an idea is like an asshole everyone has one okay ideas don't mean anything this guy is known as the indian warren buffett he's billionaire investor mona and last month i went to his house and add him to teach me everything he knows about investing how did you make your money after taxes after everything i got a million dollars and i for the first time had money in the bank right that million became worth thirteen million and i said wow well done mona and so like a seventy percent a year compounded how the hell were you getting these returns i'm always looking at what is hated and un unlocked the key movie you need is ina met and become friends with charlie mu and warren buffett good afternoon mister buffet and good afternoon mister mu my name is mona p how does that happen it shouldn't happen when i look at a ceo i always try to find out did they run a lemonade stand when they were twelve because if they didn't run the rem rem stand when they were twelve they're not gonna be that great at business at thirty the how stupid can you be if you know the big picture you can change the big picture the most important thing in life is are you a fan of bitcoin are you believer if you put a gun to my head i would say what do you think about elon musk elon is not human if i said what's the number one trait that makes a great investor what comes to mind i feel like i could rule where i know i could be what i want to put at all in it like a days off on a less travel right welcome good morning great to be sean you are a great investor but you started as a businessman i'm a businessman trying to become a great investor how do those two relate in our brains we actually use the exact same part of the brain in both activity so warren warren buffett has a great quote he says i'm a better investor because i'm a businessman and i'm a better businessman because i'm an investor and and in his case a lot of people don't know but warren had done a lot of different businesses in different areas before he was seventeen starting when he was i think five or six years old his very first business was buying buying coax from his grandfather store at at a nicola piece and then selling them at a dime piece right my wholesale retail so that that was one of his first first ones and one of the things that a lot of people don't understand about what a way our brains work is the human brain actually when we are born it it is the most underdeveloped organ when we're born because the birth canal is not wide enough so for the first five years of life the brain is the fastest growing organ that we have as human the the neuron connections are growing at a exponential rate from the age of about eleven to about twenty that window is when the brain is set up to specialize and the neuron connections get cut so they actually go down quite a bit but the brain allocate areas to hone in and specialize so you if you think of someone like michel angelo or bill gates or even a warren buffett these these guys started specializing at ten o eleven and if you start writing code at the age of ten or eleven for example like like bill gates did by the time he was twenty the expertise that he had someone else starting at twenty would not be able to match him even at fifty so that ten year window is a very critical window in human development and unfortunately our education system doesn't recognize that and unfortunately i'm thirty five so it's too we hope there are some eleven year olds in this thing or we hope when you have kids oh your kids yeah you it's not all the the the cake not fully baked so i think the the thing with warren was that i think when you were about ten or eleven years old he was running a bunch of very interesting businesses what was he do i've never heard these so yeah like i didn't know this back one first businesses was he used to go to this racetrack in omaha call ak sa which is nebraska spell backwards and he used to publish racing tips called stable voice selections basically telling you what what horses to bet on and and then also what he would do is when all the races had been run he'd collect all the discard tickets on the ground and he'd go home and go through each one carefully to see if some drunk had thrown out a winning ticket and and he'd find a few he'd find a few but he was too young to go to the window to collect because under eighteen so he would give them to his aunt alice who would go and collect for him around the age of fourteen or fifteen he had a very good friend in high school called don dan and and dandy was a tinker he was like very mechanically inclined so one time i think warren went to his home and he saw that don's working on a pin ball machine in his garage and he asked dawn what he's was doing he's said i just bought this pin ball machine that wasn't working they gave it away while paid like fifteen bucks for it and i think i can get it working and warren asked him how much is it gonna cost he it's gonna cost like three dollars in parts and maybe a couple of hours to get it working and then warren says can you find more machines like this which don't work he's oh yeah there's a lot of machines you can buy which people people don't want them because they don't work etcetera so dawn and him formed a a company in their minds and their wife he incorporated anything they called it the wilson cohen operated amusement company and they went to barber shops in dc and these two boys you know kinda of you know nerdy looking fifteen year olds they went to the barber and said look we work for a mister wilson and mister wilson did not exist a fictitious character we work with mister wilson and mister wilson has asked us to present you with a proposition that we can put a pin ball machine in the barber shop and we'll come by once a week and whatever coins are in there we'll split it fifty fifty with you half for you and half for mister wilson so the barber said yeah i put in the corner right and so warren got dan busy fixing pin ball machines and the two of them would go on weekends then you know get barber shops every week they're making some money and and so i think he had eventually something like forty barber shops with with these machines and warren said that the first week he went back to the first barber shop he thought he died and went to heaven so there was like five or six dollars in there and so their take with about like you know three dollars on eighteen dollars of capital in one week right and and he was he just told don go as fast as you can barely what are you doing right now exactly warren had all these different resistance that he was a senior partner and whoever he was working with a junior partner one time dan showed him an ad for a rolls royce for sale for three hundred dollars but it didn't run it was a old beat up roles and you know people is giving away like like junk right and he thought he could fix the roles so they bought the roles for three hundred maybe another fifty bucks in parts and dan had it running and then they you know spruce it up and they would rent it on weekends for a hundred dollars to weddings and and then on the weekdays that two of them would go to school the high school in the roles you know so so what happened is and warned in he didn't know this but he was specializing and figuring out business in that window of time the eleven to twenty right and so by the time he was nineteen eighteen or nineteen i think he went to college when he was seventeen by the time he was seventeen when went to college he had fifteen thousand dollars and he told his dad i'm gonna pay for my college myself and he also told his dad i don't need an inheritance whatever money there is you're leaving leave it to my two sisters right i'm i'm i'm i'm good fifteen thousand back then is a lot you know well it's about ten to one so a hundred fifty does think a year old yeah think it was seventeen year old a hundred and fifty k right and at that time college was cheap right and and the other thing is that he got interested in investing his his dad was a stock broker so used to go to the dad's office at the weekends and he says that at at the age of eleven he bought his first stock and he said i was wasting my time till then and but you know he didn't really have a philosophy he didn't have investment philosophy at nineteen he read the intelligent investor by ben graham and that was transformational and he thought ben graham was his guy who you know died and passed away but then he discovered that ben graham was teaching at columbia he was a professor at columbia so when he finished undergrad he applied to columbia to go to business school there so he could he could learn directly from men graham and he joined columbia mba program must have been twenty or something and then of course after that graham hired him and is some story where he tells gram like i'll work for you for free and ben graham says your price is too high that's correct so we still ended up convincing himself actually graham at that time jews were very heavily discriminated against there was a lot of anti antisemitism on wall street so ben graham was jewish wanted to give the few jobs that he had to jewish kids and and young jewish people because they just want many opportunity so he basically told warren look i gotta take care of the community right but but then warren went back to omaha about a few months after that gram column him and said if you wanna come new york i got something for you mh and warren never asked him what the salary was what the position was he just do the next train in new york wow with his with his wife his experience is a businessman he was very lucky it got sear in in that window of time and both warren and charlie they can crack businesses and business models really fast so when we when we start a business we will spend maybe three or four five percent of our time on figuring out the strategy you know what's gonna be the product service marketing pricing yeah all the how we're gonna make it work right and all the different plans right and then ninety five ninety seven percent is all the blocking and tackling to make it happen right it's dan fixing machines yeah exactly and so in the case of investing we use the same brain cells that we use in that three to five percent of time and and basically one of the things that attracted me to investing was that basically that three percent becomes eighty percent mh because we don't need a dan we've got public bound companies and all of that and we just have to pick which businesses we wanna own partially and which ones we wanna ride and so on and so i think that i i always find it strange if i run into investors who haven't been entrepreneurs because i think they're missing very key part right and on the other hand i find that entrepreneurs are very naturally already set up to be great investors if they make a couple of tweaks and but what what ends up happening is that we don't see a lot of entrepreneurs becoming investors and we also don't see we we see a lot of investors who haven't built businesses met payroll and so both both have flaws so if you had the the good fortune of having the entrepreneurial experience then i think looking at the buffett mon frameworks it's a very easy transition right it's probably also easier to go business to investor than investor for a long time and then suddenly go try to be entrepreneur well investor to business the problem where the window closed right you know so so you'd be you'd be at a disadvantage to start with and but yeah the earlier you start on both endeavors right the better off you are there's a great i don't know you've seen this but i didn't know like i always heard okay warren and charlie great investors i read the shareholder letters and the shareholder letters are often they're amazing but they're very like they're high level and they're philosophical away then you have i saw this letter of warren writing a letter to this i think the ceo of sees candy i don't know if you've seen this but it's a it's a letter and it's i expected it to be very again philosophical i'm amusing instead he's like brass tax right away he's like i went to the store and i have a few ideas for you very operational tactical i noticed this price point i noticed this and i was like oh he's he's a businessman like he's just like today we only think of him as one bucket but actually he's got both gears sees is a wonderful wonderful business it taught it taught them a lot it taught them more than they ever thought they'd learn from a stupid candy business right but one of the things warranted did when he first bought sees is he told he told the ceo listen you got free reign run the business like you've been running and so on and