SAURABH MADAAN: Hello,
and welcome, everyone. Today is a very, very
special event for us. We have two previous
Google author speakers and famous value
investors with us. Let me introduce one of
them first, to begin with. Mohnish Pabrai is the managing
partner of Pabrai Funds. He’s also the
founder of Dakshana, a nonprofit organization,
which has sent hundreds of impoverished kids to the
IITs, which are the most sought-after colleges in India. We are very pleased to
have you again with us. So welcome, Mohnish. And let’s start with a brief
introductory remarks from you. MOHNISH PABRAI: Thank you. Thank you, Saurabh. It’s a pleasure to be here and
pleasure to be back at Google. And now I’m our shareholder. So last time I came I was not
appropriately portfolioed, but now I’m
shareholder of Google, so it’s great to look at
what my money is doing. And I’m bullish on the
prospect, if you will. So just very quickly before we
get into Q&A, like many of you, I’m an engineer. And I did my undergrad
in computer engineering. I actually never had looked
at the stock market or stocks or went to business school. And in 1994, quite
by accident, I read a book, which is the
one you can see on the slide. It’s by Roger Lowenstein. And it’s a biography on
Buffett– “Buffett– the Making of an American Capitalist.” And I was very lucky
because just at that time the first couple of biographies
on Warren Buffett had come out. And when I read the book, it led
to a very significant epiphany, which eventually led me–
immediately, actually, almost immediately– to start
spending something like about 20 hours a week on
investment research, and then about five years
after that to actually do a 180 and start an investment fund. And the thing that I found
very compelling about the book was that Warren has
this saying that I’m a better businessman
because I’m an investor, and I’m a better investor,
because I’m a businessman– interplay between
running a business and managing an
investment portfolio. And when I read
Buffett’s biography it dawned on me
that the tools you use when you’re
making investments are almost identical
to the tools you use when you’re running a business. So for example, I
was at that time running an IT services company. And I would probably
spend maybe 2% or 3% of my time on strategy
and direction– figuring out which
areas we would focus on and those sorts of things. And then 97% of the time
was the heavy lifting, you know, the blocking,
tackling, and making that strategy happen. And initially, when I was
doing this for first few years, it was very exciting, because
you basically have a hypothesis and then you’d go out and try
to execute the hypotheses. And then you’d have
real-world results to look at. When I read Buffett’s
biography, what dawned on me is that that 3% of time
that I was spending for someone like Warren
Buffett was like 80% of time, because what he was able to
do is apply the same analytics towards understanding
which businesses and industries and such
were great investments. And so the part of
the brain that you use in figuring out business
strategy and direction are pretty much almost
identical to the same parts that you would use
as an investor. And I always found
that the 3% of time were a lot more exciting
personally than the 97%. I mean, I enjoyed the 97%,
but nothing like the 3%. And so the idea of
blowing up the 3% to 80% by letting someone else in
effect run the business, and you figure
out where you want to allocate capital was
very exciting for me. And so that’s what
led me to– I had sold a few assets in the business. For the first time I
had about $1 million, which I didn’t
have any need for. And so I decided to
take the $1 million and put it into
equity investments as an experiment to see how far
I could take Buffett’s model and applying those same
analytics that I was using and I’d try to blow it up. So basically, I immediately
got to spend about 20 hours a week on what was normally
would have been just a week or two in a year and then a
lot of time just executing. And so if you can go
to the next slide. And so one of the
first investments I made– this was in
’95– and it actually show the interplay
between the real world, if you can call it that,
and the investing world. So I was running this
IT services company. There was this company in
India, which was called Satyam Computer Services. And Satyam was trying to expand
its business in the United States. And their sales team had
visited me in Chicago. They wanted to see is we could
do some kind of relationship. And we never did any business,
but I liked them a lot. I liked the people. And I liked the way they were
going about their business and how they were
positioning themselves. So then I decided to
study Satyam as a stock, because it was publicly
traded in India at the time. And when I studied it, I was
a novice investor at the time, but it blew my mind because
the market cap of Satyam was less than what
you might have valued their real estate in Hyderabad. So the stock was trading below
what would be just liquidation value on real estate. And this was a IT
services company that was growing something like
70% a year, very high margins. And I really couldn’t see
the end of that runway. That runway was really big. And of course, investing in
India was really complicated, but I did it, but
I wasn’t confident now because we didn’t
have electronic trading. There were these flimsy
stocks that [INAUDIBLE]. And I didn’t fully trust
the Indian government on the ability to actually
get the money back in dollars, even
though they said the rules would allow that. So anyway, I made a $10,000
investment in Satyam. I bought three or
four different stocks. And Indian Satyam
was one of them. And I decided this is one of
