven Bartlett46:12

       ... that creates more emotional resonance. And then low would just be-

   14. MPMohnish Pabrai46:15

       Yeah

   15. SBSteven Bartlett46:15

       -AI slop.

   16. MPMohnish Pabrai46:16

       Yeah.

   17. SBSteven Bartlett46:16

       Copy and paste jargon. And really, like, the most successful messages are up here.

   18. MPMohnish Pabrai46:20

       Absolutely.

   19. SBSteven Bartlett46:21

       High, like, high signal channel, high emotionally resonant.

   20. MPMohnish Pabrai46:24

       Absolutely.

   21. SBSteven Bartlett46:24

       But what ha- ends up happening is people send loads of messages down here, and then they get depressed and demotivated, and say, "No one's getting back to me."

   22. MPMohnish Pabrai46:30

       Yeah. Like Michael Jordan used to say: "You miss every shot you don't take."

   23. SBSteven Bartlett46:36

       Yeah, yeah. [laughing] Yeah. Yeah.

   24. MPMohnish Pabrai46:39

       So basically, it is, it, it... I mean, I think one of the things about entrepreneurs is that you need to have resilience. Um, like, for me, for me, what the data I was looking for is that if I send five thousand letters, okay, which takes twenty-five weeks, six months, how many meetings does that end up in? If that ends up with ten meetings or twenty meetings, well, now I have my number, right? And then the second part is the meeting-to-close ratio, right? And so to me, as a math guy, I, I was just interested to know that it's not zero. [chuckles]

   25. SBSteven Bartlett47:25

       Mm-hmm.

   26. MPMohnish Pabrai47:26

       Okay, I just want to make sure.

   27. SBSteven Bartlett47:27

       Yeah. Yeah, yeah, yeah.

   28. MPMohnish Pabrai47:27

       And I could see very quickly it was not zero. Literally, within the first two, three months, I could see it's not zero. [paper flipping]

   29. SBSteven Bartlett47:33

       Every business needs a competitive

10. 47:35 – 52:25

    Ads

    1. SBSteven Bartlett47:35

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    2. MPMohnish Pabrai48:55

       Ninety-eight percent.

    3. SBSteven Bartlett48:57

       [laughing] Yeah.

    4. MPMohnish Pabrai48:57

       But doesn't matter.

    5. SBSteven Bartlett48:58

       I always say, like, eighty, eighty percent told me to fuck off, fifteen percent said it in a nice way-

    6. MPMohnish Pabrai49:01

       [chuckles]

    7. SBSteven Bartlett49:02

       -and then five percent were at least receptive to what I had to say.

    8. MPMohnish Pabrai49:05

       Yeah.

    9. SBSteven Bartlett49:06

       Maybe one percent close. But when you understand that, you think of life through that lens.

    10. MPMohnish Pabrai49:11

        And actually, Steven, I had the almost same experience. So my father was an entrepreneur. He was really smart at identifying what I call offering gaps, like things that should exist in the world but didn't. And he would get these businesses off the ground with no money. I saw him do it repeatedly. His downfall was he was very aggressive in growing the businesses, and so they didn't have staying power. There was almost no equity, always very levered. So I... He went bankrupt eight or nine times, right? Repeatedly. When I was, um, when I was about eleven or twelve years old, my brother and I, we were like his board of directors, okay? Because he had nobody else. The three of us would sit down at night to figure out how to make the business last for one more day. Okay, everything's caving in, the creditors are caving in, the business is collapsing. How do we make it work for one more day? And then the next night, we'd get together, and how do we make-- get it to work for one more day again, right? At sixteen, and I don't know why my dad did this, but I'm so grateful that he did. He was, at that time, he had a gold jewelry factory in Dubai, and he was going cold calling in person to jewelry shops to buy his jewelry that he was manufacturing. So he took me with him on many of these trips, and, and I was sixteen, just like you, right? So we would, uh, take the taxi from Dubai to Abu Dhabi, and now there's all these gold shops. He doesn't know any of them, right? And he's going one after the other, after the other, after the other. And I would be stunned that fifth shop, he makes a sale.

    11. SBSteven Bartlett51:01

        Yeah.

    12. MPMohnish Pabrai51:01

        And it's a very small sale because he has no trust and all that, but he's made the sale. Then I noticed that after three months, we go back to that same shop we made the little sale to. The guy brings out tea. He, there's a, there's a lot of chemistry, bigger order, and then I saw the orders increase, right? And then he's continuing to do that. I, I went with him to Doha, Qatar, uh, Qatar, and again, the same thing. It was like, you know, I saw how those doors opened-

    13. SBSteven Bartlett51:31

        Mm.

    14. MPMohnish Pabrai51:32

        -and I saw how it didn't matter to him when they closed. That was irrelevant to him. You know...

    15. SBSteven Bartlett51:39

        Really interesting new way to think about it, because what you're saying there is actually, when you get that one yes, it's actually a seed that's being planted that can grow into something.

    16. MPMohnish Pabrai51:50

        We just care about the ratio and the number. Okay, so what effort did it take? Like I was saying, if I send five thousand letters and I get twenty meetings, that's awesome.

    17. SBSteven Bartlett52:02

        Mm-hmm.

    18. MPMohnish Pabrai52:02

        I mean, that's a fantastic ratio because one sale is going to get me about two hundred thousand or three hundred thousand. It's a significant amount, right? I mean, so that I don't need large numbers, and-

    19. SBSteven Bartlett52:13

        But the lifetime value of that could also-

    20. MPMohnish Pabrai52:14

        It's huge.

    21. SBSteven Bartlett52:15

        Yeah.

    22. MPMohnish Pabrai52:15

        Yeah, yeah. I mean, I mean, uh, these, uh, these relationships I got then, they're still with me.

    23. SBSteven Bartlett52:21

        Mm-hmm.

    24. MPMohnish Pabrai52:22

        You know, so it's, uh, it's, it's like forever.