so forth but on december twenty sixth i'm going to set the prices for the next year okay okay so he would sit down with the entire price list and he would bump all the prices by ten or fifteen percent and inflation might have been three percent right and so he would raise prices significantly above inflation and what he would observe is volumes went up so and then the year after that he'd again bump it by another ten twelve percent and volume still went up and and so both him and charlie were amazed that you could have a business where you're continuously raising prices significantly above the rate inflation and there's no resistance from the customer base to accepting those prices and that's what gave them a huge lesson in brands and you know he was a died in the world hardcore deep value investor it was really hard for them they paid three times book value for cs they were choking almost when they paid the amount so i think the bought fees for like twenty five million looking back they could have paid two hundred million and it would a good deal and sees has sent dividends to berkshire in the billions i mean it's been about fifty years since the purchase and billions of dollars have flown from seized two berkshire which has then been used to buy a whole plethora of other businesses and and if you look at their their purchase of coke for example they they put a quarter of the entire book value of berkshire hathaway into coke in nineteen eighty eight if they had not bought seeds they would have never bought coke right so the lessons that they learned about branding and the power of brands is what led to the c investment which was much bigger a home run and they've made many more brand investments since then you half the portfolio an apple right now yeah so and apple brands in the world and and i think i think warren understood this notion of consumer behavior and how powerful brands can be and how powerful habits can be and and then he went from there so yeah absolutely and one of the interesting things about seas is that seas wasn't this fast grower it wasn't they bought it and then it sales exploded but what i think the the beauty of cs i i remember correctly is that it was just no additional capital had to go in so everything was just free cash flow coming out yeah so so cs is very much a california story right i mean it it was it was founded in california almost all the sales went in california if you look at cs from the time they bought it till today about fifty years the unit volume has gone gone up on average two percent a year okay california gdp probably at least in the seventies eighties nineties was going up about at least four or five percent a year so they were actually and part of that might have been the the price increases okay but even with those heavy price increases they still got the volume going up slightly yeah but when you overlay that you know you do fifty years of ten percent that's that's a very big number right right and so caesar's is not cheap today right and now warren was very excited about being the candy mo of the world so they tried really hard to sense everywhere right i mean they would open a store in chicago and then fall flat on their face then they'd open in arizona and they fall flat in face they repeatedly tried over and over and over again to broaden seas right and expand it and by and large those those efforts didn't work even today the bulk of the volumes of seas is in california right and and so when the coke investment came about they discover they they found something very different than seas they knew seas doesn't travel well but they could look at more than a hundred year history of coke and then knew coke travels really well mh there are two countries in the world where you can't get coke north korea and cuba okay if they opened up to coke in either of those two countries and coke did not advertise at all sales would take off it's so embedded in the pop culture so even in countries and places where they've never done any branding before you know people in pakistan or india bangladesh they're having indian food with a coke right right so it's it's ubiquitous and that did not exist with these candy it wasn't ubi ubiquitous and and warren understood you can't con you can't consume infinite amounts of candy you know there's an taste and all that coke you can actually consume a lot of right there's no what do you he call taste memory there's no after taste yeah yeah that's right so so i think like i i think they they move from being hardcore quantitative of deep value guys to actually understanding a lot of nuance is the brands and consumer behavior which was very fundamental to right how and why bulk should it so well so you talked about specializing kind of that eleven to twenty years old ish window yeah today you've done phenomenally well you manage i don't know almost a billion dollars or mean maybe more who knows a lot of money and and if done incredibly well investing did you did you do that when you were the or were you a late loom so no actually it was just dumb luck a lot of things with my life have been dumb luck so my dad was quintessential entrepreneur and he was really good so you know a great entrepreneur one of the first traits you need is you need to be able to identify offering gaps some product or service that ought to exist but doesn't like starbucks before starbucks or mcdonald's mcdonald's and so on right and so my dad was really good at figuring out that whole this product should be there but isn't and he was really good at identifying these offering gaps he was also really good at starting businesses some scratch but his downfall was that he was always very aggressive and he was always over lever so when the businesses were going he was literally taking every last time of profit coming in and everything that he could borrow and just pounding into the growth as aggressively as possible and the negative was that when the first headwind showed up the businesses had no staying power right and so they would run into trouble so my brother and i i think after we were like maybe nine or ten years old we were like his board of directors okay and i remember like when i'm like ten or eleven years old my dad my brother we would sit down in the evening and we had to figure out how to make the business survive for one more day so all the walls were c in there were everything going bad and there were a lot of moving parts and we put a heads together and we try to figure out how to let make it last right and then we'd make it past the one day and the next night the same thing over right and so i finished many mba before i went twelve yeah but by i and i think at fifteen or sixteen i was i don't know why my dad did but i'm really grateful he did he should take me on sales calls mh and you know who takes fifteen year ago on a sales call know it just doesn't fit but my dad didn't care and that was just incredible for me because i was getting to see you know i was in i finished high school in the dubai so i was in the dubai from the age of sixteen to actually nineteen and in in that window of time my dad had a gold jewelry business and so we used to go i used to go with him to these he was manufacturing gold jewelry and they know selling it to these retail merchants right and so he's going into cold calling right right and and i'm i'm observing him going into jewelry story doesn't know them where you were silent or did you have a role no i will i would silent it okay but i was i was soaking it in and sometimes when he was traveling my brother and i would run the business so they were like all these gold and all that and we'd manage giving them the goal and taking the jewelry and all that so basically i didn't i didn't realize it then but when when i went to college i i studied engineering and then i joined a telecom networking company as an as a r and d engineer and when we're working with these products i'd asked my boss so what are you gonna sell this for and who's a customer and what kind of like what you gonna make on and my boss would tell me those are all questions for marketing and entails we don't we don't need to care about that just design the product right he didn't know the answers yeah he mister poker patel he didn't know the answers he didn't care right and i found that all the people i worked with the engineers didn't care i said how stupid can you be you know you you don't have the big picture the big picture it's interesting and exciting if you know the big picture you can change the big picture right and so what i did after two and a half years with the nerds is i switched to international marketing and that was such a breath of fresh air it was a so great and my learning again right skyrocket rocket and i a big advantage got a very strong engineering background but i also had all the background for my teen years and so what i found is that i was able to connect with customers and figure out kind of what they wanted and how to really get the order much better than guys twenty years more experience than me because they hadn't had all these experiences and they didn't they didn't think like an entrepreneur right it was just a a small subset and and later in life when i heard about buffett for the first time i found a lot of commonality right i mean he had a had a very different experience in the sense that he was his own entrepreneur right but one of the things that's really important is that when i look at a ceo i always try to find out did they run a lemonade stand when they were twelve because if they didn't run the rem lemonade stand they were when they were twelve they're not gonna be that great at business at thirty okay the the little bitty lemonade stand has a lot of lessons right and and so i think when when we have kids i think it's really important in that window they don't need to run m and h stands but they really need to be doing what's going to be their calling right and and i think that's what the biggest responsibility of appearances is they need to expose them to more of what they think their passion is you know i've done like maybe five hundred plus episodes now of this and the podcast and a my first million because when we first started i would just say i was fascinated by the many different ways people became millionaires i thought that's it's cool to hear the stories that's how the podcast started and along the i noticed three common things of what you were doing in your teens because i used to ask this question i was like you know you're amazing now if i met you and you were fourteen what were you doing and what i have known that you were gonna go on to do interesting things and most of people are very humble they're like oh you wouldn't have known then when i say what were you doing it's always something that no other thirteen or fourteen year old is doing it's like oh yeah i used to go to the shop and i found these you know these cds rosa rosetta a stone that i could go sell for three x on ebay and i made an ebay account or i you know i started buying shoes and flipping them so it was always like ebay flipping or sneaker flipping is like a a super common one another one was a competitive video games because a lot of the strategy you know communication collaboration you know just extreme competitiveness gets built in there and and there's a couple others but another one's like a mormon mission so mormons will go and have to sell you know jesus to to bunch people can get rejected a thousand times and in two years they become incredible salespeople people and so you you you see these backgrounds where you were kind of forged at an early age to to do this well we have a common friend you know side bulky right and you you interviewed him for your podcast forecast and side was an entrepreneur at the age of eight zero nine you know even maybe even earlier than that right he was selling greeting cards right he was making and selling on street cards right you know and and then by the time he was eleven or twelve i think he was writing code and make a website you know and went from there right yeah yeah how did you make your money give me the highlights of your progression in terms of your own ability to to generate money and then start to invest it i actually never ever wanted to be an entrepreneur i never wanted to start a business because i had seen so much turmoil trauma in in my in my childhood right and i remember i was like twenty four or twenty five years old and my dad was visiting me i was living in chicago and he tells me it's time to quit and start your own business and so i said you know have you forgotten have you forgotten my child and you know all the ups and downs he so my dad