those investments where you just buy and forget about it. Never look at it again and
just let it run for 10 years. And I bought it at
40 rupees a share. And about five years later–
and this you know, of course, we had the whole dot-com
boom in getting going– and Satyam had spun off
one of these dot coms. The stock had gone
from 40 rupees to in February or March
of 2007 7,000 rupees. So it had gone up
like 130-140 times. And currency had
moved again, we would have still even with
the currency moment it was more than 100x. And so I decided to stop
drinking the Kool Aid and do analysis of the
financials at that time, but I basically never
looked at it after that. And when I did the analysis,
it was creating at or north of 100 times earnings. And they had all these dot coms
which I couldn’t figure out what they were worth. And I said, you know, I think
we’ve got more than a million in Satyam stock from the 10,000. And I think we’re going to
take our money off the table. The other thing I
was concerned with I didn’t know whether they
were allowed to put it back from India, because
the government said you could come in, give
us your foreign exchange, and when you sell it, no
long-term gain stocks, and you can pull the
whole thing back. And I didn’t trust that. So I said let’s test that. And so I sold. And didn’t certificate. I didn’t even know if
they were authentic. So it sold, and the money
got into my bank in India. And then I said wire it
to my bank in the US, and the next day
it was in the US. OK, so the whole thing
actually worked exactly they said it would. Then I said, well,
you know, I should’ve trusted them a little bit more. So that was Satyam. We can go to the next slide. And so there was
this other company in the mid ’90s PeopleSoft. And one of the things
were the interplay between investing and
running a business, so we were basically
doing system integration. So for example, we
had a team which had expertise in
Sybase and Oracle, all these different databases. And what I started doing when
I was looking at investing, I started looking at all
the software companies, because that was an
area I understood. And one of the companies I
found with a very high P/E ratio was PeopleSoft. I think it was creating nearly
more than 50 times earnings. And PeopleSoft was
like SAP, basically, where they needed
system integrators to go in and
implement the product. So I said, well,
you know, what I can do is I can’t buy the
stock, because it’s ridiculously priced, but I can
do a back door. And the back door I
did, I said, well, the market is mostly efficient. So if it’s a 50 times
earnings, the market expects tremendous growth. And it looked to me like
it would grow a lot. So I said if we and
my company, TransTech, set up a PeopleSoft
practice, that would not be buying at 50 times earnings. I would just be hiring people. And then I’d have them build out
of these different companies. And it would be pretty
spectacular margins because it was so
new and growing. So I decided we would set
up a PeopleSoft practice. And I still remember the
economics were just incredible because I hired this guy who was
probably the most expensive guy we’d ever hired at that times. This was ’96 or
something, I think. He was a PeopleSoft
practice leader. And I think he cost us maybe
quarter million a year. And when we hired him, we didn’t
know what we would do with him. But I just said, OK, I need to
have some horsepower coming in, so we can then figure out,
because this guy knows what he’s doing. I said, once he comes in, then
we’ll sit down and figure out what to do. So he comes in to work the first
day and he says, by the way, are you looking for clients? I said, yeah, we’re
looking for clients. And he said, well, you know,
I’ve got these relationships, there are three or four places. And I can go in with
a team of 15 people. So I said, Paul, I don’t
have the 15 people. Do know the people? He said, yeah, I
know the people too. OK, so he helped us hire
these 15 buddies of his. And I don’t think it was even
a day that he was non-billable. So in two days he’s building
at multiples of the quarter million that I’m paying him. And the team is going
in at 50% margins after covering all expenses. And so when I looked at what
happened with PeopleSoft, our actual cash out
the door– we’re kind of be like the Dell
model, where you ship the PC and then you pay
your suppliers later. I hadn’t even paid the
payroll on these people before we raised
our first invoice. And the invoice was
at a huge margin to what we were
going to pay them. So when I actually
calculated dollars invested in the
PeopleSoft practice, I think it was a
negative number. And in the end, a lot of
the rest of our IT business was kind of declining
because it was matured out and getting competitive. This was very high margin. And so that’s an
example of how I used the stock market to drive–
I said, no, this is cool. I’ll just keep looking at
companies that have 50, 60, 70, 100 times earnings and
then go build a practice. And I know they’re
going to go up. And so that worked really well. So we go to the next slide. And so we had Satyam and
stuff, which from ’95 to ’99, I think, I’d done like north of
70% a year on that $1 million we originally had. So things had gone really well. But then in ’99, and this was
when Pabrai Funds had started, one of the first
investments we made is I was seeing the big
bubble in the internet. And it was clear to me that the
internet was transformational. But also I was very skeptical
of the pets.coms, if you will. So there was a side of
me which said, yes, I can see how this will
change people’s lives. But I was having a hard
time aware what kind of bet I can make, which
would be a safe bet. So then I find