11. 52:25 – 56:22

    The 3 Categories All Humans Fall Into

    1. SBSteven Bartlett52:25

       Here's a philosophical way to think about that for just everybody, which is you can remember probably conversations you had in your life that you thought were totally inconsequential, but then eight years later, that seed became a business relationship. The example I always give is when I was fourteen, I applied for The Apprentice. They did this like junior apprentice on the BBC, and it's a long story. Thirty-five thousand kids in London and across the UK applying. I met a kid in the line while I was queuing up for my audition, and he said to me: "Oh, my dad runs this, um, five hundred million dollar company." And I was like: Yeah, whatever, like, not interested. I went through the auditions. I did, and did not, didn't end up getting on the show for whatever reason. But then I ended up... Because we were waiting in the queue that day, I was really nice to this kid, and I added him on Facebook. Five years later, I get a message on Facebook: "Hey..." Uh, five years later, although I didn't get on the show, which would have got me about twenty-five thousand dollars investment in my company if I'd won. Five years later, I'm working on a startup. That kid from the line says: "Hey, um, my dad has sold his business for a billion dollars, and I've been watching you on Facebook for the last five years. My dad would love to meet you." It was, uh, an Indian family, the Aluwalias. They had sold a business called Euro Car Parts. They took me to London when I was literally so broke, I was, like, shoplifting food to feed myself. And his dad invested double what I would have won on the show into my business. Um, and I al-- and that always reminded me that, like, every conversation that I have is like planting a seed-

    2. MPMohnish Pabrai53:51

       Oh, yeah

    3. SBSteven Bartlett53:51

       ... that at any point in my life-

    4. MPMohnish Pabrai53:52

       Sure

    5. SBSteven Bartlett53:53

       ... could turn into something. Like the-

    6. MPMohnish Pabrai53:55

       Well-

    7. SBSteven Bartlett53:55

       You know, like the-

    8. MPMohnish Pabrai53:56

       I mean, you know, um, I always bring up Adam Grant's book, uh, uh, Givers and Takers. I don't know if you've seen that. All humans on the planet fall into one of three categories. They are either a giver or a taker or a matcher. Okay? These are... There are no other categories of humans. There's just, these are the three categories. Now, the matchers are relatively simple to understand. Their mental framework is: if Steven does me a favor, I'm going to try to do something similar for him. You know-

    9. SBSteven Bartlett54:34

       Mm-hmm

    10. MPMohnish Pabrai54:34

        ... one to one. They can do matching in their, math in their heads. The takers-... who you don't have anything to ever do with, are trying to scam and screw everyone, and always take and never give, okay? The takers basically go nowhere, okay? And if you have any takers in your life, get rid of them, okay? Now, the givers, what the givers do is, the givers, um, are not focused on what comes back to them. They just want to help you. They want to help humanity. And what ends up happening is, the universe conspires to help them.

    11. SBSteven Bartlett55:15

        Mm.

    12. MPMohnish Pabrai55:16

        So the givers become the most successful. Everyone is trying to give to them, even though they're not asking for it. So basically, when we-- and that's the book that Adam Grant, Grant wrote, Givers and Takers, is one of the mental models, this is a great mental model to have, is to be a giver. Don't play math games, you know. Always try to make sure the other guy gets the better end of the deal, and just keep going through your life that way, and that goodwill will compound, and it will take care of itself.

    13. SBSteven Bartlett55:59

        And the time horizon, you don't worry about the time horizon?

    14. MPMohnish Pabrai56:01

        You're not doing it for getting something back. That's the key. You're not doing any mathematics, like I'm going to do... You're not calculating, "I'm going to do this, so X, Y, Z happens." You're just doing it. End of story.

    15. SBSteven Bartlett56:17

        I was sat with my girlfriend last night. She runs a breathwork business, so she's essentially a solopreneur.

12. 56:22 – 59:12

    How to Scale Your Company as a Solopreneur

    1. SBSteven Bartlett56:22

       Um, and she's at that point where she's trying to scale. In fact, I just meet so many... I think I actually ran a survey before, and the vast majority of business owners are in that SME category, that small, small sort of business category. It's the back startups are the backbone of our economy, but they, they come to me with the same problem, which is, maybe I started as an individual, I've got high demand, and now I'm a bottleneck, and I don't know how to get out of being like a freelancer. How does the freelancer become an agency? And the, the thing I was chatting to my girlfriend about last night was, um, the step she hasn't taken yet is to hire someone exceptional. And so many founders come to me. These early-stage founders are like, "Ugh! Like I, I-- my customers like me, I do it better, I don't trust anybody." I, I wondered if you had, like, a mental model of thinking about-

    2. MPMohnish Pabrai57:11

       So the, the thing is, so if you look at people like Elon Musk and Steve Jobs, they believe their number one job is recruiting. The first three thousand people who joined SpaceX, all personally interviewed by Elon. Just think about that. Those are three thousand hires. Think about the number of interviews to get the three thousand hires, okay? He did not believe there was any other way. And what Steve Jobs used to say is that, "A players want to work with A players." The moment you start introducing B players, B players will hire B and C players. They will never hire an A player. So you're downhill, the journey's already started the moment you get a B player. And so, as an entrepreneur, you know, we have a lot of demands on our time, right? But recruiting has to be at the top, and you've got to be willing to spend inordinate amounts of time on recruiting, okay? And, um, there's-- you know, there are tools that you can use. We use, uh, there's a company called Caliper we use for pre-employment testing. And the thing is that between the genetics of a human and the first five years of their life experience, who they are, their traits are hardcoded. That is not going to change from five to ninety-five, okay? So it's not like you're going to change a human. Human is the way they are, okay? Now, these pre-employment testing tests can get you data that you're not going to get in an interview.

13. 59:12 – 1:01:16

    Mastering the Art of Hiring

    1. SBSteven Bartlett59:12

       One of my companies I'm building at the moment is called culturetest.com. It's exactly this.

    2. MPMohnish Pabrai59:16

       Okay.

    3. SBSteven Bartlett59:17

       Um, ig-- I mean, you're just, like, preaching- [laughing] - preaching to the choir here.

    4. MPMohnish Pabrai59:22

       But what I'm saying is that-

    5. SBSteven Bartlett59:23

       It, it was the most, yeah-

    6. MPMohnish Pabrai59:24

       ... we need to get really good at recruiting.

    7. SBSteven Bartlett59:27

       Yeah.

    8. MPMohnish Pabrai59:27

       Okay.

    9. SBSteven Bartlett59:28

       It's, it's my absolute, absolute obsession. And what I found out is that, funnily enough, from doing these culture tests, so I've kind of culture tested tens of thousands of people in the general population now, and the shocking part was... Just to give you some context on what it does, it benchmarks our best performing people and how they make their decisions. The assumption here is that culture isn't the thing you come up with at the offsite. Culture is how you'd behave on Christmas Eve when you get a text message from a client. Like, what you do there is your company culture. So it basically creates these questions which simulate optimal culture in that team, and it puts you in that scenario and says, "What do you do?" This is probably a good point to talk to you guys about culturetest.com, which is the website we're about to launch for anyone who has the responsibility of hiring someone, which is probably everybody listening. One bad hire can destroy your entire company. So we made culturetest.com so that you guys at home can spot those red flags and avoid those hires that might be the end of your business. Culture Test will make you your own personalized culture test, so that you can screen every single person that wants to be in your team, and your current team members, and people that have left to see how they align. Just go to culturetest.com and put your email address in, and the minute we launch, I'm going to send you an email, so you can try it before anybody else.

    10. MPMohnish Pabrai1:00:45

        ... So recruiting is really important, and I think the other thing is, uh, we're willing to hire people who may not do things as well as we do. But actually, also, what I've also found is I have so many people on my team who are better than me. You know, they're better at many of these things because it's not my natural bent to do those jobs.

    11. SBSteven Bartlett1:01:09

        Mm-hmm.