just said oh that's what makes life great right but he said look the company you're you're in my the business i work for had two thousand people he said you're such a tiny cog in a such a big wheel you could drop dead tomorrow they won't even miss you okay you don't matter and what you really want to to be doing is figure out something where there's an offering gap and go for it right and and i was actually getting a little bit frustrated at work because the company had been growing it we get more and more bureaucratic and so i actually started to think about what might be possible and i didn't have any money you know basically i was twenty four twenty five so what i did is i came i came up with some it services offerings that i thought would be pretty unique because that time client civil computing was just getting going early nineties and so i had about thirty thousand dollars in my four one k and i said okay we worry more retirement later and we pay the penalty i pulled that out nice and i i i applied for every credit card i could get my hands on and so i had seventy thousand available to me in different credit limits in credit cards and so i said okay we've got up to a hundred thousand that we can play with and the third thing that i did is i basically did both i was going to my my job and i had started my company at the same time because basically what i would do is like from like six to nine in the morning i'd work my business right and then from six pm to midnight i work my business again and weekends right but somebody was paying the rent i still had a paycheck and all that and i said okay once we have enough revenue clients profit i can quit right and and i always tell tell people that basically if you think about it there's a hundred and sixty eight hours in a week your employer needs you for forty right and if you live close to work or work remote the commute time is not that much and even if you take out time for eating sleeping everything else you have at least another forty fifty hours that you can engage on something other than work right and i used to always get great reviews when i was starting my business i said okay look the plan is to not get fired the plan is not to be employee of the year okay right i don't need to overs shoot so i said i'm going to give them just enough so i'm just above firing level right you know where it's not so bad that they call me and terminate i need to be above that okay and i did this over nine months and then i had clients revenue and all that and i went into my boss and his boss and i resigned right and they they said you know mona we really couldn't figure out last nine months like you checked out i said exactly i said my my goal was to just do enough so i didn't get fired but she said she said yeah we saw big drop in the old morning in the new morning and we talked about it and we actually said it's not so bad that we would fire him but there's something off right maybe we could we could figure it out right and then so i explained to them i was going into a business that my own business was not comparative with theirs yeah and so they said look when your business fails not if your business when your business fails you can come back we're gonna give you more money we're gonna promote you and you're gonna do great so i said you know my my plan was that if i failed but i was going to my business and i fail i said look i got my degree i can look for a job i can apply for personal bankruptcy clean everything off and start over right i said this is even better i don't have to look for a job right i get more money right and so i actually felt like the you know people think there's a people have a a false mental bottle people think entrepreneurs take risk entrepreneurs do not take risk they do everything in their power to minimize risk if you think about buffett pin ball machine business what was the risk those two fourteen year olds quan fourteen year old took nothing okay it's fifteen dollars and a pin ball machine could use themselves we're area three dollars three dollars in parts so the second pin ball machine will only get bought when the first one's already producing cash right right and the third one after the second one so basically there's no risk right if it fails they sell those machines for more than they bought them entrepreneurs are actually great risk reducer they start with some same risky but so that's the other thing that is a commonality between entrepreneurs and value investors which is why the same brain cells get used both are trying to minimize risk you know we as value investors wanna go low risk high return and great entrepreneurs that's exactly what they're doing they're going low risk high return nobody is doing high risk high return the only only so if you look at the united states probably around a million businesses more than a million business of a year get formed in the united states venture backed businesses are less than much less than even one percent of that pie might be in most years less than one tenth or one percent right so if there was no venture capital and no venture backed businesses it would make no difference to the landscape okay we still have the million businesses being formed when venture back business are a different animal because they are high risk high return right the what the we see want you to do the vcs got ten bets he doesn't care whether that your bet works are not he just wants one of those tend to work yeah so he wants you to step on the gas as aggressively as possible if you blow up you blow up right when you're an entrepreneur who's not venture back that is not how you go you don't put just you know foot on the gas you're very careful about downside protection so what happened some of the big in big entrepreneurs who richard branson oh yeah i think is the people see him as this free you know rent risk taker reckless sort of guy but you you've pointed out that that's not true about richard branson in this case one of those stories allow branson is when he had the idea to start virgin atlantic airline right the minimum that you need to start transatlantic service is a boeing seven four seven okay couple of hundred million dollars right and branson got virgin atlantic off the ground with no money so what he did is he calls directory assistance in the united states five one to one to seattle two zero six five one to one to ask for the number for boeing okay gets the number for boeing calls the main switch board and says i'd like to lease a seven four seven that you guys might have hanging around that you're not using they hang up on him right okay he keeps calling them and finally the lady report says let me transfer you to someone who can get rid of you properly right so she transferred him to someone who's head of like commercial sales and so this guy tells him listen mister branson in every country we have one customer and you are not the customer in the uk it's british airways and so therefore there's nothing to talk about so richard tells them listen i i i agree with you that's fine but i just humor me before a second do you have a old boeing seven four seven lying around that you're not using and he says yeah actually we do and if one of your customers like the one of the uk call you like british always called you and they wanted a plane what would you lease it for so he says well i really don't need to have this conversation but we would lease it for about two hundred thousand a month okay two or three hundred thousand a month and branson was able to convince boeing to lease him that seven four seven because he was sitting and doing nothing right then when he set up virgin plant like he said you get paid for all the future flights in advance because people buy tickets so the plane gonna fly in april people already bought tickets in february right so you say i got cash coming in two months three months before the plane plane gonna fly and i'm gonna pay for the fuel thirty days after that plane lands okay so he had negative working capital and the lease payment is also in arr right so basically he's he was able to get virgin atlantic off the ground with zero equity right now the way i look at is that if if you can start an airline with no money you can start any business with no money right okay you just have to replace capital with creative thinking right how is it possible that point one percent of the population owns almost seventy percent of all the motel in america that's right an incredible story can you explain how is that possible in the early seventies a dictator came to power in uganda ed and ed amin noticed that in uganda most of the businesses were controlled by east asians indians patel they control like eighty percent of the economy and these patel had come to uganda uganda they were brought to uganda about a hundred years ago to work on the railroad almost as slaves right and but because they're are natural entrepreneurs they they went from railroad builders to eventually owning and controlling his old economy right and he was pissed so so means said africa is for africans and you guys are not africans and these patel had been in uganda for three or four generations that was the home they were uganda citizens you know born and raised right and what he did is he national all their businesses and he threw through out of the country which just means took their businesses right you just took he basically consciously schedule all not their businesses homes everything consciously schedule with all the assets and he told them you got ninety days to leave the country right so these these patel in uganda was stateless okay you're you're being thrown out you know you said of a country country throwing you out right and and they lost all their money so they they were able to convert a very little small sliver of their assets into gold and the united states took some hotels of the refugees the uk took them canada took them india surprisingly refused to take the patel refused to recognize the patel at any right to return to india because they said you haven't been here for a hundred years and in india whether at that time i'm dealing with the bang refugee crisis so it couldn't deal with anything anymore but a small number of patel a few thousand of them came into the united states in the early seventy the refugees they didn't have skills there where they could get great jobs they didn't have they spoke english with a funny accent and they they realize that look if we buy a really small motel ten twelve fourteen room motel the family can live in one or two rooms motel are labor intensive right the family can do all the work you know the job in a house together so basically cooking cleaning front desk laundry and so what what they started doing is they would buy these motel and basically fire all the staff and move in into two of the rooms and because they had no costs they were able to charge nightly rates that were lower the all the neighboring motel so what would happen is that the patel owned motel would be running a hundred percent occupancy the other motel couldn't match that rate because they lose money right right because they they had staff and workers comp and staff and all that stuff right and what the patel started to do and they hotels are very frugal they're basically were vegetarians at that time in the us if you were vegetarian you really host you couldn't really eat out anywhere so by they were forced to just cook themselves which was cheap right so there wasn't much of a grocery bill and what they started doing is as their nephew came of age for example they would help him out to buy own motel right and then the nephew would get it going and then the next one the next one and you run this for fifty years and you end up with seventy percent of the motel in the country under patel ownership not only that they've actually gone up market now so a lot of the hilton marriott western if you really look you'll find it's under patel ownership right same same math they always are very good operators and then they went into seven eleven laundromat mass dunkin donuts it's all of it you name it and but boss bottom line was that these were entrepreneurs that were low cost producers right low cost produced producers have an inherent advantage and i remember when i first when i first met charlie he had he read my book and and we were discussing the patel he said yeah you know i got some friends in the motel business i just tell them don't ever ever try to compete with the patel patel if you ever find yourself competition of the patel just find another game to play just move on it's not worth it so you said you met charlie that's gotta be kind of a surreal thing