this company, which is headquartered not too far
from here, Silicon Valley Bank. And it’s a very well-run bank. It wasn’t trading at a
significant multiple to book. It’s just a modest
premium to book. But what they did every
time they did deals with these
venture-backed companies where they did asset-backed
loans and all this stuff, they got warrants. So every company that they
did a loan or leasing, or different deals, they’d
collected warrants in addition to what they would get
from the loan spreads. And so they were sitting on
this basket of like 300 or 400 of their clients
with these warrants. And many of these were pre-IPO. And there was no disclosure. There was no
disclosure that they had made of– OK, look,
here’s a list of companies, here are the ones we
own, and this and that. I just knew they are sitting on
this mass amount of warrants. And so I said, well,
if we buy the bank– and it was publicly traded–
we’re buying a well-run bank. And we have an automatic upside
if these warrants come in. And I don’t know whether
they would come in or not, but I said, its
kind of heads– I win, tails– I don’t lose much. You might have
heard that before. And so we bought
Silicon Valley Bank. And I think within about six
months, we had a 4x on it, because then they started
reporting that, yeah, we had this huge amount of
income, because these companies and public we sold, and it was
dwarfing their interest rates. We can just go to next slide. And so now we come full circle
where about a year ago I set up a company called
Dhandho Holdings. And so now it’s
been about 16 years that have been 80% time
doing strategy, if you will, which is great, and
getting paid for it. What a country! But I found that the
Pabrai Funds is somewhat limiting, because I’m
limited to public markets. I got rid of the
technology company, so I didn’t have a way
to go into these kind of roll-up-your-sleeves
type things. And so I set up Dhandho
Holdings about 18 months ago. And we raised 150
million and we just bought an insurance company. And now this platform allows
me to buy any kind of asset. I can buy private companies,
public companies, real estate, anything I want. And so it allows a little wider
playing field, if you will. And it allows for
the first time we have insurance float, which I’ve
heard is a good thing to have. And so now I have– which is
the part I was always interested in– is that if you can control
the business without really meddling or running
the business, and if you can
control the capital allocation of the
business, that has some superiority to just being a
passive public equity investor. And so we have some
elements of that in Dhandho. And so we’ll see
how that plays out. So I just wanted to
give a little backdrop on how an engineer
goes from what I was doing to where I am now. SAURABH MADAAN: Thanks, Mohnish. It’s a fascinating journey. Thank you very much. So our next guest is
also a previous Talks at Google speaker. He wrote an investment book “The
Education of Value Investor”, a bestselling book. But unlike few
investment books, this was also a book that
touched a lot of individuals at a very, very personal level. He’s the managing director
of Aquamarine Funds. And it’s my great pleasure
to welcome Guy Spier. GUY SPIER: So thank you,
Mohnish, thank you, Saurabh. It’s a pleasure to be
here with my family. And I think I’m going to
stand– so I’ll just go and take a seat over here. And I won’t take long. So what do the
rest of us do when confronted with the brilliance
that we see over here? And I would say that I
think that I was brought up most of the time that I was
at school and university, I was in places
where I was probably the smartest guy in the room. And then, as inevitably
happens in life, you end up at Google,
where there is a huge number of smart people. Or you in your own
profession, you end up bumping into somebody
like Mohnish Pabrai. And I think a lot
of us who are smart have a big problem when we hit
that, because it’s kind of you hit a wall. And it’s a bit like
being perhaps– you know, there’s
a very high suicide rate at Cambridge
University math’s subject, because you get all these super
bright mathematics students. And they hit a wall
when they suddenly realize that there
are people there who are much more
brilliant than they are. So I hit Mohnish Pabrai. And I saw a guy who
can quote poetry to me from the back
of a taxi, who’s incredibly good at playing
the game of investing, who up close, I can see,
absorbs information and analyzes it much
faster than I do. And so what I want to
tell the group here is that there is life on
the other side of that. And just a couple of ideas. One is that I think
that something that’s been really remarkable for me
is to realize how we don’t think on our own as human beings. So I think Google
engineers understand that. Saurabh and I were
talking about how effectively one of the
things that Google is doing is that it’s helping
us to delegate a whole bunch of mental
functions out into the Cloud, and we can focus on the
things that we do best. But that also happens
in smaller samples. So I’ve learned
that if you combine that with not worrying
about who gets the credit and in certain way who
to be the bad boy for, you can get a lot
more productive. I think that the
minute I stopped trying to be the originators
of all original ideas– so cloning is good is something
that I learned from Mohnish. And then I learned
not to worry about who gets the credit
for something, you can end up being
extraordinarily productive. And before we open
it up to questions, I’ll just leave you
with this one thought that I find just
extraordinary is that I decided I was learning so much. First of all, there
were few things I started doing right to get
