Collection: Mohnish Pabrai - #99 'Stress-Free Investing'



[Transcript]

PROFESSOR JIANG 00:00

I have a question that's related. So can you tell us a little bit about your lifestyle? How much time you spend on thinking about investment every day? Because the size of your asset under management very easily place you into one of the top 10 active stock funds from China.


And I know many of those fund managers their life is under pressure and very busy and a lot of overwork. It's not a good lifestyle for those fund managers who are managing a similar size of what you manage.


MOHNISH PABRAI 00:41

Well –


PROFESSOR JIANG 00:43

So how is the lifestyle different?


MOHNISH PABRAI 00:46

You know, I should not advertise this, but it's the best lifestyle you could possibly have. So, you know, I maybe have three or four ideas in a year. You know, sometimes we don't have any in a year and sometimes we have many more than that, so it varies.


So if you follow the Buffett-Munger model, which I do, your life is going to be fantastic. Here's what happens in the Buffett-Munger model. Number one, I have no staff. There are no analysts, there are no associates. If you send me your resume I'll be excited to read it, but I can't help you with a job because there are no job openings, because we've never had a job opening.


So one part of the Buffett model is that you do not delegate your investment research. Warren Buffett even today when he buys IBM or whatever he buys, he does all the work himself. He doesn't have anyone under him doing any of the work. There's no one building spreadsheets for him or anything like that.


And that's the same thing at Pabrai Funds. So I have a few part time admin assistants who are great. They help run all the back office things. But even then we don't have much going on.


In a typical month, I don't get any phone calls or any emails from my investors. Okay? And I have about 400 families who have invested with me. And these families basically got selected because I have some very strange rules with how I operate.


For example, before people invest, I don't meet them and I don't do phone calls with them. So the only people who can invest are people who willing to do reading on their own. We can give them access to our website, they can read various things. If it makes sense to them, they can invest.


So that doesn't work for most people, but for the people it works for, since they invested the money without talking to me, they're really not looking to have a lot of conversations even after that.


And what I tell my investors is that we have a couple of annual meetings every year where they can come and they can ask any questions they want. And they come from all over the world. So I have investors from everywhere, and they show up at the annual meetings. And so in effect, we are open for business two days a year and it's a lot of fun to meet them and talk to them.


So basically, if you don't have any staff you don't have any HR problems, and you have no issues. What is the reason that Buffett and Munger don't have analysts?


Well, the reason they don't have analysts is that the investment business is a very strange business. You need your brain at unpredictable times and the rest of the time you don't need your brain.


So if I hired a super smart analyst, someone in the audience here because I think each person here is exceptional, that person would want to do something constructive with their lives. So they would either look to me to tell them what to research or if I don't give them any direction, I'll say "Listen, just go look and tell me when you find some great stock." Let's say I just tell them that. "Listen, you work on your own and just figure out when you have a great stock idea and bring it to me." Let's say I did that, for example.


Well, what would happen is because we have different circles of competence, 95% of the time whatever they will come up with I would say “no” to because 95% of the time what I come up with I say “no” to myself.


And so since I would have liked this person when I hired them, I would feel really bad about saying no all the time because it would just be unpleasant. And so, eventually, I would give up and say, "Okay, I'll buy the stock that you want even though I'm not sure about it."


So – and then you've just destroyed the model. What you have to do if you bring in people is you have to give them your own pools of capital, so they have full autonomy to do whatever they want and they don't come and ask you what to do. That's what Warren Buffett has done with Ted Weschler and Todd Combs. He'd just give them each $9 billion and they do whatever they want; they don't talk to him. That works.


So the – When I look at investment operations like you mentioned a bunch of operations in China, et cetera. I look for violations of the model. So, you know, Moses came up with the 10 Commandments. We have commandments in investing as well. They come from the guy with the bust behind me and they come from Warren Buffett and they come from Ben Graham. They have rewritten the commandments and so one should follow those commandments.


When I look at an investment operation, the first question I ask is, "How many violations are there?" And the first place I look for violations is in team size. So I can almost guarantee that the investment managers you are talking about who seem to be stressed out are not operating with a team size of one.


Do they have more than one person on the team?


PROFESSOR JIANG 06:51

Much more than one. (Laughter) The whole team.


MOHNISH PABRAI 06:55

Like how many? 5, 10?


PROFESSOR JIANG 06:57

Different firms have different structures.


MOHNISH PABRAI 07:00

Right, right.