for you to have met and become friends with charlie mu and warren buffett how does that happen how does that come about it shouldn't happen you know i was this sq kid who grew up in the suburbs the mumbai and i accidentally heard a warren buffett in the mid nineties and was a big aha moment for me at that time i was lucky the first couple of biographies on him had come out and what i realized is when i read about how warren was investing i said all these all these models are the same models that entrepreneur uses it's the same exactly what was saying that you know better businessman plan because i'm an entrepreneur vice versa so i said you know but the big advantage he seems to have is that four percent of time of strategy is eighty percent time for him and even in the business i had created the it business which had grown and scaled i always enjoyed the four percent more i i i i was the i was happy doing sales calls and you know building teams and all that that was that was great do it once i said wow if i go into investing it would be eighty percent of my time because there's no blocking and tackling someone else is doing that and so me that for me that was a big aha moment that i should switch i was lucky in a in the mid nineties someone bought a small portion of my business after taxes after everything i got a million dollars and i for the first time had money in the bank right and i didn't really need the million right so i said okay what we're gonna do is we're gonna take this million we're gonna invest in the public markets and we're gonna find out if we can actually do this you know this you know an idea is like an asshole everyone has one okay ideas don't mean anything right so you really have to execute it's really execution on the idea that has value you know entrepreneurs get kinda hung up on no i need to get a patent and all that one of the things you to understand is you can go to your most direct competitors you can tell them all your trade secrets they will listen to you really carefully and they will not change behavior okay so you don't need patents for anything you don't the ideas don't mean anything it's really the execution and so basically i i said okay let's take the million let's start investing it let's figure out what happens and i was surprised we did really well i think that from like ninety five to two thousand five year period that million became worth thirteen million and i said wow well done mona and so like a seventy percent a year compounded yeah and so i was getting i was doing investing part time while i was running my it business i was much more interested in the investing side losing interest on the business side till till that point when in nineteen ninety nine i didn't do feel like going into work i i said this is i i just wanted just focus on investing and so i made i made a couple of big changes then i looked for and found a ceo to run my company and basically thirteen fourteen million i felt was enough to retire do nothing you know i could do investing full time right and so my plan was okay someone can run the business whatever values there is is there it doesn't matter i can go off and just now do investing full time and i had a few friends who had basically i used should just give them stock tips you know the mid nineties that find some company and make the investment after i didn't care who bought the stock right i mean already bought it right and so i tell my friends hey you know i found this company you want to see if you wanna take a take a flyer on it and buy it and so on and they did really well on those stock tips right but you know some guys worth like five million they would put ten thousand to what i told them right and they would triple the money wouldn't make any difference right so a bunch of these friends came to me and said look we don't like this randomness of these stock tips we don't see you sometimes and you may have sold we don't know we want you to manage some money for us and so they were proposing giving me a hundred thousand dollars each and it would be a million dollars in all right and i said okay i'll do it i thought of it as the hobby i didn't even think over to the fund but i wanna do it in a format that works for me so i love the buffett partnership so where he didn't charge management fees you only charge performance fees so so what's a normal structure and then what did warranty do so a normal hedge fund would be a two and twenty structure they would take two percent of assets to the management fee for breathing every year every year yeah and then twenty percent of the profits right so if a if a hedge fund for example let's say has a billion billion dollar in a management right the general partners would take twenty million dollars a year for breathing for breathing and then if if it went up ten percent so they would make a hundred million for example on the billion they'd take another twenty million on that right so basically what would happen is the investor who put up the money on a ten percent return gets a six percent return right below the s and p right right because of all these friction costs so buffett had run his partnership by saying that there's no management fee the first six percent returns go to you and above that i'll take one four then you take three four so in the same situation if if the fund is up ten percent in buffett case the first sixty million goes to the investors and the remaining forty million is split so it becomes ten million to him thirty million to the investors right so it's a it's a better it's a half the fee basically and you're you're paying for performance right if he's not up that but you don't pay anything so i like that structure and so i told them i wanna set up a a fund so it's all legal and we will do it with that structure this they really didn't care what structure it was and so pub funds really started in ninety nine as a hobby with me and my buddies and i had thirteen million on the side which was my main focus and i said yeah the there's another million here it's okay if i find something and buy for both right it makes no difference right and about a year year after that there was about two and a half million we were up like seventy percent the first year and some more money had come in and i said you know why do i treat the fund like a step child why don't i think of it like a real business and why don't i basically grow and scale it like a real business and and so i i started to do that and funds we had a very good run for the first eight or nine years i think we were doing like mid thirties a year on average no down years and the assets grew we were at about i think in two thousand seven we were at about six hundred million in assets under the management and i made a lot of money you know the fees and the compounding and all of that so in like a ten year period you turned the million dollars of managed money into about six hundred million of assets management including new money it wasn't all it wasn't as organic but but but the original money had almost tripled right you know triple quadrupled in that period i asked you yesterday when were hanging out i said you know there's really two questions when you hear the story number one how the hell were you getting these returns so what what what did you know about as what was that part but the second part is how'd do you what did you do on the fundraising side how'd you get so money so much more money to come through the door and you've had a great line about that about how you get more money to come through the door because you didn't strike me as a guy who wanted to be out there fundraising and knocking on doors and trying to raise funds so how does it happen buffett has a great great quote he says that if you are in a robot in the middle of the atlantic they will swim to you in shock infested waters to invest with you if you have beaten the market right they will find you he says you could be a le and they will invest with you that's what happened and also one of the things that will very difficult for me was that the sec has were rules and laws around hedge funds one of those is you cannot solicit to general public right so when i was the it business i could call on any cio and say hey you know would you like to use our services etcetera i could literally call anyone out of phone book when you're running a fund you can just get a list of dentists in north carolina and pound them that's that's not legal you can't do that so the sec said you can only talk to people you know okay i said the people i know i'm gonna around about ro like five minutes you know there's very few people i know so what i did is i started to meet my investors once a year for an annual meeting where i would give them their results and take their questions and all that and i told them listen there was one reason and one reason alone you were put on planet earth and that is to bring assets to funds okay humans are always looking for a calling they are looking for some cult leader to follow and be part of cult okay you gave him one so yeah you know they were they were wandering in the wilderness they needed purpose okay so i said here's what you need to do you need to go talk to your friends and family because i can't talk to them the sec won't let me talk to them you can talk to them okay you talk to them you tell them about me you tell them to contact me once they contact me i can engage with them okay so go out and spread the word okay and send me more of your assets too okay so basically what like i like i said i started with the million a year later it's two and half million and two years later it's ten million and it's growing you know and and part of it was that the annual returns are adding but part of it was that so i had eight investors when i started a year later there were seventeen and two years later they were twenty five so now i had an audience of twenty five to process and spread the word you know and and and of course the results now the other thing that was happening is that when i started the funds in nineteen ninety nine we were nine months away from the biggest bubble about burst that had happened in decades the dot com bubble right and i i was able to see the bubble not very much in advance of the rest of the world maybe just two or three months ahead i i knew the internet was transformational but i also knew that the euphoria was too much you know we had pets dot com trading at multi billion dollar valuations with no revenues mh right i mean it was just common to have a lot of company they're people accounting eyeballs they're not counting dollars and they're they're not looking at net income they're not even looking at revenue they're just looking at eyeballs right and so so i said okay this this is bad news it will blow at some point it's gonna the bubble gonna burst i didn't know when so i had always been a tech investor from like the mid nineties and i done really well tech and had a great run from ninety five to two thousand it just and really when i written that coat tail but what i did in ninety nine when the fund started and also with my own capital is i did a one eighty i switched completely to classic graham deep value you know what buffett had started doing in the fifties and one of the things that was happening in the equity markets at that time was the day the nasdaq peaked i think march eight to march nine two thousand was the day that berkshire hit a multi year low and literally people were pulling money out of their berkshire stock and buying pets dot com right and then then that goes to zero eventually and so i said okay basically there's a lot of basic businesses that had become really cheap because nobody was interested so i was buying funeral homes at two times earnings and buying steel companies at three times earnings and so a lot of basic businesses which are very predictable and doing well trading really cheap right and and so funds did really well in fact the nasdaq imp basically it hit five thousand in march two thousand by the time it bottomed out the next two or three years it was a twelve hundred the seventy have a center off you know and the dow the s and p didn't go down as much but they also went down a lot and so it was it was a traumatic period for investors it was a great period for me and and so it was very easy for me to talk to my investors because i was the only guy making money for them okay if they had like five accounts we just moved it all to me because everything else was going down everything else is red and so that's how we we got going so in two thousand seven i i think my network worth at that time was like eighty four million and warren had been running