into the presence of Mohnish Pabrai. That itself was
fascinating to me. I was so excited by
the things I learned, I decided to write
a book about it. If you take a look at
the book, I basically start the book saying I am
not worthy, I’m nothing. Look at what I learned
from this person. Look at what I learned
from this person. Look at all these
ways in which I failed until I learned from Tony
Robbins, Mohnish Pabrai, Warren Buffett, Charlie Munger. It goes on and on, each
time to somebody else. And I find the world
an extraordinary place that even when you
do that, you end up getting a huge amount of credit. And so I think the
secret for the rest of us is to find people by
acting in the right way, giving credit to other
people, and then just being a part of the
meta thought process that allows us to
benefit as well. And I think that when you
get into those ecosystems, it’s a lollapalooza. Extraordinary things happen. And just going back
to the founding stone for me and
Mohnish, I think that’s what we see at
Berkshire Hathaway. You see a group of
people who learned how to do that within a
web of dissolved trust. And with that, we can
open up to questions. SAURABH MADAAN:
Thank you very much. So I have questions
for both of you. And MOHNISH PABRAI: Saurabh,
just [INAUDIBLE] going to do one to two, do
you want to switch with Guy? I think it’s better this way. SAURABH MADAAN: Yeah, let’s
have Guy sit closer to Mohnish. But yeah, I can face both of
you when I ask you questions. Let me start with you, Mohnish. This is a question, you
mentioned your journey from technology to
investing, as it were. And I learned somewhere–
and fill in the gaps for us– that you went to a retreat. And there was an
industrial psychologist, psychiatrist, help correct me
later, who did a 360 on you. And you were managing a company. And they said, Mohnish,
stop managing this company. And you would work best
in a team size of one. Is that correct? MOHNISH PABRAI:
That’s right, yeah. So I’m part of a group called
YPO– Young Presidents’ Organization, which I
think is one of the best nonprofit groups out there. It was set up to make
business leaders better– better leaders, better husbands,
better fathers and mothers, and such, and so. It’s been a great
group to be a part of. And so I’ve been
with YPO I think now for about almost 18 years. In fact, I just left
because now I am too old. And so it was great 18 years. And as part of
YPO, we get set up in forums, which are groups
of 8 to 10 individuals who are in non-competing
businesses. And the forums meet once a month
in a very confidential setting for about four hours. And then once a year
we go on retreat, where we go into
deeper dives, where we explore longer-term
goals, personal growth, and development, and so on. So one of the individuals
in the group suggested that we have these
industrial psychologists do a deep dive on us. And so there were
these two individuals and they had a company
called Conquest. And I was intrigued by the name. So they said that they
named it after Genghis Khan. And they said people think
that Genghis Khan was a tyrant. But they said that
Genghis Khan was extremely effective at
getting to his objectives. And so they said that
in effect each of us is wired a certain
way on the inside. So let’s say, for example, that
this is your inner map, what happens is the world expects
us to act a certain way. And so in many ways, as we
try to please the world, and so we will have
an outer map and many, many damages misaligned
from the inner map. And that inner map, according
to these Conquest guys was, between your genetics
and the first five years of your life experience
is hard coded. That inner map is
not going to change. Things that you like
or dislike, those are core parts of your
psychology and your makeup. And so their perspective
was that there’s no point for Genghis Khan to try
to be like Gandhi, because he’d be completely ineffective
at it, because at the core he is a tyrant. And so they said, if you
are a tyrant on the inside, be a tyrant on the outside. Because that’s the best
thing for the tyrant. It may not be best for
the rest of humanity, but they were focused
on the individual. So their take was
that each of us is born without
an owner’s manual. And what they told
us that they would do for us at that retreat is
at the end of the retreat, we would basically
have an owner’s manual. And I got a 20-page document
which I re-read every year now, re-read it. And so what they did was
they did the 360 interviews. So they talked to
all our spouses. If the kids were old enough,
they talked to the kids. If you had employees,
they talked to employees, your friends. Just a full 360, people if
you were reporting to someone, they’d talk to your boss. If you had people
reporting to you, they talked to people under you. And then they had us
to do a bunch of tests. And based on all of
that, they got a map of who they thought we were. And then they sat down
with us individually, not individually,
within a group setting for three days at this retreat
and went through the finding, went through the owner’s
manual for each of us. And with me at the time I
was running this company with 170 people, with these
PeopleSoft consultants and all of that. And they said, don’t even
know how you do that, because this is not you. So what they said
is with me, they said something that was
very core to my psyche is I like to play
games, but I like to play certain types of games. So I like to play games
where the outcome depends on my performance, it
doesn’t depend on a team. So I wouldn’t be a good guy
on a soccer team, for example. So they said that you like to
play games where the outcome is heavily dependent on you. And you like to play games
where you think with whatever you have to bring to