PROFESSOR JIANG 07:01

They employed analyst, they also have assistants, and all sort of things.


MOHNISH PABRAI 07:05

Yeah so all that is hocus-pocus. There's no need for any of that. I mean, the bottom line is, what is a model? The model is buy things at half off.


And you have 5,000 stocks in the U.S. and you have several thousand outside the U.S. in China, wherever. And we are bargain hunters. Why do you need a team to find bargains? You don't.


And we didn't talk about it in this talk, but the simplest way to find bargains is to be a cloner. And I am what you would call a shameless cloner. I just you know, I meet Li Lu who's 100X smarter than me, I say, "Li Lu, can we meet for lunch?"


And every once in a while I'll ask him, "Li Lu, what do you own?" And in a moment of weakness he'll tell me what he owns, and then I just go buy it and I'm done. I don't even need to pay Li Lu; it's great. And probably a better analyst than anyone I would hire.


And then in the U.S. we also have 13F filings where every quarter people have to file what they own. Just figure out who the smart people are, look at what they're buying, and reverse engineer them. You don't need an analyst, it's actually fun.


I think my job would not be fun if I – Many times by the time I get to the office, half the trading day is over. I mean, in California the stock market opens at 6:30 in the morning. At 6:30 in the morning, I can assure you I am drooling on my pillow. I am fast asleep. If I'm not going to sleep 'til 2:00 in the morning, I'm not getting up at 6:30.


Tomorrow morning – please don't tell this to anyone, it's just between us – Tomorrow morning I will wake up at around 9:00 a.m. I may wake up at 9:30 a.m. There's no alarm, I'll wake up whenever I wake up. And there's no meetings because there's no staff. And there's nothing on the calendar because that's what Warren Buffett told me. "Keep your calendar empty."


And I have no idea what I'm going to do tomorrow, no idea, but I know it'll be an exciting day because I have so many books to read. I've at least 30 books on my desk that I want to get to so I'll pick some book if that's of interest. If some company shows up, I'll read about the company. If I want to watch a movie with my wife, we'll do that. Whatever man. The key is – The key to life is find CRISIL.


That's the Moody’s of India, and then just go to sleep for 20 years. That's it. So the purpose of this talk is for me to understand that to become even less active is to not even wake up at 9:30 in the morning, but to wake up at 2:00 in the afternoon. Who cares? You know, because we found CRISIL and then the guys at CRISIL will make all the money for us, so we don't need to do anything.


And you know, Warren Buffett says that it is not a good idea to get married for money. Usually, if you marry someone because they're rich that's a bad thing. Usually, it doesn't work out very well. But it's a terrible idea to marry for money if you're already rich, okay? That's terrible.


So the fund managers you're talking about – I would guess that they are very wealthy. Are they wealthy? Are they rich?


PROFESSOR JIANG 11:07

A bit. Especially for the younger generation – young managers. When they get promoted, go up hierarchy and they become pretty good.


MOHNISH PABRAI 11:18

Yeah so for the young managers it's very simple. If you believe in the power of compounding, then a small amount of money on the side can get you to independence relatively quickly.


The analysts and the young managers and so on, I think the key is that you spend less than you earn, you put something away, and then that little something can become more and more, and eventually what you want to do is you want to be your own boss. So forget trying to chase the corporate dream, forget all of that.


Just – you know, I think one should only be in this business if you love this business. And in my opinion, the way to love this business, there are some rules. Number one, no staff. Number two, no trading during office hours. Number three, don't even go to work when the market is open. Just be a gentleman of leisure or a gentlewoman of leisure, and that's it.


I was very lucky that I never worked in the investment business. I didn't even understand the investment business, I stumbled upon it. And because I never worked anywhere, the only models I had were Warren and Charlie.


So I just looked at how did Warren run his partnership? I set up the partnership the same way. How do they run their life? " If you look at Warren Buffett's calendar, it's completely empty. And so let's keep it empty and let's do things that are fun.


You know, like I think the reason I'm doing this talk is because it's fun. Number one, it's fun, it has to be fun. Number two, I want to get better at the multi-baggers, so I'm using you guys to pound into my brain to be even more patient. To be patient for 20 years. I never have the stock except that one stock by accident for 20 years. So I want to hold something for 20 years and get 100X on it. I want to do that. It might show up when I'm 60, and we'll hold it 'til we're 80 and I hope that happens.


(Source: https://youtu.be/Jo1XgDJCkh4)

 

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