these charity lunch auctions where once a year you could bid on ebay to have lunch with warren buffett and the money would go to the glide foundation which was doing you know feeding the homeless and all that in san francisco so i said you know i am using these guy's intellectual property i'm making all this money of him i really have a big tuition bill i need to pay so i said the lunch is a great way to do that i said i can bid for the lunch and i'll meet warren i'll be able to thank him in person and it goes to cause that he support so i thought about it it's okay eighty four million what's an appropriate tuition bill i said two million is he is good i think if i if i gave him two million i feel good about that right right so i said okay i decided in at two thousand seven i gonna a bid for that lunch and i i decided i would go up to two million dollars and you can bring up to seven other people to that lunch so i was gonna take my family but there still were a couple of seats empty so i contacted my friend rice guys spear he lives in zurich i hey guy i'm gonna bid on this lunch blah blah and i said do you wanna come in with me and i said if you and your wife wanna join us because there'll be four of us and two of you you can pay one third and and i'm willing to go up to two million so guys says well that's too rich for me i can't pay one third of two million he says i'm good for quarter million i said okay whatever the bid ends up at your capped at a quarter million right and so i bid for it it settled at six hundred and fifty thousand much less than what right i was willing to pay and then one throat of that got paid by guy and so my only agenda in meeting warrant was to just say thank you warren right right i didn't have of course it was a big fan boy yeah and you know meeting him and all that warrants agenda when he has these lunches is really different his his agenda is he wants the people who won that lunch to feel like they got a great bargain mh so he would take all our what i would call our lemonade lemon questions and turn them into lemonade so he's always is exactly what done in the books meetings is he's a great teacher and so he was trying to give as much value as he could in that lunch and like he told us when we met him he said look i got nothing going on all afternoon right so when you guys are second tired of me just let me know and i'll leave right we kept asking him questions for three hours and then we were exhausted and so we said warren we just don't have anything else to ask you you know is said okay i'll i'll i'll take off no problem and in that lunch i told him i said look warren my my wife then har is said she's a huge fan of yours but her true love in life is charlie okay and warren got competitive he's a charlie he's a very boring guy he's a very kind of pessimistic always says no to everything i'm the guy who's really interesting so he said what i'm gonna do is you guys live in california and la i'm gonna set you guys up to meet charlie for lunch and then when you meaningful him for lunch you're gonna find that he's useless and i'm the guy so i thought he's joking about that right and two days later i got a email from his assistant to charlie assistant copying us basically saying hey i met this wonderful couple in california and they seem to think you're more interesting i think they just don't understand so i want them to meet you so that we get set the record straight right and so this really what he was saying this is exactly what he said in the email right was is he joking or was he not just and then i i charlie the assistant sets us up to meet charlie for and now warren you can bribe and have lunch with okay charlie there's no b this this is great and so we met charlie my my wife and i we met charlie in two thousand eight at the california club in la and i actually found that lunch a lot better than the buffet lunch okay it was great because i think charlie is just so direct you know and and i never expected these lunches any of this to lead to any anything you know just a one and done but it led to friendship with charlie he started asking us to come to his place for dinner and i would meet him like four five times a year for dinner and then we started playing bridge together usually on fridays he would play bridge at the la country club i'd meet him about once a month or something to play bridge and that just be lunch and then about four five hours of bridge after that so it was a it was a a wonderful friendship for fifteen years which i was unexpected you right this never expected let's go back to the lunch you ask some questions for three hours yeah what were the interesting questions and answers i know you've said one that i hear you you explain because i didn't fully i i've heard to tit but i wanna hear the full story which was he said something about being a harsh greater of people yes what does that mean well i i told i told warren and i said warren you know you are both you and charlie are such good judges of humans and human nature were you always that good at figuring people out so he says to me mona your mistaken i am useless at figuring people out he said if you put me in a cocktail party with a hundred people and you gave me five or ten minutes to meet each person i could tell you three or four people exceptional and i could tell you three or four people you want nothing to do with and the remaining ninety two i would have no opinion on because it's not enough time to figure them out so but he's but he also said that look what you do in life is those three of your people who are exceptional you bring them into your in a circle and obviously the three or four people who are you know not not the great humans you're not gonna have a anything can do with them but the third thing you do is you treat the ninety two just like the useless humans and you exclude so he says be harsh greater so he says that when you have friendships and when you have people you work with your peers and all that he says there's a gravitational pull if you hang out with people better than you you're gonna get better if you hang out with people worse than you you're gonna get worse so he said that one of the things that most humans are not willing to do is loyal get in the way for them right so they may have a friend who's kind of weird or quirky or has ethical issues but they've had a long friendship so they'll keep that person going with them that has detrimental impacts so basically i really took that to heart and i said that i'm really gonna try to see if i can focus on the great relationships you know the great people and that's actually been a journey i've been on now for like you know sixteen seventeen years it's been tremendous it's it's great now it's it's unfair right because you're treating the unknown the same as the useless people but but that's the way life is i think that sometimes you have to make these difficult choices because if you don't do that then the impact of that is significantly negative and one of the thing i realized when i started to get to no charlie i got to meet charlie friends so i would play bridge with his friends meet his friends and what i realized is his friends were so off the charts they were so exceptional i said wow this is like a different word right and i said i'm gonna take a shortcut i'm gonna make charlie friends my friends because he's already done all the work okay the filtering is you can get a better filter than charlie manga right right and and so i i worked on building relationships with charlie friends and some of his family and that's been beautiful i mean some just great friendships and you know i realized that there's such a huge delta in off the charts top point one percent top one percent of humans and the rest and you know we we talked about this adam grant wrote this wonderful book give and take right and he categorize people in three buckets right the givers the takers and the matches right now the takers you don't want anything do with you know they're just gonna like wanna extract whatever they can from you so they're just about people you wanna have in your life the givers are people who are selfless trying to help the planet not really concerned about what comes back to them right those are the ones you wanna be with and then the matches they're kinda doing math in the heads oh you know sean did this for me so i'm gonna do something but similar from they're gonna and so even the matches aren't that great so what you really wanna do is you wanna seek out the givers and more important than that is you wanna be a give right and and so the the interesting thing that he pointed out that book is that when you're a give the universe cons conspired to help you and i found it magical how and warren and jolly are great examples of givers everyone's trying to help them in any way they can and so that's yeah the funny thing is that the matches who are trying to do this you know equalization they end up losing the best way to get the most is not asked for anything it'll all come to you right you know and so so these are wonderful models to incorporate yeah there's even some game theory with that which is the cost of excluding somebody who might be good it might be great is quite is actually quite loaded but the cost of accidentally including somebody who might be have some toxicity or it's quite costly too you and so you know i think even in investments he has the the good pile and then the the two hard pile warren has a lot of baseball analog he says that in investing there are no call strikes right so in baseball you're at the pitch three strikes you're out right he says i can hit a thousand balls go by thousand stocks go by and not swing right right i i only need to swing when eight moons lineup up right and so the fat pitch right the fat pitch picture and so the thing is that we live in a world with infinite humans if there are infinite humans it also implies that there are infinite number of good humans so basically making a excluding a good human from your circle because you can't figure them out there's no penalty for that right because there's a infinite supply right and just to put his ground the wait for the mathematical way automatically but but when you bring in a substandard person it just there's so many drains it's just negative i wanna hit you with some of your big investing philosophies and give me the kind of the the punchy version of like what does that what does the phrase mean and how you use it so let's do one heads eye win tails i don't lose much well i mean i think this is classically comes from the patel right the it's a the the done philosophy but but this is this is how we want to do all our bets with people with talks with everything base asymmetric yeah basically where we always want to look for things where the the odds are so heavily in enough favor and so in investing we do get these anomalies where you you take one that you've benefited from what's an example in your portfolio your career investing where you felt like you you you recognize recognized asymmetric upside your your downside was cap but your upside was high but i mean i think that if i look at my first business for example right i mean i i'm taking thirty thousand for my four zero one k which i can make up and at that time the credit card laws were very different where if you declare personal bankruptcy you got a clean slate and actually it didn't affect your credit because you couldn't file again for seven more years so everyone would give you money after you file okay so actually they've changed the laws now but at that time what i had i realized that starting a business has high rates of failure right and so i said how do i minimize the risk on that and and this is what all entrepreneurs do and i said okay so basically if this thing blows up which there's some probability that could happen i got my job already they they want to take me back and i i clean up the slate and and i'd also der risked it because the company was already cash flow positive by the time i quit my job right and so there was already a pipeline and such and so repeatedly what i've what i found is even even in investing i mean i'll give you an example like for example i think in two thousand three or two thousand four there was a steel company in canada ips and i noticed that they were trading for three times earnings right and they the the stock with the forty five dollars they had fifteen dollar a share of cash on their balance sheet had no debt and they had contracts over the next couple of years where they had said our earnings for the next two years are going to be fifteen dollar a share each year given because these were these were