    12. MPMohnish Pabrai1:01:09

        So that's really when you get a huge bang for the buck, is you end up with team players that are way better

14. 1:01:16 – 1:02:47

    Hire Slow, Fire Fast

    1. MPMohnish Pabrai1:01:16

       than you.

    2. SBSteven Bartlett1:01:17

       How do you think about firing people? 'Cause this is the other thing I hear from founders.

    3. MPMohnish Pabrai1:01:21

       So hire slow, fire fast.

    4. SBSteven Bartlett1:01:27

       Founders really struggle with the fire fast thing.

    5. MPMohnish Pabrai1:01:29

       And, uh, it is very important to fire fast. I think fire fast is more important than hire slow.

    6. SBSteven Bartlett1:01:39

       [chuckles]

    7. MPMohnish Pabrai1:01:41

       And you're doing the person a, a service because they may be exceptional in another role, at another place. So you are helping them try to find that.

    8. SBSteven Bartlett1:01:57

       If-

    9. MPMohnish Pabrai1:01:57

       And you're helping your other team members.

    10. SBSteven Bartlett1:02:00

        If I was trying to work for your companies, it-- what is the one non-negotiable? Like, what is the trait that I would demonstrate where you would immediately not even consider me?

    11. MPMohnish Pabrai1:02:08

        The most important is integrity.

    12. SBSteven Bartlett1:02:12

        Mm-hmm.

    13. MPMohnish Pabrai1:02:12

        You know, I mean, we, we want three traits, right? We want intelligence, we want integrity, and we want willingness to work hard, right? And none of these three are really negotiable.

    14. SBSteven Bartlett1:02:26

        And what does integrity mean in your definition?

    15. MPMohnish Pabrai1:02:29

        Well, it's absolute honesty. It's pretty simple. You know, it's black and white.

    16. SBSteven Bartlett1:02:34

        And you-

    17. MPMohnish Pabrai1:02:34

        Conduct yourself with the highest levels of e- ethical standards. So on all fronts, when you're dealing with a customer, or internally or externally, it's the moral standards need

15. 1:02:47 – 1:05:59

    Do People Build More Wealth from Business or Investing?

    1. MPMohnish Pabrai1:02:47

       to be very high.

    2. SBSteven Bartlett1:02:48

       When you think about your wealth, how much of it has come from building businesses versus being a great investor of the capital that you managed to make from those businesses?

    3. MPMohnish Pabrai1:02:58

       I think currently most has come from the investing side.

    4. SBSteven Bartlett1:03:03

       You're very well known for being a really excellent investor over many, many, many, many, many years. I'll put a graph on the screen that I found, which I think shows the returns of your investment strategy versus the, the Dow Jones. This graph, have you seen that one before?

    5. MPMohnish Pabrai1:03:19

       I haven't seen it this way, but people [chuckles] put up all kinds of things. Yeah.

    6. SBSteven Bartlett1:03:23

       I mean, all this says is that you're extremely good at investing. So I wanna know, if I, if I'm starting my investing career, I'm working in a nine-to-five job at the moment. I've got a couple of thousand dollars in my, my bank account. How should I be thinking about investing? Should I be investing?

    7. MPMohnish Pabrai1:03:39

       So there are, um, there are three things that matter in terms of getting a great outcome with investing. Um, starting capital-

    8. SBSteven Bartlett1:03:56

       Mm.

    9. MPMohnish Pabrai1:03:56

       -how much the amount you start with; length of the runway, how long are you gonna invest the money?

    10. SBSteven Bartlett1:04:04

        Mm.

    11. MPMohnish Pabrai1:04:05

        And the rate of return. Okay, so before I answer your question, I wanna tell you a story. So, and this is a true story. Um, in sixteen twenty-three, in New York, the Native American Indians in New York, who owned the island of Manhattan, the Dutch settlers wanted to buy the island. And so they went to the Indians and said: "We'd like to buy the island of Manhattan. Great natural har- harbors. It can be a great place for us." And the Indians and the Dutch reached an agreement to sell the island of Manhattan for twenty-three dollars. And when people hear that, they think, "Oh, the Indians got taken. You know, um, island of Manhattan for twenty-three dollars is ridiculous." But let's say, let's say the Indians had a trust officer who they said: "Invest this twenty-three dollars for the benefit of the tribe, and try to do a decent job," right? Now, there's something known as the rule of seventy-two, and the rule of seventy-two is a, is a very important rule, and I wish they would teach it more in high school than elementary school. It tells us how long it takes money to double, and it's a kind of a mathematical hack. So for example, if I'm going to get a seven% return, and I do seventy-two divide by seven, that's approximately ten. And at a seven% return, it's gonna take ten years for the money to double. Seven% compounded will take ten years. If I have a ten% return, it will take seven years. Seventy-two divided by ten is seven. If I have a fifteen%

16. 1:05:59 – 1:10:57

    The Magic of Compounding

    1. MPMohnish Pabrai1:05:59

       return, it will take five years. Seventy-two divided by fifteen is five, approximately. And if I have a twenty% return, it'll take three and a half years. So this rule of seventy-two is a nice hack, and it's very important to know how long money takes to double, because then we can start doing a lot of math in our heads. So when we look at these Indians with the twenty-three dollars, if they were getting a seven, seven% return, it would become forty-six dollars in ten years, and then it would become ninety-two dollars in twenty years, and hundred and eighty-four dollars in thirty years, and so on. Now, if you go a hundred years, right, it's ten periods of ten, and ten periods of ten is two to the power of ten.... and two to the power of ten is one thousand twenty-four. So we throw away the twenty-four because we don't wanna complicate the math. So at seven percent for a hundred years, you would have a thousand times what we started with. And this is why, because compounding becomes nonlinear, people have a hard time getting their heads around it, so-

    2. SBSteven Bartlett1:07:14

       Nonlinear meaning?

    3. MPMohnish Pabrai1:07:15

       It's not going up in a straight curve, it's going up in a-

    4. SBSteven Bartlett1:07:19

       Hockey stick.

    5. MPMohnish Pabrai1:07:20

       Hockey stick curve, yeah. So in seventeen twenty-three, the Indians would have twenty-three thousand. It would have gone up a thousand. And then if they continue at the seven percent, in eighteen twenty-three, they would have twenty-three million, and in nineteen twenty-three, they would have twenty-three billion, and in twenty twenty-three, they'd have twenty-three trillion.

    6. SBSteven Bartlett1:07:45

       Hmm.

    7. MPMohnish Pabrai1:07:45

       Okay? Now, the entire wealth of every man, woman, and child in the United States is one fifty trillion. One sixth of that is not undeveloped land in Manhattan. So if the Indians had invested at seven percent a year for the last four hundred years, they would have more money than owning the land.

    8. SBSteven Bartlett1:08:10

       Mm.