bear to that game, you have a likelihood
of winning. And when you pair
yourself, they said, with this game where
it seems to match up with the type of things you
like to do, then you’ll kill it. So they said you need to focus
on driving that, feeding that. And this was just about two
or three months before Pabrai Funds was launched. And I had the idea for it. So I would explain to them what
I was trying to do about it. And they said, yes,
Pabrai Funds– perfect. That’s what you
should need to do. And they looked at
my other company, they said, as
quickly as possible, sell it, find the CEO,
whatever you can do, exit. And I did that. Like for example, I
love to play bridge. I spend five or six hours
a week playing bridge. And I look forward to it. Like Saturday and Sunday
I played about five hours of bridge. It was incredible. I loved it. Probably love it as much or
more than equity research. And you can see that. There’s no reward
by playing bridge. But there is a reward
for me, because I only like to play duplicate bridge,
because in duplicate bridge we keep score. And if, for example, many of my
friends will say, hey, Mohnish, we’re having a party. We’re going to play
some social bridge. I have no interest
in social bridge. What’s the point of
playing social bridge? There’s no scorekeeping. And so scorekeeping just in
my psyche is very important. And so just I would say
that this whole area doesn’t get covered in our
education system. I think universities ought
to pretty much give everyone their owner’s manual. In fact, I think you should
get your owner’s manual when you’re 10 years old. And so to the extent that
individuals able to do that– and I think it’s not very
hard to do it in the sense that if it was a poor man’s
version would be Myers Briggs. You could just pull
it off the internet. And do that. But I would say, even if
you just in the Yellow Pages look for an industrial
psychologist or a psychologist and just ask them
that this is what you want them to do, I think
for maybe $1,000 or $2,000, maybe $3,000 you could
get quite a ways, because the body of
work is so extensive. And I think the
rewards are priceless. SAURABH MADAAN: Thank you. And, Guy, this idea of– MOHNISH PABRAI: And by the way. I just wanted to say that
I went through this in ’99. And Guy is not part
of this other group, I’m part of Latticework. And I had the group go
through it last year. Actually, no, 2013. And Guy was part
of that as well. So he went through it as well. SAURABH MADAAN: I want to ask
you about your owner’s manual, but before I come
to that, this idea of alignment and authenticity
also comes out strongly in the book that you wrote. And it’s been a while since the
book came out, since then it’s been on all sorts
of bestseller lists, broken all sorts of records. I’m just curious, given the
months that have passed. And if you were to add an
afterward or a final chapter now, where are the
things that you might want to mention in there? GUY SPIER: I would just
tell you that I think it’s too soon to add something. I feel like the book was
five years in the making. In fact, you could argue that
the book started when I first met Mohnish, because he talked
to me about Mahatma Gandhi. And it was only because he
talked to me about Mahatma Gandhi that I even read the
autobiography of Mahatma Gandhi and was inspired by it. I would say the only thing that
I’m struggling with right now is that the book is
on the positive side a great big active commitment
to consistency, which is good, because it commits
me to certain values. I think those are great
values to be committed to. But it also commits me to a
certain standard of behavior. And I have various members
of the planet showing up in various ways in my
email inbox and in letters, and what have you,
and they’re expecting a certain past standard of
behavior, which is easy enough to do when you have a relatively
small circle of friends, but when you have a large
group coming at you, and so I’m struggling with
how to remain congruent as more and more people come
into my life, which is not an easy task. SAURABH MADAAN: Absolutely. Absolutely. And I guess which
is why you are you. So there’s a question here
that we have from the audience. And I think you’ve probably
both seen this question before several times. But it’s an important
enough question to, I guess, reflect upon for all of
the audience that you’re going to have here live,
as well as on YouTube. The question is simply what
was the most unexpected surprising thing
that you guys felt when you met with Warren Buffett
during your lunch with him? MOHNISH PABRAI: Do
you want to go first? GUY SPIER: You know, one
of the things that really got to me at the
time was when I asked him this question about envy. I had the courage
to ask about myself. So the question that
I asked him was, Warren, imagine I’m one of your
managers of your businesses, an important business
that generates a lot of cash for your office. And imagine that I come to
you and I say, you know, I’m sort of grips with envy of
other people in my industry. And it’s affecting
my performance. And I expected Warren
to come back to me with some brilliant answer. And he just looked at me. And I said, so
what would you do? And he just looked at me
and went, I don’t know. I was both a little sort of
shocked and disappointed, because I was
expecting some wisdom. And I think what
that did to me is it made me struggle
with that afterwards and forced me to come
up with my own answers. And I think it’s a
testament to Warren Buffett that he is so
congruent and aligned. I think that when you’re
congruent and aligned with yourself, when
you love what you do, you don’t get envious
of other people, because you’re happy