these are not forecast these were hard contracts right so i said okay so the stocks at forty five if i just buy the stock and hold it for two years i got forty five dollars cash in the company now it was cyclical business third year could be zero could be negative but i said i i own all the plant equipment everything for free right so my my i made the investment i put ten percent of assets into ips and i said all i wanna do is i wanna see what mister market does with this stock in two years just gonna hang out and see what happens so we make the investment and then a year later the company announces that we're gonna have one more year of fifteen dollars okay so now you're gonna have sixty versus forty five right and by now the stock has kind of gone up and it's sitting at about ninety dollars double in one year so i said okay it's still a very cyclical business maybe we should take our chips off the table and while i'm thinking about all that one day i wake up and the stocks at one fifty five some swedish company came and offered one sixty to buy them five minutes later i sold the company and moved on right so what i what i'm saying is that that's what we're looking for right we and in the equity markets because these are auction driven markets when you look in areas which are hated and un unlocked you will find these anomalies last year for example i spent about seven or eight months studying the coal industry full letter word hated and un unlocked more than anything else i mean a lot of endowments and funds are not even allowed to invest in the coal industry industries it's so much hate hatred for it so you got excited the math the math was like this if there's a business that is going to exist for fifty years on average it's gonna produce a billion a year in cash flow that's gonna be distributed to shareholders available to buy for less than two billion where do i sign okay that was a coal industry okay and so it's like you you in auction to markets you repeated repeatedly run into these things where things you know there's company emerging from bankruptcy there's things that people just don't like there's different reasons why things get mis misplaced right you talked about like private markets versus public auctions and why you think public auctions present more of these dislocations more of these opportunities well i think i think that let me put it this way let's say this home of mine was a publicly traded company okay listed on the ny right everyday price would change right it would be wiggling here and there and if i look at the average public company on the new york stock exchange the twelve month range of the stock might be seventy to one forty in twelve months if i just throw a dart at any company in the new effect chain and i just look at the fifty two week range on that stock price it's going to be sixty to a hundred seventy to one thirty so we know fifty percent swing it's a big swing right my home which maybe might go up four percent a year or in a good year maybe three three percent would be vac in value it would be sometimes trading twenty thirty percent more than it's worth and sometimes trading twenty thirty percent less than it's worth and if i had a realtor friend and i said to him listen can i call you every day and just tell me what my house work the guy i would think i was stupid but i would call him on monday say hey what's my house you thought it's worth two million that's said oh thank you i call him the next day he said still worth two million okay thirty day he said listen an idiot it's two million okay and after a month he would tell me oh it's moved to two million thirty thousand okay and then again he would be a two million thirty thousand for a while okay it won't move because it's an intelligent buyer facing an intelligent seller and so you're not typically going to get a company like ips score available as the whole company for the price you can buy some shares right because the whole company there's an intelligent guy the swedish company paid four times that price to to buy the company right and so that's just the nature of so reason i like the i've always like public markets is because there is so much irrational and if you're just willing to be patient you know in a year in a year if i can make two good investments it's a good year okay so we don't need a lot of activity right we just need to be patient and wait for the times when something weird is causing a mis pricing right so let me ask you a few questions so number one should in your opinion should somebody just buy the index low cost index fund or actively invest the index is a really good way to go the index is too dumb to know that it owns nvidia and it's even more dumb it's even more done that it won't it'll never sell nvidia you okay or it's own apple the last ten years and never sold it for example so i would say for the overwhelming majority of humans probably more than ninety nine percent of humans you're best off just buying an index and i think that the the us equity markets and the us financial services industry is so efficient that the friction cost for honing owning an index through an etf is you know single digit basis points you know less than one tenth to one percent less than point o five percent or one percent or so so it's very it's very small and so i think it's very smart to go within indexing mh absolutely yeah for the vast majority of people yeah for almost everyone and for whom who shouldn't do that well if you are if you have the talent and the patience to figure out what a business is worth and then you know have the ability to buy those businesses well below what their work and patiently hold them those level of humans that can do that mh would be better off just doing it that way if i said what's the number one trait that makes a great investor what comes to mind patience if you were a guy who loves to watch paint dry you know you paint a wall and just sit there and watch a dry you will do very well did you ever a watch seinfeld some not the thing is that elaine elaine is on a fly with her boyfriend okay i forget the name of the boyfriend in the and i think if you pull google you can find this clip the boyfriend is just staring at the seat back in front of him okay and so elaine says to him would you like something to read he keeps looking at the seat feedback it says no do you wanna talk about something and he says no just he just doing nothing just looking at the seat feedback in front of it right by the end of the flight she's broken up it yeah he would have made a great investor that's what you need you can be if you can be happy or like you know pascal pascal had a great quote he says that all man's mis stem from his inability to sit quietly in a who in a room alone and do nothing right right and so if you have this ability to watch paint try what's the back of airplane seat for a few hours and just be in a nirvana state this is the this is the work you need to be doing i know you know this but you have a fans in a subreddit on reddit i don't know if you've ever have you ever been i haven't done my that's i went when i do my research for this i'm saying what do people think about i'm not you what questions do people have and i go and one of the best comments i thought it was such a great compliment they go the day i knew that this is my guy i wanna follow he's on cnbc he's on a tv show and they're asking for stock picks so give me a stock pick and they going around the horn and everybody gives their stock it's gonna be this it's gonna be this it's gonna go up and they go to you and you go i don't really give public stock tips like this and they're like well you got your tv you gotta do something and they're like the comment was he refused to just like randomly name a pick or tell people to go buy something and the tv hosts were like why are you on tv and he was like that's not what i do and he just stayed so fast and i thought it was such a great compliment but also so so big of a contrast from you go watch kramer or these guys and it's like you go on and it's like overs stimulation telling you you gotta do something right now the opposite patients basically is that should people avoid that yeah i mean i i think that it's a big red flag if you're getting stock tips from guy on tv i think that's just not gonna anywhere you know the guy on tv is not gonna be there when it's down thirty percent right he's he's all somewhere not available have you seen the reverse kramer index it's not yeah people just whenever he said do the exact opposite and you're up like you're crushing the market if you just did the exact opposite of this guy yeah so i mean i think i think that but like i said i think indexing is a great way to go home most people i mean so you know i wish i wish in high school so even middle school compounding was part of the curriculum from an investing point of view and and you know just it's really simple but but you know the people people don't pay attention to the math you know there are three variables that matter with compounding right i mean one is the starting capital you have the second is the the annual rate return you get and the third is the length of the runway right now there's something known as the rule of seventy two which is they've kind of mathematical just very helpful role explain it it's it's a beautiful learn this luckily one teacher in college she used to be a student she came back to teach set because she's like i wish we actually taught things that were relevant in the rural so she took it on herself became a teacher to come back and teach personal finance and the one thing she did was she's you know compounding is the eighth wonderful of the world and let me just tell you the rule of seventy two very simple math rule of seventy two is just a mathematical quirk that happens to work so for example if i'm getting seven percent return on a year and i wanna know how long is it gonna take for this money double i can take seventy two divide by seven it's approximately ten ten years ten years right now if i have a ten percent interest rate that i'm getting and again if i do seventy to do at by ten it's seven years so you can you can switch between the years or the interest rate and it tells you the other one right and and this is the most important thing in life is how long does something take to double okay because that basically leads to everything else so for example if you look at someone like warren buffett right he started he started his compounding journey when he was like ten o eleven zone i think he's he would say it's when he was seven years old he's gonna be ninety four this year okay that's a eighty seven year runway so far right now the thing is that if you have a really long runway then a low rate of compounding would still get you a big number or if you have a shorter runway and a higher rate would again get you the same result so it's very important in life and that's why i think that i wish to did this in high school is to start that engine early so for example let's let's take a situation of someone who's just finished college right at twenty two years old they got some job maybe like making you know seventy eighty thousand a year or something and they they put away ten thousand dollars and their four one k right they're twenty two years old in an index right that index has done ten percent a year now what that means is that ten percent a year means that that ten thousand will double every seven years so let's take a situation where the person is now sixty four years old right now they started at twenty two with sixty four so it's forty two years forty two years is six doubles right i do this to make it easy right okay it's so six doubles right that's two to the power six two to the power six is sixty four so that ten thousand that the person saved at twenty two is six hundred and forty thousand at sixty four but that's not all they have at twenty three they save eleven thousand that's again sitting at some big number you keep going and you know sometimes we see his news article there's is some guy who's a jan of some college and he gives four million to the college and lived in a one bedroom apartment whatever right why are we surprised okay if you actually run the math he actually didn't even save that much and he didn't even have that a such a great compounding engine and it's not like he found apple twenty years ago or something that's not what happened what what happened was that there were a consistency and so actually my my pushback to my dad when he was telling me to start a business is i was telling him at that time i said look i got a four zero one k i got thirty thousand in the four one k right