    9. MPMohnish Pabrai1:08:10

       So they were not taken. They were given a fair deal, but they just didn't have a good trust officer who could actually make it happen for them. So the magic of compounding is that we started with twenty-three dollars, and we end up with twenty-three trillion without having a great rate of return. It's just an okay-- seven percent is just okay. It's not great. It's not bad, but it's okay. Now, if you go back a hundred years, so we started at sixteen twenty-three, go back a hundred years to fifteen twenty-three. We had twenty-three hundred cents in sixteen twenty-three.

    10. SBSteven Bartlett1:08:50

        Twenty-three hundred cents?

    11. MPMohnish Pabrai1:08:51

        Twenty-three dollars is twenty-three hundred cents.

    12. SBSteven Bartlett1:08:54

        Oh, okay, if, if they'd got it-

    13. MPMohnish Pabrai1:08:55

        Just convert it to cents-

    14. SBSteven Bartlett1:08:57

        Sure

    15. MPMohnish Pabrai1:08:57

        ... instead of dollars, right? Now, if you make it one thousandth of that-

    16. SBSteven Bartlett1:09:02

        So just so I'm clear here, so if you're saying if you went back a hundred years from that point, and you gave them just twenty-three cents-

    17. MPMohnish Pabrai1:09:08

        If you gave them two cents.

    18. SBSteven Bartlett1:09:10

        If you gave them two cents.

    19. MPMohnish Pabrai1:09:11

        Two point three cents, to be exact.

    20. SBSteven Bartlett1:09:13

        Two point three cents.

    21. MPMohnish Pabrai1:09:13

        But if you just gave them two cents-

    22. SBSteven Bartlett1:09:15

        Yeah

    23. MPMohnish Pabrai1:09:16

        ... a hundred years later, that would be twenty dollars. If you gave them two point three cents, a hundred years later, they'd be twenty-three dollars, and now it would be the twenty-three trillion, right?

    24. SBSteven Bartlett1:09:27

        Mm-hmm.

    25. MPMohnish Pabrai1:09:27

        So what I'm trying to say is that if the runway is long enough, the starting capital doesn't matter. Even the rate of return doesn't matter, if the runway is long enough. Now, so when people are thinking about investing, they have to keep a few things in mind. The first thing is, spend less than you earn. So always try to save the first dollar, rather than the last dollar. So if you are making fifty thousand dollars a year, put five thousand into savings to start with, and then do the rest of your expenses after that. Now, it's very important when we saw with this example, you start young. So when people start working at twenty-two or twenty-three, whenever they start working, they have to be saving then, because that early money at twenty-two can compound for fifty years, and that's what we want. So we don't need to do heroic things with finding the next NVIDIA or whatever else. We can just put it into an index, and the important thing is spend less than you earn, and keep putting that five, seven, ten thousand every year into the savings. Don't go have a vacation in Hawaii with it. Let it keep compounding, and just put it into a broad index,

17. 1:10:57 – 1:13:48

    How to Invest in Indexes

    1. MPMohnish Pabrai1:10:57

       and we don't really care.

    2. SBSteven Bartlett1:10:58

       So for someone who has never invested before-

    3. MPMohnish Pabrai1:11:00

       Yeah

    4. SBSteven Bartlett1:11:01

       ... which would probably be the majority of the audience, how do we simplify even further in terms of just put it in an index? What does that mean?

    5. MPMohnish Pabrai1:11:08

       So basically, you could open an account at Fidelity or Interactive Brokers or Robinhood, any of these places. You could open a brokerage account for very little money.

    6. SBSteven Bartlett1:11:22

       And there's lots of them in every country.

    7. MPMohnish Pabrai1:11:23

       Yeah, and then, uh, you could just, uh, ask them to give-- to buy you the S&P 500 index, for example, and they will get you invested in that.

    8. SBSteven Bartlett1:11:36

       And the S&P 500 is basically the top five hundred companies-

    9. MPMohnish Pabrai1:11:40

       It's the... Yeah, the five hundred dominant businesses in the US. Like NVIDIA is in there, and Microsoft, and Apple, and so on.

    10. SBSteven Bartlett1:11:49

        And you're gonna get your ten percent a year if it-- if the trend holds over the last century.

    11. MPMohnish Pabrai1:11:54

        The S&P has plenty of periods where it does nothing. Uh, it's somewhat overheated right now, uh, but I think if you have a long enough time horizon and your dollar cost averaging in, it's perfectly okay. Uh, what you could also do as an alternative is buy Berkshire Hathaway. So that's a stock, BRKB. So you could again tell these people that just put it into Berkshire Hathaway. It's like an index. And, and again, it's like set it and forget it. You don't need to think about the investing side. You focus on yellow, okay, and, uh, keep putting this little money away on the side, and it's gonna compound. And so at eighteen, if you put away five thousand dollars, and you fast-forward to when you're sixty-eight, fifty years later, right? Now, if, if you got a ten percent return on that money-

    12. SBSteven Bartlett1:12:53

        Every year

    13. MPMohnish Pabrai1:12:54

        ... let's say, every seven years, it would double.... Okay, seventy-two divided by ten is seven. Fifty years is seven doubles. Seven times seven is forty-nine, and two to the power of seven is one twenty-eight. Okay, so we can throw away the twenty-eight, keep it simple. You're gonna have a hundred times what you started with. So the five thousand at eighteen is going to be five hundred thousand. Okay, at nineteen, if you put money away, that's another five hundred thousand. Twenty, you might have ten thousand you can put in. So you can start seeing that over a lifetime, you know, you're going to be having too much money. [laughing]

18. 1:13:48 – 1:15:58

    Ads

    1. SBSteven Bartlett1:13:48

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19. 1:15:58 – 1:17:33

    Why Do They Call You the Dhandho Investor?

    1. SBSteven Bartlett1:15:59

       You've been referred to as the, the Dhandho investor, and, uh, I've, I've got a book here, which you wrote, called The Dhandho Investor. What, what, what does this word dhandho mean, and why do they call you the Dhandho investor?

    2. MPMohnish Pabrai1:16:14

       Dhandho is actually a word from Gujarat, which is on the, on the western coast of India, where Gandhi came from. They are extremely astute businesspeople, and dhandho, if you translate it directly in Gujarati, it means business, but it doesn't really mean business. What it means is it's a way of doing business where the downside is non-existent. We already discussed how Mr. Branson is a dhandho investor. He had no downside. Uh, Mr. Gates was a dhandho investor. He had no downside. Mr. Walton is a dhandho investor, had no downside. So all of these people embarked on businesses, built huge fortunes without taking risk. And so The Dhandho Investor was written from the perspective of: how can we minimize risk while keeping the returns intact?

    3. SBSteven Bartlett1:17:18

       You use this example of the Patels.

    4. MPMohnish Pabrai1:17:20

       Mm-hmm.

    5. SBSteven Bartlett1:17:21

       What is, what is that story?

    6. MPMohnish Pabrai1:17:23

       The Patels, uh, went to Uganda more than a hundred years ago, maybe close to a hundred and thirty years ago.