for them to be happy. And you love what you do. If Mohnish is playing
bridge, he doesn’t care that some other guy is
driving a Formula One racing car. And because Warren has
been so aligned for so long the thought was just
utter anathema to him. And I think it made me
realize that the answer was to drop all these things I
was doing, that was trying, in which I was
misaligned, basically. It’s actually one
of the great clues that you’re misaligned is
that you’re feeling envy with something else. Emotions are a call to action. And the emotion of envy says
there’s something in my life that I need to change. And if you direct
yourself inwards, which I by some miracle managed to do. There’s one of the
many surprising things. SAURABH MADAAN: Thank you. Mohnish? GUY SPIER: What I found, what
I’ve found very surprising was that Warren’s
got plenty going On. He’s got more than
300,000 employees. Huge company. Obviously, he agreed to have
lunch as a charity lunch. But the thing that surprised
me is that he truly showed up. So his perspective when
he came for the lunch was that these people who I don’t
know very well, don’t know or at all, really, for
them, this is a big deal. He understood that really well. And he understood that he
was there to deliver value. And so he wanted to
make sure that we felt like we got a bargain. And so whenever we
asked a question, he converted the question
into a learning opportunity. And so I would just
ask him a question, like, for example,
hey, Warren, there was this third kind of pseudo
partner of Rick Guerin. And then after the ’70s, he
kind of dropped off the radar. What happened to Rick Guerin? And he took that
opportunity to give us a lesson on leverage and
different things, which was very powerful. And the other thing
I would say is that in meeting him and
meeting Charlie Munger, both these individuals are
off-the-chart brilliant. I would say that they are
unworldly brilliant, because I asked him questions that
I know he would have never had any talk that I
want to ask and had any prior of processing. But the way the answers came
out, and especially, many times that I’ve done that for Charlie
Munger with these extremely left-field questions, I would
say this that I have never ever met a person
who is anywhere close to the brilliance
of Charlie Munger. I would say he
surpasses Warren– sorry Warren– he surpasses Warren
by quite some distance. And Warren himself
surpasses most of humanity by quite some distance. So that was the thing
that a lot of thing was you could just
see that there is just horsepower coming out of their
ears, incredible horsepower. And they get output
out of that engine. A lot of people have horsepower,
they don’t get output. These are Formula One Ferraris,
which are delivering output. GUY SPIER: Sorry,
just to riff on that. If we get asked, I get asked
all the time was it worth it. And I can’t tell
you the feeding. So somebody, here’s the
richest man on the planet or maybe he’s the second
greatest, I don’t remember. And he’s determined to deliver
extreme amounts of value to complete yo-yos, and
their wives, and children. And that almost makes you
want to jump out of your seat. It’s not what you expect. And here’s what I’ve learned. If Warren Buffett was
doing that for us, you can be sure that he does
that for every single one of the Berkshire managers. He does it for many,
many other people. And it made me
realize if you have the sense that the richest
on the planet, most successful businessman,
most successful investor, he would not feel obliged to do. He’d feel like his
presence is sufficient. There’s no other way,
I think, to really have learned the
insight that we really are here to serve other people. And we get success in life when
we take that very seriously and we deliver with
enthusiasm value, even two yo-yos who’ve
showed up for charity lunch. But I would even argue that so
we’re at the end of the lunch, and, of course, where our
attention is totally focused on him. There are many other things that
we would like to do and ask. And he says, wait a second. Let we just take care
of these waiters here. He went and personally
tipped at least one or more of the waiters. So it wasn’t just for us. It was for everybody who
made the occasion possible. I don’t think there’s
any way I could have learned that lesson,
other than being at a lunch like that. SAURABH MADAAN: Awesome,
thanks for sharing that. OK, there’s a question
you should have expected. There’s a question that asks
you about the stock market being overvalued or not
currently in the context of quantitative
easing and so on. I’m going to just sort of
rephrase that and put that in the context of remarks that
I’ve heard come from you, guys. And correct me if
they’re misattributed. There’s this notion of what
Maggie Mahler has written in her book of breaking the
stock market into 15 to 17 year cycles. And with that notion,
2016 is supposed to be closer to the start
of another blue market. But given the interest
rate environment that we’ve seen in
the past few years, not necessarily
the next 2-3 years, but I’m just curious how
do you see things moving in the next decade or so? GUY SPIER: I have no clue. And I believe if you continue
to do constant [INAUDIBLE], you’ll eventually get inflation. I think that
everything that I don’t want to be anywhere other
than stocks, because they have unlimited upside. And just about every
other instrument does not. I want to be in stocks because
they’re inflation protective. And this idea of going to cash
or some other instrument, what are you going to do if
you do get inflation? I think other than
that, is if we look at the success
of Warren Buffett, it’s because he didn’t waste
too many brain cells thinking about Mary Mahler when the