right i'm gonna i'm concerned with fifteen percent a year my employer at that time of matching the first two percent so it will becoming seventeen percent tax free basically it's tax deferred and my income going up over time so i was when i first started working my salary was thirty one thousand right so i'm saving forty five hundred a year right but if i was still working my my my pay would have been hundreds of thousands mh or more and i'm putting away a lot of money so by the time i get to retirement it's like it's game over you know the lots of extra cash available no problem and i never missed the money because it was pre tax right taken out so it's just great so i think i think i i i wish that young people understand that yeah listen you can pursue lottery tickets you can pursue entrepreneurial dreams you can do all of that that's fine but on the side keep this going and started early let it be boring let it be a stupid index one vanguard and whatever and and that's it the the tortoise is gonna win the race right you know what's the circle of the wagon philosophy well the circle of the wagon philosophy actually came out of when i was thinking about buffett letter last year to shareholders the twenty twenty three letter he he pointed out that in fifty eight years of running berkshire there were only twelve decisions that he had made that had moved the needle for berkshire berkshire had a tremendous run they've compounded i mean till recently were compounding it twenty plus percent a year for fifty eight years that's you know if you're doing if you're twenty percent a year you are doubling every three and a half years okay and that means after thirty five years it's a ten doubles and fifty eight is another twenty three years so you've got another what one six six doubles so sixteen doubles two to the power sixteen now the way to do two above sixteen is two to about ten times two to power six two to about ten round numbers one thousand it's a thousand x right and two to the power six is sixty four it's sixty four thousand times what you started with okay if you started with a hundred dollars it's six point four million okay hundred dollars to six point four million okay so he he's saying i would calculate in the last fifty years fifty eight years buffett made three or four hundred at least four hundred different investment decisions he's saying twelve are the ones that mattered right the god of investing has a four percent hit rate that's the god of investing that's why we should index right what are the rest of us mere mortals supposed to do now the thing is that the i was thinking about his twelve bets right and i i i thought about okay which were the twelve and i think he never mentioned that but you could guess which one sees would be one of them coke would be another one on am gillette caps cities washington post you know if you can come up with the name you know books hathaway energy a g jai hiding a g chain probably the biggest bet for them with paid off huge for them but what's the story with g there's something about the the recruiter for him so what i realized when i thought about these twelve bets was it wasn't the buy decision the buy decision is important the important thing was they never sold sees stayed in the stable for fifty years coke has been in the table for forty plus years right so it wasn't the buy decision it was the paint drying decision okay that was the important thing so when you find yourself in the happy position of a small ownership in a great business just find something else to do with your time play bridge or whatever have you have you considered golf i have yeah and malt is great and and so if you ask charlie he would say the single best decision best investment berkshire hathaway ever made was the search fee they paid to hire a g chain okay now a g chain walks into their offices in nineteen eighty six nineteen five actually never having worked in the insurance business right from scratch without them putting a bunch of capital or anything the business he's created for them today probably has a value north of a hundred billion okay i mean it just gets lost in berkshire berkshire so big but i'll give you i'll give you an example of of a discussion i had with charlie i think there's maybe two three months before he passed away so he was telling me that a you know berkshire berkshire hathaway rights super catastrophe insurance like you know insurance against hurricanes earthquakes and so on right and many many years they when people are looking for earthquake insurance in florida of flo hurricane insurance in florida aj will look at the rates being offered just take a pass okay they basically he would find his two competitive or whatever else people not giving enough okay what he did in twenty twenty three and they mentioned it at the in the meeting actually is that he wrote hurricane insurance on books we behalf reins insurance with a maximum payout of fifteen billion dollars so if if these hurricanes had hit now basically the math is like this i just wanna explain how how eats mind works berkshire would pay out on a big catastrophe like in earthquake hurricanes three to five percent of the total insured loss incurred so for them to have a fifteen billion payout you would have to have had an event with insured losses in florida of three hundred billion beyond andrew and beyond katrina right is beyond all of those right so it's it'll be need to be a really big event to for them to have a fifteen billion payout the premium he collected to write that fifteen billion policy take a guess take a guess five billion he collected five billion okay and i sweating that guess not but he collected that's exactly what he collected how much did he pay out in twenty three zero there was one that came through my guess would be they might have paid out three four hundred million okay you know some three collect five billion and and what charlie said to me is aj each done this about six times okay where he's picked the years that he's written these policy because what is happening in most years is the premium offered was two billion he just took a pass right right a lot of all the other insurers wrote that policy berkshire took a pass right no call strikes right and and and now for example we've had we had some unusual losses like for example that that ship in baltimore right now that's going to end up being about three three to five billion in losses right and it's the biggest maritime loss in global history it's going to change premiums for ships right in the future berkshire will probably be writing when everyone else is saying i don't wanna do that right you know it's like the cat who sad on a hot stove and doesn't wanna sit on any hot or cold stove ever again you know you have a thing over there i saw in your office it says it's like a pla it says trouble is opportunity absolutely that's a that's what's story of that it's a quote by john temple and actually they're a good friend of mine frame watson in canada as we call them berkshire hathaway of canada warren buffalo canada and i had seen that that plaque on in his on his desk and somebody sent it to me and so it's a great quote i mean i think that that's what what we are trying to do with investors is we want we we need to be fearful and the world is greedy and we need to be greedy when the world is fearful and so basically when the world is running away from coal we need to run towards coal right so i'm always looking at what is hated and un unlocked right and usually you will get a lot of mis pricing when something is hidden and and i'm loved right tell me about bitcoin are you a fan of crypto bitcoin are you believer outside my circle competence and i would say that if you put a gun to my head i would say it's gonna end badly why is that it's in the eye or the behold there is no intrinsic value as i understand it to bitcoin now you can argue that there isn't an intrinsic value to the dollar but it has the full faith and credit of the us government which is then backed by the hardworking working american people so basically i think that i think that it's for me it's in the two hard pile but i think for most people i would just say take a pass right most people who have invested in bitcoin couldn't really tell you why it's or what it's gonna be worth and why it should be worth that mh okay fair enough so one the reason i wanted to fly here is because it's fun to meet these kinda outlier investors or even just hear the stories and i've heard you tell a couple stories about guys i've never heard of that i would love for you to to tell the story because i think most people have never heard these people so tell me about nick sleep who's nick sleep or jun whichever is your favorite give me give me one of the the stories that well i think nick is nick is a wonderful guy and they're a book called richard richard wiser happier that came out two three years ago and there's a chapter on him nick is he's very he's a rick close he doesn't do in reasons and such i was actually surprised he went talk to the author but right it's worth reading the the book and you know him he he and his partner zach they would come into their office and basically just sit and read annual report after annual report to the were blue the face you know i mean they were just and and and they would want to see if they could understand different businesses and that exercise of reading those annual report led them to the annual report of amazon right and for example i i've been a customer of amazon known amazon for a long time etcetera familiar with the business but every time i would take a cursor glance at amazon it looked very expensive on a earnings basis or pe basis it looked really expensive and the reason it looked expensive is they were investing so far ahead of the curve on the growth that what what should have been categorized as capex wasn't was just categorized expenses so the us government was really funding their growth because they were no taxes being collected now what what nick and zach were able to do because they were just sitting in their office with no distraction reading year after year buffett of bezos letters and the bezos letters is are worth reading i mean i think they're they're very clear he clearly laid out in those letters what he was up to right that he's basically that that he wasn't he wasn't completely candid but he was basically you could tell that the business had very high returns on capital and he was investing he was throwing a lot of things against the wall but basically there were very low risk bets if anything single bet didn't work it didn't wouldn't sink the company and so for example one of the bets they made was aws right which became a huge and they didn't know it was gonna become as big as it did but but basically they also made a bet on fire amazon fire which didn't work but basically i think what what nick and zach realized is that here was a very gifted capital all who understood all the different facets of building a team going after different markets he actually disrupted multiple industries and so they had placed a bet on amazon and and because amazon was doing so well it was becoming a larger and larger portion of their fund and in the uk there are more regulations on hedge funds than we have the us the uk regulator was telling them that we see this position as very high risk and you guys need to diversify so they were getting pressure and they felt that they understood the business so well so they looked at each other they were they were managing i think two or three billion they had made hundreds of millions in for each of them and they said look we are independently wealthy we never thought we'd be here we're young why do we have to listen to some regulator right we could return on the capital to all our investors and what what nick said is if gonna have return the capital i'm gonna put everything into three stocks and these are three stocks he owned maybe a dozen stocks but he was gonna go into three stocks the three stocks he was gonna put one third each into was one third berkshire show one third amazon one third costco right and so he said i'm very comfortable with these three talks they've very built to last businesses and he did that and what what happened a few years after they hung up their boots is it's really funny the amazon still kept you know it's a juggernaut right still kept going and so it became seventy eighty percent of the pie so instead of them being one third which it was eighty ten ten for example right and nick decided that oh maybe i should take some chips off the table here and so he cut the amazon position in half and bought another business which has not