    7. SBSteven Bartlett1:17:32

       It was a family?

20. 1:17:33 – 1:20:57

    The Patels' Framework to Take Over the U.S. Motel Industry

    1. MPMohnish Pabrai1:17:33

       It's a ethnic group-

    2. SBSteven Bartlett1:17:35

       Okay

    3. MPMohnish Pabrai1:17:35

       ... in India. And so this ethnic group came to Uganda to build the railroad, and but they're very savvy businesspeople. And over the course of the last hundred-odd years, uh, when they were in Uganda, through their dhandho methods of doing business, they became very successful entrepreneurs, and they controlled large parts of the Ugandan economy. And Idi Amin came to power in Uganda in the 1970s, and he said, "Africa is for Africans." So what he did is, he threw all the Patels out, and he nationalized all their assets. So now the Patels were stateless. The US took them in, the UK took them in, Canada took some of them in, and when they landed in the US, they basically really didn't have any skills that would allow them to get good jobs, white-collar jobs in the US. And what a few of them started to do was they realized that if they bought a motel, a small ten or twenty-room motel, uh, the family could live in one or two of the rooms, and they could use the money they got out and get a bank loan-... and run the motel. Now, motels are very labor-intensive businesses. So what they did is, when a Patel took over a motel, they fired all the staff.

    4. SBSteven Bartlett1:19:15

       Hmm.

    5. MPMohnish Pabrai1:19:15

       And the family took over all the jobs, you know, the cleaning and front desk and everything else, right? And the Patels are vegetarians, and they are very s- they li- they live a very simple life. So when a Patel took over a motel in an area, what they were able to do is they were able to undercut the prices of all the other motels in the area because they have no labor, they have no payroll, they have no workers' comp, none of those things. And so they were... If everyone else is charging twenty-five dollars a night, they're charging, you know, nineteen a night. So their occupancy was higher than everyone else. And they saved their money, and then what they would do is buy the next motel, send the nephew to run it, and then buy the next motel. And this started happening in the early '70s, and when you fast-forward to today, eighty percent of all the motels in the US are under Patel ownership. Eighty percent. So the Patels make up point one percent of the US population. Indians make up about little over one percent, maybe one point two, one point three percent. Just one-tenth of that is the Patels, and this point one percent population is controlling eighty percent of the motels in the country. And, um, it's because of the Dhandho Way.

    6. SBSteven Bartlett1:20:51

       So if I want to steal from the Dhandho Way, you told me it's good to be a copier.

    7. MPMohnish Pabrai1:20:54

       [chuckles]

    8. SBSteven Bartlett1:20:55

       Um, what are the principles

21. 1:20:57 – 1:21:54

    Heads I Win, Tails I Don’t Lose Much

    1. SBSteven Bartlett1:20:57

       of the Dhandho Way that I need to be thinking about? 'Cause y- I think there was... Was there nine? Yeah, there was nine principles-

    2. MPMohnish Pabrai1:21:04

       Yeah

    3. SBSteven Bartlett1:21:04

       ... in total in the book.

    4. MPMohnish Pabrai1:21:05

       Well, the most important one is, Heads I win, Tails I don't lose much. Everything we discussed today, Steven, is Heads I win, Tails I don't lose much. When I started my business, when Bill Gates started, when Sam Walton started, and when Richard Branson started, that was the formula. If they won, they would win big, and if they lost, they'd lose nothing. So everything has to be in business about risk reduction. Everything has to be about free lunches. We love free lunches. Okay, so we always have to think about: how do we get this done without capital, without risk? Free

22. 1:21:54 – 1:26:21

    What Is the New Opportunity in the AI Era?

    1. MPMohnish Pabrai1:21:54

       lunches.

    2. SBSteven Bartlett1:21:55

       Do you think there's an opportunity for people? Because everybody's, at the moment, thinking about AI and technology and these, like, really advanced, um, new innovations as an opportunity. But does that create an opportunity in the boring, in the motel, in the laundromat?

    3. MPMohnish Pabrai1:22:13

       Yeah. So, you know, the reality is, so entrepreneurship is not studied much in business schools because there's nobody going to give you a consulting project for studying entrepreneurs. If we really study startups in the US, or actually anywhere in the world, ninety-nine point nine nine percent of startups are non-venture backed.

    4. SBSteven Bartlett1:22:36

       What, what does that mean?

    5. MPMohnish Pabrai1:22:37

       What I, what I mean by that is, those are your laundromat, your Chinese restaurant, your, you know, eBay seller, whatever, Amazon seller, so on, right? The small businesses. None of those companies were formed because of venture capital. So the media focuses on all the venture capital-led businesses, and so people think that: "Oh, if I have to do a startup, I got to do something in technology." Well, that's like one-tenth of one percent or less. You can ignore it. You don't need to really worry about it. Uh, the important thing is to be an observer and to look at, uh, what, what, uh, my dad would call offering gaps. So let me explain an offering gap, right? So let's say there's a town, we- let's call it Town A. Town A, there's a barber shop in Town A, okay? And the barber's, one of many barbers doing well, et cetera. There's another town about thirty miles away, Town B, which also has barbers. They're also doing fine. There's a new township coming up in the middle of these two towns called Town C. Town C doesn't have much of a population, but it's growing fast. So the barber in Town A goes to see what the, all the hoopla about Town C is all about. So he makes a... takes a trip there, sees that there's some increase in population, people are moving in, and he notices there's no barber shops. Why would there be any barber shop? Because it's brand new, right? So he's thinking: "How do I do this without taking risk?" And what he does is, he rents a, subleases a small storefront, buys some used barber equipment, and then decides that one day a week, he's going to go into that town and cut hair every Wednesday. He puts up a note board saying, um, "Available Wednesdays." And what happens is, people start coming in. They come in because they have no choice. If you don't go to this barber, you've got to spend half an hour driving to one of the other two towns. Now, he normally charges thirty bucks for a haircut, but here he doesn't need to charge thirty because there's an opportunity cost of the time you're saving, so he can charge forty-five. So-... He's charging forty-five over here, and then when he's in his own town, he's charging thirty. Now, what he's already notices is Wednesdays are filled up, so he says Tuesday and Wednesday. Okay, and gradually what ends up happening is that that business is full-time, and he's making forty-five bucks an hour per haircut.

    6. SBSteven Bartlett1:25:34

       Mm-hmm.

    7. MPMohnish Pabrai1:25:35

       But the nature of capitalism is more barbers are gonna show up. So the second barber comes in, the third barber comes in. Eventually, the haircut there is gonna be thirty bucks. It's gonna neutralize. But in the meanwhile, he's doubled his business.

    8. SBSteven Bartlett1:25:52

       Mm-hmm.

    9. MPMohnish Pabrai1:25:52

       Right? What risk did he take? So going into Town C was addressing an opportunity gap. When Howard Schultz started Starbucks, he saw an offering gap. He thought that what Italians love about cafes might be what Americans love, too. Didn't exist, right? And he went and did

23. 1:26:21 – 1:27:33

    Business Moats

    1. MPMohnish Pabrai1:26:21

       it.

