Mohnish Pabrai
Show: Richer, Wiser, Happier
Episode: https://www.youtube.com/watch?v=a8AwDBppM2o
Cleaned and reformatted from published transcript or auto-generated captions — punctuation added, filler removed, restructured for readability. Not verbatim. For exact quotes, refer to the original.
William Green
I wanted to start by asking you about Charlie Munger. You're obviously in a very unusual and privileged position of having Charlie as a close friend and mentor. I think you've been friends with Charlie since Warren Buffett introduced you to him back in about 2008. Could you talk about what it's been like to hang out with him over the last fourteen years, whether there are any particularly memorable experiences, and then maybe what you've learned from being in Charlie's orbit?
Mohnish Pabrai
I have to pinch myself at all of this. On many fronts, all of us are very privileged to be living in the time of Warren and Charlie — it's kind of like living in the time of Newton or Einstein. I would have never expected to have any kind of direct interaction with Warren or Charlie. That was just not part of the equation.
Warren takes bribes. If you bribe him enough, he'll sit down and have a meal with you. Guy Spier and I won the charity lunch in 2007, and we met Warren in 2008. I expected that to be it — I just wanted to thank him in person. What Warren did during the lunch is he got competitive when my ex-wife told him that her true love in life was Charlie. Warren immediately told her Charlie's a very boring guy and he's really the more interesting one. Then he said he'd arrange lunch with Charlie just so we could see how boring Charlie is.
I thought he was joking. But the following week his assistant sent a note to Charlie's assistant, which led to a lunch with Charlie in 2009 at the California Club. The funny thing was, I thought the Charlie Munger lunch was way better than the Buffett lunch — it was kind of like buy one get one free.
Charlie came to that lunch and reached into his coat pocket and pulled out a print-out from GuruFocus with my US portfolio. This was 2009, everything had crashed. He looked at Sears Holdings, which was in my portfolio, and just shook his head with extreme disapproval. The next day I wiped Sears Holdings out of my portfolio — great instant take-home value from the lunch.
What I also did not expect is that lunch would lead to additional interactions and a friendship with Charlie. A few years after that I became a substitute bridge partner of his. Every Friday afternoon, Charlie would play bridge at the LA Country Club, and they started inviting me when one of the old guys couldn't make it. They'd let me know Thursday night or Friday morning, and I'd drive over. Those afternoons were really amazing — sitting across from Charlie Munger and Rick Guerin at this table, listening to them talk about deals in the 1960s. Any lunch, bridge, or dinner with Charlie is always entertaining and educational.
William Green
Is there stuff that you've consciously cloned from the things you've observed in the way he behaved? I remember years ago noticing that when you replied to emails you would write a couple of words in pen on a print-out and fax it — which is exactly what Charlie does.
Mohnish Pabrai
I probably took that from him. I'd received notes like that from Charlie well before 2009. Warren's replies would sometimes be a full letter, but Charlie's was always a scribble — whatever it was.
But the biggest thing I took away, and it's still daunting, is his reading habit. He's set up in his parlour in a kind of lazy-boy type easy chair, with high tables on both sides piled high with books, periodicals, and Barron's and Value Line. Charlie is like an assembly line, devouring material — moving things from the unread pile to the read pile. I'd estimate he's reading more than 500 books a year, more than one a day. He doesn't read the way we read. He skims a lot, especially when he finds the author rambling, trying to get the nuggets he wants. The subjects are extraordinarily wide. I'd sometimes go in on a Saturday evening for dinner and he'd be reading about global warming, or about Admiral Leahy — Roosevelt's trusted chief of staff — and then we'd have a discussion on it, and I'd read the book later. Sometimes he'd be designing the university dorms he funded and get stuck on some detail like the height of a pickup truck, needing to figure out how high the parking level should be.
William Green
If I'm trying to draw some lessons from what we've just discussed, part of it seems to be that he's a voracious learning machine that hasn't stopped even at ninety-eight, and second, that he's constructed his life in a way that's true to him — his family, business, hobbies, bridge, friendships — with a kind of joyfulness from that alignment. Is that a fair observation?