next cycle is going to come, and he just focused
on businesses. MOHNISH PABRAI:
Well, Guy is no fun. So let me try to do
a little bit better. SAURABH MADAAN: Thanks,
Mohnish, [INAUDIBLE]. MOHNISH PABRAI: Well, I
think Maggie Mahler’s book is a great book to read. [INAUDIBLE] is a
fantastic book to read. And I think if you go back– and
I was actually recently looking at just the numbers– if you go
back to late ’99, early 2000, and you look at companies
like Microsoft and GE, and a lot of these high
flyers, they were sitting, GE was sitting at
40 times earnings. And then 15 years later, they’re
sitting at 14 times earnings. And your know, of
course, earnings have grown, considerably
through them, and the stock hasn’t
done a whole lot. And so basically you definitely
see this pattern of in 1982 markets we very undervalued. Again, GE was in
single-digit piece. Coke was at nine times
earnings, or something. And again, in ’99-2000,
Coke had 40 times earnings. And so we had this massive
bull run from ’82 to ’99. And we haven’t had much happen
to equities from ’99 to today. In fact, if you look at
it from the point of view of the NASDAQ, it’s almost
played out perfectly according to what
Maggie would have said, because the NASDAQ peaked
at 5,000 in first quarter 2000. And it just hit 5,000
first quarter 2015. So that was a
15-year end to end. Even the DOW and the SNP,
they haven’t done a whole lot of the last 15-16 years. But I would say that we
are not at the point which is like 1982. And in the sense that we
are not at a point where we have screaming bargains
all over the place. For the last couple
of years I have not been able to find anything
meaningful to buy in the United States. And it’s not because things
are 40 times earnings. So they’re not euphoric,
but they’re not cheap. And I don’t think that most
things are in bubble territory. I think some things, especially
in this part of the world, are in bubble territory. I don’t think Google’s
in bubble territory. But there are,
certainly, even in terms of private valuations
of some of these venture rounds and [INAUDIBLE], I think
those are in bubble territory. So we have some bubble-like
behavior in certain pockets. So history doesn’t repeat
itself, but it does rhyme. So we don’t know whether
2016 or 2017 are the low, but I would say
that the odds are high that when you get to
the 2030s-2035s and that type of a time period that
the lessons of ’99, that generation’s
going to say this time is different,
because it’s so far. It’s 35 years. And that’s why we
have these cycles, because one generation retires,
a new generation comes in. Nuke into the
block, and they say, these guys don’t know
what they’re doing. We know. And so I think that it’s good
to be cognizant of those cycles, but I agree with Guy
that you’re far better off focusing on
individual businesses and making the investment
based on the economics of the business. SAURABH MADAAN: Thank you. So actually I’m not going to
let you go off that easily, Guy. So one of questions. [INAUDIBLE] Basically, the fact that
Mohnish gave nice examples– Satyam, Silicon Valley Bank. But the thing with
those examples is they’re more than
a decade old now. So– MOHNISH PABRAI:
That was on purpose. SAURABH MADAAN: Sure. So I’m just
wondering, Guy, if can be a little more
sporty than Mohnish and give us some examples, which
are maybe from this decade. And if not, from this year. GUY SPIER: I filed, I was forced
to file my first 13F this year. So you can look up
Mohnish’s 13F or my 13F, or a whole bunch of
other 13Fs, and see exactly what he may have bought,
when he might have bought it. I think that he will have–
I have maybe 100 baggers. I don’t know, I think, he
probably will have more 100 baggers in his portfolio. I think it’s very,
very dangerous to speak about specific
stocks that you own, especially when it’s a
potentially influent audience, because the commitment with
consistency issues is so high. I would just share
one thing with you which is so what you
saw here is a guy who loves to play games with odds. And so he can’t help himself. When he’s looking at Marry
Mahler’s stock market 17-year cycles, he may
not know the answer, but he’s calculating
probabilities all the time, mostly the probability that
this model of the world is true. And he has a very strong hunch
that that model of the world is true. But let’s say that
you’re like me. And you’re less into
playing games with odds. That’s just fine. The fact is that if you
apply the right investing philosophies, you can
do extraordinarily well. And I would actually argue that
for the vast majority of us trying to get into
those kinds of questions is actually going to mislead us. First of all because it’s
hard to do, but also this is just not the
way our minds work. There are very few
people in the world who are wired to think
probabilistically, the way Mohnish does and
the way some other people do all the time. What we have to do is
find a way of investing in a way of implying these
value-investing tools that is consistent with who we are. And it’s totally fine to be
friends with other people who do it differently. But to try and start
looking at the world the way Mohnish looks at it, I’m
going to get into trouble. MOHNISH PABRAI: You know,
one thing I would say, Saurabh, is that I was
looking back recently at, you brought up the 100 baggers. 100 baggers are good
for your health. The problem is that they
don’t come along that often. I wish they’d come
along more often. It’d be even better
for my health. But the thing is I look
back, and they do come along. And in many cases, we
are too dumb to see them. So Satyam was one that
I was able to ride. Of course, it happened
at a time when I didn’t have much
more net worth and I had even