    2. SBSteven Bartlett1:26:21

       You know that barber that moves into Town C first, and they're really having a great time because there's no competition. One of your points when you're talking about the Dhandho method is this idea of creating a durable moat. It's point four of the nine.

    3. MPMohnish Pabrai1:26:34

       So, so sometimes what happens is that you start a business. Every business starts off without a moat.

    4. SBSteven Bartlett1:26:43

       What is a moat?

    5. MPMohnish Pabrai1:26:46

       We have a castle, a knight in charge of the castle to keep the invaders away, and one of the ways to keep the invaders away is you put a moat of water around the castle. So when you put a moat of water around the castle, it makes it harder for anyone to take the castle.

    6. SBSteven Bartlett1:27:06

       Mm.

    7. MPMohnish Pabrai1:27:06

       And a business with a moat around it is a business that competitors will have a difficult time take bus- taking business away from. So what can happen with our barber in Town C, humans are creatures of habits. We don't like to change our barber every month. We like the same barber. So if he's competent and good, what's going to end up happening is that his client base will

24. 1:27:33 – 1:29:41

    Loyalty Points Models

    1. MPMohnish Pabrai1:27:33

       stay with him.

    2. SBSteven Bartlett1:27:34

       What about loyalty points? I was just struck the other day when I was shopping in LA at Erewhon, which is a supermarket here in LA, and I'd... Someone had recommended it to me on the plane.

    3. MPMohnish Pabrai1:27:42

       Mm.

    4. SBSteven Bartlett1:27:42

       Which actually goes to your point about actually give a great product, 'cause an airline hostess on my flight over here went, "Oh, you're, um, you're on keto diet. You need to go check out Erewhon." I got to... So that's the recommendation and good service.

    5. MPMohnish Pabrai1:27:53

       And that's ten X more powerful than any ad or anything else they could run.

    6. SBSteven Bartlett1:27:56

       And I went there-

    7. MPMohnish Pabrai1:27:57

       Yeah

    8. SBSteven Bartlett1:27:57

       ... When I landed, 'cause I needed a supermarket and didn't know the place. But then interestingly, when I was at the checkout yesterday-

    9. MPMohnish Pabrai1:28:02

       Yeah

    10. SBSteven Bartlett1:28:02

        - after my second visit, the lady at the checkout goes, "Hey, are you, are you an Erewhon member?" And I was like, "Erewhon member?" And she goes, "It w- it does cost." She went, she was honest. She went, "It costs money-

    11. MPMohnish Pabrai1:28:11

        Yeah

    12. SBSteven Bartlett1:28:12

        - but here's what you get." She goes, "On this order today, you would've got ten% off this entire order." It's expensive, Erewhon. And she goes, "And we give you a drink." She mentioned, listed all the things off. I signed up and bought the membership to Erewhon.

    13. MPMohnish Pabrai1:28:23

        Mm-hmm.

    14. SBSteven Bartlett1:28:23

        I tell you now, I'm not going anywhere else. [laughing]

    15. MPMohnish Pabrai1:28:27

        [laughing]

    16. SBSteven Bartlett1:28:27

        I don't know what it is-

    17. MPMohnish Pabrai1:28:28

        Yeah

    18. SBSteven Bartlett1:28:28

        - but now that I'm a member, and I have the app, I'm not going anywhere else.

    19. MPMohnish Pabrai1:28:31

        Well, that's... Now, that's the hack that Amazon did, right, with Prime. And, um, two or three years ago, I was, uh, I was seated at dinner next to Bill Gates. You know, my middle name is Forrest Gump.

    20. SBSteven Bartlett1:28:47

        [chuckles]

    21. MPMohnish Pabrai1:28:47

        These things happen once in a while. And Bill is, Bill is describing to me how the business model of Costco and the business model of Amazon is illegal. Okay, so I said, "Why is it illegal?" He said, "When you s- when you put a membership fee, what, what you're doing to the consumer is you're locking them in."

    22. SBSteven Bartlett1:29:11

        Mm.

    23. MPMohnish Pabrai1:29:11

        "Which means the consumer is no longer going after the lowest price because there's a distortion in their behavior."

    24. SBSteven Bartlett1:29:19

        Yeah.

    25. MPMohnish Pabrai1:29:20

        Okay, so now the FTC doesn't believe it's illegal, but Bill Gates does. And I was just thinking, Well, that's because you're competitive with Amazon.

    26. SBSteven Bartlett1:29:29

        Mm.

    27. MPMohnish Pabrai1:29:29

        You know? [laughing]

    28. SBSteven Bartlett1:29:30

        Yeah, yeah. That Prime thing with Amazon is super smart.

    29. MPMohnish Pabrai1:29:33

        Yeah, and, and that was taken from Costco.

    30. SBSteven Bartlett1:29:36

        Oh, okay.
25. 1:29:41 – 1:34:43

    Is Apple a Good Investment?

    1. SBSteven Bartlett1:29:42

       Well, one company I wanted to talk to you about was Apple, because Apple, I find, is a really interesting company. You, you talked about being a copycat, kind of arriving later to the party with new things. They've kind of been a story of both sides of the equation. They've been innovative, it seems-

    2. MPMohnish Pabrai1:29:57

       Mm-hmm

    3. SBSteven Bartlett1:29:57

       ... especially under Steve Jobs.

    4. MPMohnish Pabrai1:29:59

       Yeah.

    5. SBSteven Bartlett1:29:59

       And more recently, I mean, they were, like, copying other people, but now I'm not even sure what they are.

    6. MPMohnish Pabrai1:30:04

       Well, so Apple is a very unusual company in that everything emanated from one guy.

    7. SBSteven Bartlett1:30:11

       Mm.

    8. MPMohnish Pabrai1:30:12

       Okay, and that one guy's been gone for a long time. And if you look at Apple, basically nothing new has come out since he left. W- we don't have a Steve Jobs at Apple. We... And, and the same thing happened at Disney. You know, they had to buy Pixar because there was no Disney anymore. Mr. Disney was gone. And so Apple, actually, I, I find somewhat risky.

    9. SBSteven Bartlett1:30:45

       As an investment?

    10. MPMohnish Pabrai1:30:46

        Yes, because if the form factor... So currently, humans walk around with a brick in their pockets or in their hands. At some point, that form factor is gonna change. It may be integrated into something we wear or some other more ergonomic situation. That may or may not be Apple, and in fact, more likely not to be Apple. It's probably some guy in a garage somewhere. And so if they are smart enough to find the guy in the garage early enough and buy them, they're okay.... and bring them in as an executive jobs, that's okay. But even there, the odds are low.

    11. SBSteven Bartlett1:31:29

        What does this say to you about founders? The specialness of founders. Are they a unique animal, or can you swap them out and still be tremendously successful?