Mohnish Pabrai
Very fair. I've told Charlie many times: without you, there's no Berkshire Hathaway. He'd always dismiss it. He doesn't look for credit. One of the biggest things I've learned about both Warren and Charlie is they don't look back — they look forward. Charlie's energies are always focused on the problem at hand. When I'd meet him he was wrestling with the succession at the Daily Journal, for instance, and it completely occupied him. He had one silver bullet — who he hired for that role — and he understood that. After the appointment, he could have no further influence. He turned down some very good candidates from people he really trusted, and in the end the solution was brilliant. That's another great learning for me: don't rest on laurels and say look what I've accomplished. Keep chopping wood going forward.
William Green
Do you feel Charlie is a very different type of investor than Warren? Even something like Alibaba, or Costco — Charlie would own those and Warren wouldn't look at them. Where do they diverge in their approach?
Mohnish Pabrai
They obviously have a lot of similarities. Charlie got to understanding the importance of better businesses — better to buy a good business at a fair price than a fair business at a good price — well before Warren did. Warren had been so successful in the traditional Grahamian approach that it took him longer. One area where they diverged was Costco. Charlie tried to have Berkshire take a much larger position and Warren's view was it's too expensive. Charlie would always say, for some things you pay up.
There was also a divergence on BYD. Charlie told Warren that Wang Chuanfu was like Thomas Edison — Warren ignored it. Then Charlie said he's like Thomas Edison and Henry Ford combined — Warren still ignored it. Then Charlie said he's like Thomas Edison, Henry Ford, and Bill Gates all in one person, and at that point Warren acted — but even then didn't use his own pot of cash. He went to David Sokol at MidAmerican Energy and had them buy the stake. The 250 million Berkshire invested in BYD came from MidAmerican. They bought at eight Hong Kong dollars per share; it's now at 260. More than a 30x over fourteen years.
William Green
The BYD idea originally came from Li Lu, who manages a portion of Charlie's fortune and has become a billionaire in his own right. You and Li Lu have become good friends over the years. What did Charlie see in Li Lu?
Mohnish Pabrai
I asked Charlie that exact question many years ago. One of the things Charlie told me was that in the investing business it's really important to have somebody to talk to — otherwise you're in an echo chamber. He said it wasn't always Warren, but he'd always had somebody, and he wanted me and Li Lu to get together for lunch once a month. He pretty much instructed us to do it.
When I asked Charlie what he saw in Li Lu specifically, he said it was a complete no-brainer. He just had to look at the track record. Li Lu was on student loans. He invested the float of the student loans — got the money in January, had to pay it in April — and when he graduated from Columbia he had a million dollars. At Columbia he got three degrees simultaneously: an MBA, a law degree, and an undergraduate degree, in a foreign language. He did really well in all of them. Charlie said the decision was one of the easiest he'd ever made.
Li Lu also has this remarkable ability to identify extraordinary businesses. He once told me to look at Amorepacific — a Korean cosmetics company. I could never quite get my arms around the thesis, so I left it alone, and it went up eighty times. Later he told me to look at Moutai, and this time I asked him to spend twenty minutes explaining it. He said, 'Why didn't you ask me that with Amorepacific?' I said we're learning. He explained it, I made the investment, and — as with almost everything in my life — I sold too soon. But those monthly lunches were exceptional.
William Green
What does it look like when Charlie encounters a business he hasn't seen before? You mentioned he can process it in about ten seconds.
Mohnish Pabrai
I've brought businesses to Charlie that he'd never looked at, and I've seen the brain working. It's amazing how quickly he slices through all the models. I'll give you an example. I'd been looking at Credit Acceptance — a business that makes auto loans to people with the worst credit histories at interest rates of twenty to thirty per cent. They also put a device in the car that allows them to shut it off remotely if a payment is late. It's a remarkable business: compounding at north of twenty per cent for a very long period. A lot of high-quality investors own it as their largest position.