done well went sideways and that goes back back to buffett point of twelve that worked in fifty eight years is we are not going to if warren buffett has a four percent hit rate the rest of us are gonna have a two percent hit rate okay so but you also need to get rich just one so i think that what worked really well for nick and zac was they took the buffett lesson which is that once you have a great business just leave it alone now even after he was sloppy and he took chips off the table from eighty percent or whatever still done very well right and and i think one of the things that investors forget is that if you look at the the walton family none of them are running walmart sam walton passed away a long time ago has been several decades since sam walton passed away the walton have for the most part kept the walmart stock and for most of them it's almost the entire net worth in a single stock right so more concentrated than even next sleep right and it's not a business that they control it's not a business that they run it's not a business that they're on the board of none of them gives them sleepless night right and so for example in two thousand eighteen i started visiting turkey and i was just looking at things hated and un loved at that time and i saw that the turkish markets was screening really cheap everyone of the brother was the exiting turkey and i have a really good friend of mine in istanbul very good investor kinda classic ben graham investor and i told him hey he i i'd love to visit istanbul and i'd love to if we could visit all the companies in your portfolio starting with the company with the your strongest conviction biggest position to the smallest position and i said don't take me to see any companies wait you don't have money in okay he said mona should be a blast so i went in two thousand eighteen first time to istanbul the blue fish on the brass was great and all these different businesses we saw were great you know and i didn't really do much work he told me what places we were going to but i just said let me meet the companies first i went back in twenty nineteen and we are driving to this company and i like i said all these turkish names and companies i said i will do the work on the back end i'm i'm not gonna spend time so as we're driving oh i said hi remind me what company are we going do what's the what's the cliff notes version he said okay he says this company gonna visit raise has a sixteen million market cap sixteen million dollar market cap and he says liquidation value of the business if you sold it today is eight hundred million so i said is it a fraud he's he said no i'm i'm invested in the company and so i said you're telling me the company is trading for two two percent of liquidation value he said yeah i said why he said it's too you know everything's cheap i said this is the outlier cheap okay and res basically is a very simple business they the largest warehouse operator in turkey they rent out all these warehouses these are ninety nine percent leased inflation indexed and their leased to amazon ikea carr for mercedes toyota like blue chip clients and all of that right so i went and met the father and son who run the company and the founders and and then after that i went and visited a bunch of the warehouses and i couldn't find anything wrong with it basically and he was absolutely right if you just went to any realtor in turkey and said this is their eighty warehouses give me a value in each one he would just look at the rent and he would tell okay you know you're looking at about seventy eighty dollars a square foot for each warehouse they had twelve million square feet it was about a billion dollars and there was two hundred million of debt so with eight hundred million liquidation value and sixteen million market care okay and so then i thought okay this thing probably trades by appointment and maybe you can't buy the stock but turkey has very high trading volume because they're all gambler and so i found that right when i started buying the stock that huge volumes are available and i i spent eight million dollars to get a third of the company okay now the way i look at it is that you know you look at you know buffett letter with the twelve positions or you look at next sleep with amazon right the family that runs the business they have maybe forty forty five percent ownership right i'm an outside investor at thirty three percent i'm no board sheet but the way i look at r is the way the walton family looks at the walmart stock right i said and what what i've have noticed since then since twenty nineteen is they have increased the value of that business so i would say that probably today the business might be worth one and half to two billion somewhere in that range and i think they'll come i've never seen them make any decisions that was stupid they're very smart about the decisions it's very well run so i say okay basically we are done we will keep that business i don't care about the stock price so the sixteen million market cap now is about five hundred million you know in four years and you know the turkish l which when we were investing it was five l to the dollar today it's approaching thirty three l to the dollar turkish l has collapsed in dollars we are up almost thirty x right right but the business is worth more right and so the thing is that it's exactly what what buffett says is that basically just leave it alone and as long as that family and that father and son are running the business we will just keep our stake and and let keep running so basically the idea is that i'm also going to when i look back gonna find there were a few things that move the needle big time and the rest it right and and the key to moving the needle is inactivity and so that's what you you gotta be just you gotta be very patient and be very inactive right you talked about bezos being a capital all buffett obviously capital all in at for berkshire and what you know who are the other i guess like if i just throw some names at you or some companies at you like i'm curious to hear your take on how well they allocate capital because we know how maybe they help how good their brand is or their product is but we were talking about this yesterday there's a transition from your a product manager where your focus is building product and your people manager where you're building an organization and then your money manager and you're now you know as you're sitting on a hundred billion dollars you have to figure out some to invest it this is like you know so to tell me meta or facebook do you think how do you think they've done with a capital allocation well i think i think it was really surprising to see how he did a one eighty i mean i think mark basically moved from being a spend drift to being a patel you know he i i mean literally i i just can't i think it was remarkable to see an entrepreneur pivot that way right so you know meta was a country club you know they had all this spending going on in all these areas and he really tightened it up i mean i was really i mean and it showed up in the numbers mh they i mean facebook is a great business you know all the different brands they have and different properties they have are tremendous it is the norm and capitalism that great businesses will be sloppy with how they execute i think normally it's very rare to find a great business which is also tight fist and meta wasn't tight tested but it is now and so that was just wonderful to see so i think yeah i think the capital allocation there is excellent now right what do you think about elon musk fellow fellow texas resident the united states this is one of the just beautiful most beautiful things about the united states is elon wasn't born here okay and he wasn't educated in his first twenty years of life over here we the united states has got a finished product basically and he's created tremendous value tremendous jobs and disrupted multiple industries i think i think elon is exceptional allocate capital yeah it's terrific act actually and tesla like it's a lot of there's a lot of conversation is tesla over undervalued is it undervalued is it you know too frothy i guess what's your take on when you look at a business like tesla how does your mind analyze a business successor it would it goes into the two hard pile i i would i would i would i would say this i would say that elon is not human okay he's beyond human if you just think about all the things he's done i mean another neural net and and you know boring company and you know what he's doing with spacex and all that it's it's just really very remarkable the execution is off the charts and i think i think like i said i think it's just unbelievable in terms of what he's been able to accomplish so i will all respect i think i think elon understands capital allocation really well and i think all the businesses that he he gets involved or he found they do so well because he gets so much out of the people which basically means he gets so much out of the capital right i mean he's his hiring is so good the teams that he's building are so exceptional that i mean when you're hiring a software engineer they could be an engineer who's worth ten ten million a year and there could be another guy worth a hundred thousand a year and he can tell the difference right and so he's that's that's a great skill to have yeah i love that well end with this we have charlie you know here and he passed away and you were friends with them what's a maybe your your favorite store or lesson from from charlie mu yeah i mean i i obviously i miss charlie i think he he was one of a kind i think it was just a and and i i've been thinking last several weeks several months about so many of the lessons and things but one of the things charlie said in one of the last interviews he gave someone asked him i think what would you like on your gravestone and he said i tried to be useful and i think those those words i try to be useful and encapsulate it charlie really well if you look at warren buffett tribute to him that he did dis see in the letter charlie selfless helped warrant a lot i mean without charlie manga there's no berkshire hathaway even though you had a warren buffett there and i twice i went to charlie when i was facing difficult personal situations nothing related to investing right extremely helpful to me on point i just did exactly what he told me to do and those issues disappeared right and so charlie always was trying to see how can i help the world in all the institutions that he touched you know his memorial was the harvard best lake school in california and la transformed that institution he was at the board of the good santos hospital transformed the hospital berkshire hathaway transformed i met so many partners he had in different businesses always gave them a better deal and i think in every way possible he i think that was just absolutely correct he selfless tried to be useful and you know charlie i don't think charlie believed in god i don't think he believed in religion right and i think he didn't believe in legacy he i think he believed that when we're gone we're gone it's asha and dust right till one day before he passed away he was in the hospital he knew he was dying he was trying to get one last grant done to a nonprofit no upside to him he's dying right right six days six days before we passed away he was buying a stock okay you know a stock we discussed you know and i'd send a write upon so i'm just saying that i think charlie extracted everything he could from his mind and his body the other thing was that he never complained lost sight in one eye many decades ago he was almost blind in the other eye he cared most about reading right that was most important to him and i saw him one time and the second i was giving him we serious problem where he could've have gone blind this was maybe ten years ago and the second eye even when he was facing the prospect of complete blindness he was so stoic never said oh poor me self pity his response to me was i'm gonna have to learn braille you know you know that's that's how he was right gonna deal with it you know and so i think that they'll i think it's just great we have such a big rich body of work that he left for charlie alma and i think a lot to learn from him right well thank you for sharing that and thank you for doing this is helpful your you know process of of sharing some of your wisdom so thank you for doing this it's a pleasure i really enjoyed the session thank you right on okay alright yeah sounds good thank you i feel like i rude wear i know why i could be what i want to put at all in it like the days all on a goal less travel never looking back but