    12. MPMohnish Pabrai1:31:41

        Well, I would, I would say that there's-- there are a lot of elements of luck. So first of all, founders are all great at what I call offering apps, right? They find something that the world doesn't have, that needs, et cetera, and they go after it. Sometimes what happens with the offering apps is a moat gets built, right? Someone starts Visa, it becomes a moaty company, or American Express, and so on, and, and it perseveres then scales.

    13. SBSteven Bartlett1:32:12

        Like Apple with their ecosystem, their closed ecosystem.

    14. MPMohnish Pabrai1:32:15

        But one hundred percent of businesses eventually will go to zero. And so it very well could be that a business could last for fifty, hundred, two hundred years, one fifty years, uh, could last well past the founder's lifetime. Those are businesses which were built with a lot of principles and a lot of co-- great core values. You know, the founder of IKEA, every decision he took was with a five-hundred-year view. How many businesses think with a five-hundred-year view? And IKEA, you know, I was, I was, uh, studying IKEA, some very remarkable things about it. First of all, he never, ever took debt. Every single store they built, they built out of retained earnings and cash. He never took debt. And I've studied business failure quite a bit. The single biggest reason why businesses fail is leverage. They owe people money, and they can't pay it back, and then they're gone. So IKEA has never taken debt. If you never take debt as a retailer, you're gonna grow slower, right? You've got to keep, uh, kinda bringing in the cash. But it's a very solid foundation because it's, it's on a rock-solid balance sheet-

    15. SBSteven Bartlett1:33:43

        Mm-hmm

    16. MPMohnish Pabrai1:33:43

        ... and, and such. And, um, his second principle was, no two IKEA stores can be the same. So what he said is that whenever we are opening a new IKEA store, there has to be some innovation that is going into that store that does not exist in our previous stores. Because he says that "If I don't keep innovating, I'm done." And so if we don't notice it, because we think all the IKEAs are the same, but actually, if you study them and look at when they were, when they were built, et cetera, you start seeing these, these incremental changes that they're making.

    17. SBSteven Bartlett1:34:27

        That's a really interesting idea that I could implement into everything that I do-

    18. MPMohnish Pabrai1:34:30

        Yeah

    19. SBSteven Bartlett1:34:30

        ... which is just making sure that every podcast I do, there's one new experiment or innovation, or every piece of work you do, whatever team you're in, is just to run out one experiment in every-

    20. MPMohnish Pabrai1:34:40

        Absolutely.

    21. SBSteven Bartlett1:34:40

        But you have to make it measurable, right?

    22. MPMohnish Pabrai1:34:42

        Yes.

    23. SBSteven Bartlett1:34:42

        Or else it's not a

26. 1:34:43 – 1:37:22

    The Importance of Making Fewer Big and Infrequent Bets

    1. SBSteven Bartlett1:34:43

       experiment. So, um, you, you also talk about making fewer big infrequent bets.

    2. MPMohnish Pabrai1:34:49

       Yes.

    3. SBSteven Bartlett1:34:49

       Who, who's that relevant for, and in what context?

    4. MPMohnish Pabrai1:34:52

       So one of the things that Warren Buffett says, he says that you get a punch card, which you can punch twenty times in your lifetime, and each time you buy a stock, it's one punch that's gone. So what, what Warren is saying is, if there was a rule which said that you cannot buy more than twenty stocks in your whole life, what would happen is you'll be very thoughtful about what you bought. Okay, and chances are those decisions might be good decisions because, uh, you only have nineteen left-

    5. SBSteven Bartlett1:35:30

       Mm-hmm

    6. MPMohnish Pabrai1:35:30

       ... and then you only have eighteen left, et cetera. So in v-- in venture investing, a very small sliver of companies that venture capitalists invest in do well, right? The high, high burnout rate. And if we look at the stock market, four percent of listed companies generate ninety percent of the return. So most companies that we may think about investing in are likely not to do well-

    7. SBSteven Bartlett1:36:08

       Mm

    8. MPMohnish Pabrai1:36:08

       ... for us. It's a ninety-six percent odds. That, that's why the index is so important, is when you buy the index, you bought that four percent, and if you go pick stocks, you have one in twenty-five chance of getting it, one of those four percent.

    9. SBSteven Bartlett1:36:29

       You said earlier, the punch card analogy of twenty things in the punch card.

    10. MPMohnish Pabrai1:36:32

        Yeah.

    11. SBSteven Bartlett1:36:32

        You've got to pick twenty in your life. If you only had three or f-- three to five things that you, you would bet or back now, which I think is actually kind of what you do, what would those things be?

    12. MPMohnish Pabrai1:36:43

        Well, I mean, uh, so I'm trying to resist going to specific names-

    13. SBSteven Bartlett1:36:50

        Yeah

    14. MPMohnish Pabrai1:36:51

        ... because I think that would hurt people more than help people.

    15. SBSteven Bartlett1:36:54

        Okay, it's fair.

    16. MPMohnish Pabrai1:36:55

        What I would prefer that people do is focus on the other two variables, which is the amount you're saving and the length of the runway, and focus on the index. So I, I, I think that it's, it's kinda like saying, "I want to be a great AI developer", because it's the way it be. Well, to be a great AI developer, it's gonna take time. It's just the nature

27. 1:37:22 – 1:38:03

    Is Day Trading Worth It? Can You Make Money from It?

    1. MPMohnish Pabrai1:37:22

       of the situation.

    2. SBSteven Bartlett1:37:23

       ... What do you think about these people that day trade? Because so many young people, specifically men, are being sucked in by these adverts that you can day trade your way to wealth.

    3. MPMohnish Pabrai1:37:32

       It's not good. I think, I think it's, uh, the broker's gonna make all the money. Robinhood will do well, not you.

    4. SBSteven Bartlett1:37:43

       Do you think anyone can make loads of money as a long-term day trader?

    5. MPMohnish Pabrai1:37:47

       I, I look at it this way: if you study the Forbes 400, the four hundred richest people in the US- in the world, in the world, actually, I don't see any day traders in there.

28. 1:38:03 – 1:40:50

    Circling the Wagons

    1. SBSteven Bartlett1:38:03

       One of the last things I want to speak to you about is this idea of, um, circling the wagons.

    2. MPMohnish Pabrai1:38:09

       Yes.

    3. SBSteven Bartlett1:38:10

       What does circling the wagons mean?

    4. MPMohnish Pabrai1:38:12

       Warren Buffett, um, said that over a s- fifty-year period of running Berkshire Hathaway, he's made hundreds of investments, and only twelve have moved the needle for Berkshire Hathaway. So it's the same three or four percent rule, where if we say that Warren made three hundred investments, he probably made more than three hundred, but let's say he made three hundred decisions, only twelve have resulted in what we see as Berkshire Hathaway today. And the important thing was not the buy decision on those twelve, the important thing was never selling them. So circle the wagons is a term that comes from the nineteenth century when these pioneers were moving west, the wagon trails moving west, and the Native Indians would attack or bandits would attack these wagon trails. So what they would do is they would put themselves in a circle.