When I brought it to Charlie, he said we don't want to own that kind of business. It took him less than five seconds, and he'd never heard of it before. What his filter is — and I realised this later — is win-win-win. Everything has to be a win across the board. The high interest rates, however you justify them, didn't pass that filter. He was done with it in the time it took me to describe it. I'd been looking at it for weeks and that point had never quite surfaced for me.
The same thing happens on non-investment questions. I bring him fork-in-the-road issues from Dakshana — he's never been to India — and he comes up with the perfect answer in five minutes. Every time I think, why didn't I think of that?
William Green
I remember years ago you decided to set up an insurance business and clone what Warren and Charlie had done with float — use it to become extremely rich. And Charlie, if I remember rightly, just looked at you and shook his head. Was there something he saw about you that you were not wired to run that business as well as you were wired to run Dakshana and Pabrai Funds?
Mohnish Pabrai
Charlie made a comment to me many years ago that in the very long run insurance will be a small part of Berkshire. It's a remarkable statement — if you look at Berkshire today, insurance dominates. But he may be right over twenty or thirty years.
There are some very elementary things about the insurance business that I missed when I decided to go down that path. The Berkshire insurance operation is completely different from anything else, and insurance is a really tough way to make a living. You sell a product whose real cost you don't know for five or ten years. I learned in a very expensive way. That said, I am glad I went into it. I got my money back, and I learned a tremendous amount. I know I won't go there again.
William Green
I'm struck by how many times I've seen you have very high conviction about something — tell me and others what a brilliant idea it is — and then a few months later conclude it didn't work and change completely. Seritage, Alibaba, the insurance business. It strikes me as one of your great strengths: strong opinions, lightly held. Can you talk about that?
Mohnish Pabrai
John Templeton would say the best analysts are wrong one in three times, and he told Prem Watsa that if you're wrong half the time you'll still end up with a tremendous track record. The error rate even for the best of us is going to be really high. We have to be humble about it. Greed takes over our brains when we look at a company's upside. We need artificial mechanisms to damp it down — talking to someone else, running a checklist, finding someone with a completely opposite view. We need circuit breakers on all our investment ideas, because the animal spirits will run wild.
Two things matter. One, we have to be cognisant that this is not brain surgery where a three per cent error rate is catastrophic. Two, when you are right, you can be really right — a ten or twenty bagger covers a lot of sins. The third is the humility to realise when you've been wrong and to move on. With Seritage, I finally concluded there was an error in my analysis. Even in a place like Austin, which has severe housing shortages, the entitlement process and the rules around new housing creation are excruciatingly slow. The redevelopment portfolio was far more complicated than I'd imagined. We still had a gain because we bought it cheap, so we got out clean.
William Green
At the Zoom breakfast with Charlie and Lou Simpson in July 2021, Charlie spoke about you very specifically. He said Mohnish is a very highly ethical person, and he's so mathematical and smart — and he said he knows he can make more money by being ethical, and that people like you and Charlie don't deserve nearly as much credit for your morality as you would if you were doing it against your own interests. Could you talk about that idea of ethics as a competitive advantage?
Mohnish Pabrai
Charlie is absolutely right. A huge portion of why I'm so ethical is enlightened self-interest. Most things in life function on trust, not on contracts. If you become very trustworthy, it gives you a massive competitive advantage. This trustworthiness doesn't come overnight, but once you have it, it's on a log scale. Humans can sense it. And once humans feel they can trust you, the whole universe is at your disposal. We see that in spades at Berkshire Hathaway — Warren's word is enough. People will accept it without anything in writing.
Ray Kroc used to say McDonald's stands on three stools: his franchisees, his vendors, and his employees. He felt he had to make sure all three did really well. He wasn't trying to squeeze them for the last penny. He wanted his vendors to do well because they're part of his ecosystem. I've taken those lessons to heart. If I have a relationship with a printer, I want that relationship to run for decades. I don't want to get three quotes and take the lowest every time. I want it to be fair. We run our business on trust.
My baseline when dealing with anyone is that this is a very high-quality person or company and I can completely trust them. Then I wait to see if they do something that violates that trust. If they do, we move on. But when you demonstrate trust upfront, a lot of good things happen. As Peter Kaufman says, if crooks knew how much money you could make by not being crooked, they'd stop being crooked. You make a whole lot more money by being honest.