less of an appetite for these non-computer traded
Indian stocks and such. But then after that,
I had another case where I made an investment in
a shipping company Frontline. And it was undervalued,
distressed, and all this stuff. And I think I bought
at $7 I sold it $11. And because I was
just trying to play that arbitrage between the price
of the ships and the net asset value. But that stock Frontline,
from $7 it went up to 150. And then it was issuing
dividends, which exceeded what I had paid for the stock. And that holding played out
in about four or five years. And so that was at least
25 bagger that I missed it. There was another one. And this one I should have
actually been more cognizant of, it was complicated. So there was this company
which had Marty Whitman on the and it had Sam Zell. And I don’t know
if you guys know, but Sam Zell is a grave
dancer, a great guy to follow into
different investments. So these two individuals had
bought this dilapidated shell of a company which had
huge amounts of NOLs. And it was an insurance
company that had gone under and had a lot of NOLs. So they bought the public shell
because it had those NOLs. And then they bought some
barge company in Mississippi. Basically, the idea was to
marry a profitable business to this NOL stream and make
money off the tax savings. And then the barge
company went under. They didn’t do well. So they got more NOLs. So they got NOLs to
the power of NOLs. And I had not
invested in a while. And then they after that they
found a very unusual waste strategy company. So this company basically
took waste and in this plant basically converted
it to electricity. Almost everything was very
high temperatures and such. And then they were
doing a rights offering and different things. And that’s when I saw it. And I was too dumb, because I
couldn’t, just like Satyam, I couldn’t believe the
significance of the upside. I thought I must
be doing something wrong with the numbers, because
like John Malone’s deal, just very hard to figure out. And so I had, I think, a double
or a triple, and I moved out. And again, that was about
a 20 bagger from there. And so the thing
is that there have been a few of these that have
come along in the last 20 years. And I know that will come along. I hope the next time
I’m smart enough to see it and ride it, and
put enough money behind it. So there’s still time. We’ll see if we can ride
one of those properly. SAURABH MADAAN: There’s
hope for all of us. MOHNISH PABRAI: Yeah. But those are good
ones to study. And they do come along. And they’ve quirky. And they’re special situations. But I think it’s worth
looking at them, yeah. SAURABH MADAAN: Especially for
the small investor, I guess. MOHNISH PABRAI:
Absolutely, yeah. SAURABH MADAAN: So I know you
guys are on a tight schedule, but one final question. And I have to ask
you, because I know you’re both engaged
in a lot of activities outside investing as well. And I recently read the
Dakshana annual report. And I was blown away by how
data-driven, how quantitative, and yet how inspiration
that whole report was. And it’s one of the
best nonprofit reports that I’ve ever come across. So I’m sure it must be a
conscious, deliberate effort to do things in a
certain way for you? MOHNISH PABRAI:
Yeah, but Saurabh, you know I like to play games. So I tried to explain to
the Dakshana team in India that I’m not really
doing any good, I’m just playing the game. And it’s a great game to play. And so one of the
things that is a fact is that it’s way more difficult
to give money effectively, give away money effectively,
than to make it. As you can see from my
[INAUDIBLE] escapades, you can just blunder
along and make some money. But giving it away is harder. And the reason– and I’ve
learned this from Warren– the reason that giving
away money is harder is you’re forced to confront
issues like poverty, health care, environment, education. And these are issues
where government has spend billions and trillions,
well-meaning individuals have spend billions
and trillions, and we still have
these problems. So it’s not like these
people were stupid. And it’s not like they
were all corrupt and such. Many well-meaning people
have had a tough time. And so my wife and I, we want
to recycle our assets back, because it’s a game. We play the game
and recycle back. But I don’t want to
recycle back by writing a check to Red Cross. Nothing wrong with writing
a check to Red Cross, but I feel we can do a
little bit better than that. And so just like all
the other games I play, I thought about, well, how would
we give away money effectively? And so the way I answered the
question was the first way was to not wait till
you’re really old. We can’t do a whole lot when
we are in our ’70s and ’80s. So I felt like I wanted to
start in my ’40s, at least on a small scale, so that
we could get some traction. And so I inverted the problem. And [INAUDIBLE] for Munger,
which is most things in charity cannot be measured. So I rejected everything
that we could do where measurement would be hard. And I focused on areas where
measurements would be easy, because if you have an engine
where you can measure easily, then you can kind of tweak
this ship and navigate. So Dakshana basically does
well because its entire model is focused on easy measurements
by an independent third party, which is the IIT entrance exam. And then all the
other metrics, which is how much it costs us,
how poor the kids are, all these things, all
numbers we can look at. And which is why it works
out as well as it does. SAURABH MADAAN: Great,
Well, with that, I know you guys have to
go to the next event. Thank you very much, Guy and
Mohnish for being with us today. Thanks. MOHNISH PABRAI: Well, thank you. Thank you.