    5. SBSteven Bartlett1:39:32

       Mm-hmm.

    6. MPMohnish Pabrai1:39:33

       They would circle the wagons, then defend that circle as best they could with their guns and so on. But the wagons being circled was the best possible, possible way of trying to face off that attack.

    7. SBSteven Bartlett1:39:47

       Mm-hmm.

    8. MPMohnish Pabrai1:39:48

       So in effect, they circled the wagons around the cro- crown jewel. So when I'm talking about circle the wagons, what I'm saying is that in a lifetime of investing, there are very few times when you're going to actually have a huge multibagger.

    9. SBSteven Bartlett1:40:04

       What's that?

    10. MPMohnish Pabrai1:40:04

        A big, big winner. You know, something that goes up ten x, fifty x, hundred x. And what you want to do is you want to effectively circle the wagons around that idea so it doesn't get sold. So we are not going to know before we invest whether something is going to be a multibagger or not, but we may figure it out after we own it.

    11. SBSteven Bartlett1:40:34

        Mm-hmm.

    12. MPMohnish Pabrai1:40:34

        So after we-- we're only going to know a business after we own it. We're not going to know it before we own it. After we own it, we may understand the business well enough to know that this is a great business, and when we figure out it's a great business, you don't want to sell that.

29. 1:40:50 – 1:46:06

    Your Worst Ever Financial Decision

    1. SBSteven Bartlett1:40:50

       When I meet people like you, I- I'm always so inspired because we spend a lot of time thinking about the wins, the great decisions. We've talked about that. I've shown you the graph-

    2. MPMohnish Pabrai1:40:58

       Yeah

    3. SBSteven Bartlett1:40:58

       ... of your great decisions.

    4. MPMohnish Pabrai1:40:59

       Yeah.

    5. SBSteven Bartlett1:40:59

       What is the worst ever decision you made in terms of financial performance?

    6. MPMohnish Pabrai1:41:02

       Well, I've had so many zeros. [chuckles] So, I mean, uh-

    7. SBSteven Bartlett1:41:07

       Or the one that got away.

    8. MPMohnish Pabrai1:41:08

       I mean, uh-- yeah, I mean, so the-- there's mistakes of commission, which is, uh, things going to zero, and there's mistakes of omission. The mistakes of omission are far, um, far worse. [chuckles] Okay, so the biggest mistakes I've made aren't the ones that have gone to zero. The biggest mistakes I've made are the ones that I sold, and I shouldn't have, where I should have circled the wagons, and I didn't. And those have been very costly.

    9. SBSteven Bartlett1:41:40

       Give me one example.

    10. MPMohnish Pabrai1:41:42

        Well, so, uh, I think this was in about thirteen years back, two thousand and twelve, I invested in a company called Fiat Chrysler Automobiles. Um, basically, it was, uh, coming out of bankruptcy after the financial crisis. They had gotten rid of all their debt and everything, and the stock was very cheap. It was about five or six billion dollars, uh, that you could buy the whole business. One of the things I didn't pay too much attention to at the time was that eighty percent of Ferrari was inside Fiat Chrysler, and they owned Ferrari, eighty percent of it. And, um, but they had many other assets, which I liked. They had the Ram trucks, and Jeep, and Maserati, and so on. And when I looked at the business, I thought the business was worth many times the five or six billion, even ignoring Ferrari. And I was right. So in the end, I made several times my money, and in twenty seventeen or twenty eighteen, they took Ferrari public. So they actually then listed the company, and, um, it looked like that they had captured all the value, and so I sold. I used to own approximately one percent of Ferrari as part of that purchase that I had made. So eighty percent of Ferrari was in this five billion dollar company. Ferrari now has a market cap of almost a hundred billion, and I would have about a billion more if I had not done that stupid thing.... So I, I made a couple of hundred million on this whole thing, but it would have been a lot more, and all I needed to do was just not sell it. [laughing]

    11. SBSteven Bartlett1:43:35

        [laughing] Do you deal in crypto at all?

    12. MPMohnish Pabrai1:43:37

        No.

    13. SBSteven Bartlett1:43:37

        Do you invest?

    14. MPMohnish Pabrai1:43:38

        It's outside my competence. I don't understand it.

    15. SBSteven Bartlett1:43:41

        I was gonna say, one of the things I notice about you that's quite rare for someone that deals in Bs, billions, is you have a smile on your face. You seem like a really genuinely happy person.

    16. MPMohnish Pabrai1:43:51

        Well, what would be the point of the Bs without being happy?

    17. SBSteven Bartlett1:43:55

        Well, a lot of people aren't, as you know. [laughing]

    18. MPMohnish Pabrai1:43:57

        Well, then they've lost their way somewhere. I mean, o- on a daily basis, I specifically ask myself, "How do I want to spend today?" And I focus on spending it not with the focus on maximizing money. I focus it with maximizing what Mohnish loves, and that changes all the time, but that's the way it is, you know?

    19. SBSteven Bartlett1:44:20

        What is that?

    20. MPMohnish Pabrai1:44:21

        Well, currently it's golf. [laughing] Like, one of the things I really struggled with today was there wasn't going to be any golf. So I said, "It's either Steven or golf. Should I go to Steven or should I go for golf?" I said, "You know what? Give the arms a rest."

    21. SBSteven Bartlett1:44:39

        [laughing]

    22. MPMohnish Pabrai1:44:40

        [laughing] Let's go meet Steven.

    23. SBSteven Bartlett1:44:43

        I'm glad you did.

    24. MPMohnish Pabrai1:44:44

        [laughing]

    25. SBSteven Bartlett1:44:45

        We have a... You probably just answered this question. We have a tradition where the last guest leaves a question for the next, not knowing who they're leaving it for. And the question left for you is: If you could go anywhere right now, [chuckles] instantly, where would you go?

    26. MPMohnish Pabrai1:44:58

        I'd go to the golf course.

    27. SBSteven Bartlett1:45:00

        Thank you so much.

    28. MPMohnish Pabrai1:45:01

        Oh, it's a pleasure.

    29. SBSteven Bartlett1:45:01

        Thank you for everything that you do. It's so incredibly important, and I now know why you're-- why people love listening to you and learning from you, and it's because you have this most remarkable ability to tell deeply engaging stories. Thank you so much. [upbeat music] This has always blown my mind a little bit. Fifty-three percent of you that listen to this show regularly haven't yet subscribed to this show. So could I ask you for a favor? If you like this show, and you like what we do here, and you want to support us, the free, simple way that you can do just that is by hitting the Subscribe button. And my commitment to you is, if you do that, then I'll do everything in my power, me and my team, to make sure that this show is better for you every single week. We'll listen to your feedback, we'll find the guests that you want me to speak to, and we'll continue to do what we do. Thank you so much. [upbeat music]

Episode duration: 1:46:06