William Green
Guy Spier has often said you have an extraordinary ability to judge people. And you've said if you have lunch with someone and you don't think they're going to be good for you, you cut them out. What are the tells? What are you looking for when you appraise someone's integrity?
Mohnish Pabrai
My dad used to say that to have a great life one needs one good wife and one good friend — less is more. I don't need a very large network of best friends. If I spend time with myself reading and thinking, I'm very happy. When I'm interacting with someone, I want those interactions to be ones I look back on with enjoyment.
When I moved to Austin I didn't know many people, so I lowered the bar on meeting people — said yes to introductions, went through the process. So far nobody has made the grade, and that's fine. They're not bad people. But I ask myself a very simple question: do I want to meet this person again? The answer comes back naturally.
I have 22 years and 3 weeks left before I leave the planet — that takes me to 2044. Once you know you have a certain amount of time, a lot of things become clear. I don't want to disrupt six months of my life redoing a kitchen. I won't move again. And how many yo-yos do you want to tolerate in 22 years? The framing makes decisions easy. It's very similar to Nick Sleep's destination analysis — working backwards from the desirable end state to decide what behaviour and inputs are required to get there.
William Green
It really struck me that you'd changed in the time since I first saw you in Omaha back around 2015. Back then there was a kind of swagger and bombast to you. This year you'd become gentler and softer, and there was less of that exterior. Was that something you'd consciously worked on?
Mohnish Pabrai
I don't think I changed, but if you're making that observation, I'm very happy about it. My approach in Omaha has always been deliberate: I said there are all these people who come and are never going to have any time with Warren or Charlie — those events have been cut back so much. So if someone wants a picture or a conversation or anything, I dedicate the weekend to the shareholder. I'm here for humanity. Anyone who wants anything, I'm here to serve as selflessly as possible. And maybe it's become more reinforced because between 2015 and now I've had so much interaction with Charlie and others that that demeanour has become more hardcoded. It's a better way to live — low ego, servant mindset.
William Green
You once had two industrial psychologists give you what you call an owner's manual — a set of tests and 360-degree interviews — and they told you that you had a desperate need to know who you are, that you were trying on the Buffett glove and saying 'this is me.' How did that shape your understanding of cloning versus finding your own identity?
Mohnish Pabrai
They said: you really don't know who you are, and you have a desperate need to know. You're trying on different gloves. The Buffett glove seems to fit and you say this is it, so you clone everything about him and that's you. But they said that doesn't work. The template that makes up Buffett and the template that makes up Mohnish are not the same — they may be similar on a number of traits, but they're not the same.
It took me a long time to see that Warren Buffett is a very different person from me. If I tried to bridge those vast areas of difference, it would be a distortion. It wouldn't even work because I wouldn't be true to myself. The same applies to Hawkins. When I read him, I took the stuff that was easy for me — being ethical and truthful, I can do that in my sleep. Kindness is a much harder thing. I have learned over the years to become kinder, but I have a lot of wood to chop there still. Since there's 22 years and three weeks left, maybe I'll pick Hawkins up again and see if I can incorporate more.
William Green
Is Dakshana the thing you're proudest of? You've been extraordinarily successful as an investor, but do you sense that's going to be your real legacy?
Mohnish Pabrai
I don't think in terms of legacy. After we're gone there are two theories: one is we're just gone, and the other is that the soul lives on. I'm not focused on what people think or say after I've departed. What I want to do in the next 22 years and three weeks is maximise the output from this body and mind in a way that makes the world better.
The way I think about it, I like to play games. Bridge is a game. Investing is a game. Dakshana is a game. Pabrai Funds is a game. As a game player I want to look forward, not back. I want to get better at bridge, at investing, at Dakshana, and at being a grandfather at some point. I'm not focused on legacy. The inner scorecard — exactly what Nick Sleep describes — is all that matters. I couldn't care less what people say about Dakshana.
What I find magical about Dakshana is that we adhered to a few very basic Buffett principles on giving money away and magic happened on the other end. The idea came from somebody else — it's way beyond my pay grade to have originated it. I just had to clone it. When we affect one life, we affect the life of a whole extended family, forever into the future. We've affected thousands of families already in a very positive way, and I hope in the future the thousands turn into millions.
William Green
It also struck me that your daughter Monsoon — who saw me lose my seat in the confusion before the Berkshire annual meeting and quietly rearranged everyone so I could sit between Guy and his wife — seemed to reflect something you'd done right as parents. What did you figure out?
Mohnish Pabrai
I'm incredibly proud of both my daughters. I think both my ex-wife Harina and I feel strongly that they are way better than we were at their age. Monsoon is a very high-empathy person — if she feels that somebody in her orbit is not in a good place, she's going to do a lot about it. She's a kind of mother hen for the whole ecosystem around her.
In terms of parenting, what worked was not what we said to them — it was what they observed. We think we can tell kids a list of things and it will work. That's not how it works. They pay attention to how we act, not just with them but with anyone they can see, and they see everything.
My father was a very stern, disciplinary guy until I was fifteen or sixteen. Then something happened and he started treating us like adults. He said, 'You know where my wallet is. Anytime you need money, just take it. You don't need to tell me how much or how you spent it. I have the utmost confidence you'll spend it well.' With my own kids I went a step further. They've never had an allowance. At fourteen I gave them Amex Platinum cards with no spending limit. I never saw anything on the statement I had to question them about.
At fifteen or sixteen I explained there wasn't going to be an inheritance. But when they were ten or eleven I told them: we're putting money into an account for you. When you turn eighteen there'll be enough to cover college. The real purpose is so that you can choose professions and careers based on what you love to do, not based on what pays the most. Both of them, when they turned eighteen, gave me power of attorney to keep managing it and just left it growing. Neither used it recklessly. What it gave them was freedom. My younger daughter, doing her PhD in psychology, told us she didn't want us to pay for it — she'd pay for it herself and used that pot as a backup. Monsoon started a fund. That's what security actually unlocks: the ability to pursue the right thing without anyone holding a gun to your head.
William Green
Warren wrote you a letter earlier this year that you very kindly shared with me. He said: 'Dear Mish, I remain incredibly impressed by what you have done, are doing, and will do at Dakshana. It's simply terrific, far more impressive than what business titans, investment gurus, and famous politicians ever accomplish. I'm glad my annual report doesn't get compared to the Dakshana annual report. It's an honour even to be quoted in it. With admiration, Warren E. Buffett.' Why would a ninety-one-year-old man with over a hundred billion dollars bother to write that?
Mohnish Pabrai
It takes time to write a formal letter. Debbie emailed me asking for the correct address. Warren's been reading the Dakshana annual report since the first one came out. Every two or three reports I'd get a chicken-scratch note saying 'send me twenty copies' or 'you're getting tremendous bang for your buck.' For him to go further and write a formal letter — there's a process there. I think Warren genuinely sees through people. He and Charlie are incredible judges of character. They were able to see through and conclude this is a good person to have around.
The letter showed me two things. One: Warren and Charlie genuinely think they are the same as us. Despite everything they've accomplished, they really don't have an ego about it. They see it as human-to-human. Two: Warren genuinely respects the purity of how Dakshana operates, and I think it's hard to find that in a nonprofit. He thought, I can take ten minutes and encourage him, and maybe that will lead to better work. And it did exactly what he wanted it to do. The letter reinforced the mission. I said there is no way I can deviate. I have to keep banging on this path.
William Green
I feel like we could do six more pages of questions on Turkey, China, Tencent — but I'd rather leave it here having discussed some wonderful things. Would you come back in a couple of months and we'll focus on those?
Mohnish Pabrai
Absolutely. We should do another session, but we should give people some more time too. I think this was a wonderful discussion. I got a lot out of it. You've been a great force in my life, taught me a lot of stuff over the last few years through cloning and many other things. I'm looking forward to the next 22 years and three weeks — and who knows, maybe a little more on top of that.