The Laws of Investing to 10x Your Stocks | Mohnish Pabrai

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The key to investing is that when you find yourself in the happy position, don't sell it when it's overpriced. Only possibly sell it when it's egregiously overpriced.

My guest is Mohnish Pabrai, the renowned investor who built his fortune by openly copying Warren Buffett. You're going to get the best business models to start if you're brand new. If you want to build real wealth without betting the farm, this is the one to save and listen to twice. It's also very good for you to send your team.

My biggest mistakes and greatest learnings have been to become more patient. The laws of investing are like the laws of physics, and I think this Buffett guy wrote the laws of investing. Whether you believe in gravity or not, it's going to affect you. If someone followed Buffett's approach to investing, they would do better than the 98%.

What is your mental model that you like the best for deciding the next bet you're going to take?

Total no-brainers.

So What do you think most people get completely wrong about money?

Well, I think the single most important thing is you spend less than you earn. We may live for 80, 90, 100 years. And so the important thing is that when you get started in your career in your early 20s, that right from the beginning, you're putting something away. And those early dollars being put away have a huge impact because of the nonlinear aspect of compounding. Humans have difficulty getting their arms around the notion of compounding, you know, how money grows over time if you leave it and so on. And so being able to put something aside a little bit all the time is a very good habit.

Yeah. So what would you say to somebody that was young, stuck in their job, doesn't think that they could make it? What would you tell that person?

One of the things to keep in mind is there are 168 hours in a week. Your employer wants 40 hours. There's still another 128 hours left. And so even when you take out time for eating and sleeping and showering and everything else, you have at least another 40, 50 hours that you could do something else. And so I think it's very important to live close to where you work so you don't spend a lot of time commuting and you effectively have enough time for a second venture or second job. And because someone else is already paying your rent and groceries and everything, you don't need the second venture to feed you. And we are now in a knowledge economy. So a lot of things that people will want to do does not need capital. It just needs what's between your ears. It just needs you to be creative, to think about what could be, should be, can be, et cetera. So you come up with an idea, you have the time, 40, 50 hours, you keep your job, you do not get to quit your job. You Try your idea. Let's say it doesn't work. No problem. You go back to square one. Think of another idea.

So do you think a lot of people give bad advice when they tell you to burn the bridges, quit your job, go all in today?

Yeah, I don't think you should do that. I think that's a one-way ticket to hell.

Me too.

No, I think we want Like I said, we want upside without downside. That's how I invest, right? So the way— and people think entrepreneurs take risk. Entrepreneurs do not take risk. They do everything in their power to minimize risk. They look at this whole equation and say, how do I crack this without taking risk? Venture-backed startups are less than 1/10 of 1%, maybe even 1/100 of 1% of the total number of startups in this country. 99.99% of the economy is non-venture-backed. The Chinese restaurant, the laundromat, the window washing business, whatever, right? None of those companies are venture-backed. So that is where most of the American economy gets its growth from. And that goes unreported, right? I mean, some of the biggest businesses we have today in the US and the world were not created with venture capital. Ford Motor Company, Walmart, Microsoft, most of these companies, IKEA, were created on a kitchen table with nothing. And so if you keep your job and you try idea number one and you go all in on that, you got the time, and it gets some traction. When it gets enough traction where you're making more money than your job, you just switch, switch roles. You quit and go to the other side. If it doesn't work, um, you go back to square one, idea number 2. In my case, it was the 3rd idea that I came up with that got traction. The first 2 didn't work, but the third idea took off. And after 9 months of doing both, the third idea, which was my IT services company, the first company I went and ran, basically had enough cash flow that it was exceeding what I was getting paid. So, I switched because I was desperate to work 100 hours a week, right? And I didn't want to be doing two things. I wanted to do one thing. And so, I switched.

But was that only after that replaced your salary?

Yes. After 9 months of banging at doors and doing things, I had 3 clients, and those 3 clients were giving me enough cash flow that it exceeded my salary. And that's when I quit. So effectively, it was risk-free because I never went to a situation where I was without cash flow, without a paycheck or any of that. And then very quickly after that, doubled the salary I was making, 2 or 3 times what I was making, and it just kept going. And the business was growing so fast that I kept reinvesting and all of that. So, that company, I emptied out my 401. I was 25. I had about $30,000 in my 401. I took that to zero because I said, if it fails, I can go back and start over. Not a problem. And I took every credit card I could get. So I had $70,000 in unused credit card credit limits available. And as the company started growing, I used every single one of those. In fact, they were all maxed because the company was growing so fast that by the time I got paid from clients, you know, I had to cover that. You need funds.

And then about 2 years after I started, I met a banker who converted all of that into a line of credit, paid off all my credit cards, and I said, "Hallelujah." So if a young person is listening to this and they're like, "I don't have cash right now, I don't know how to start the business," what is the way that you pitch people to give you a credit card, to give you capital? Like, how do you talk people into giving you money?

The founder of FedEx, Fred Smith, he had payroll coming on Monday in the early days of FedEx and he couldn't meet payroll. He knew he couldn't meet it. He went to Vegas, okay, played blackjack, won at blackjack, and made payroll on Monday, okay? And if he had lost at blackjack, which could have happened— that probably should have happened— there's no FedEx, you know. So all these businesses go through these, you know, extreme situations. So bottom line is, the number one skill you have to have when you're starting any businesses, you have to have selling skills. You need selling skills to get clients. You need selling skills to get a banker to give you a loan. You need selling skills to get your friends to give you their credit card. But more important than, I think more important than selling skills is unique value propositions. So capitalism is brutal. Anytime there's a company that makes a lot of money, there's 100 other people thinking about how can I take that business away from them, right? So the nature of capitalism is creative destruction. Someone opens a sushi restaurant, they do really well, there'll be 10 other sushi restaurants opening, right? So the important thing that we have to look at is before we embark on a business, we have to really pay attention to how is this unique and how is this sustainable. So we have to be kind of careful observers of the world around us, and we have to think about how could this world around us be different, and can I participate in making that difference. So if we can come up with something where there is some kind of a business idea or some kind of a business that you can come up with that doesn't exist today, but there's a need for it, that's it. Anytime we try something and we fail, we learn. And so, the second one's going to get better and the third one's going to get better and you just keep going from there.

So good. I love this idea that you have called cloning, basically, where you just, you know, you don't think that there has to be original ideas all the time. In fact, you copy some of the richest, most successful people in the world. Can you talk to me about what is cloning? Do we have to have original ideas to make money?

We do not need any original ideas to make money. And I know I'm contradicting myself, just said. I remember that when Chipotle first came out, you know, in Chicago in the early 2000s, I used to go to Chipotle and I loved it. You know, everyday lunch was Chipotle. It was great. And from the time I first went to Chipotle till today, it's been 25 years. Incredibly successful business. No one's cloned it. So Chipotle's innovation was he let you make the taco you wanted, right? They got all the doubt.

Oh yeah, I'm a burrito girl, but I'll allow it.

Yeah. Burrito. So you say, okay, I want this. I don't want this. I want this. No, it's extreme customization, right? That was one of the big reasons why they succeeded. Okay. And so if you If you really look around carefully, what you're going to find is you're going to find many businesses like Chipotle where there should be 3 of them, but only 1 exists. And there's offering gap after offering gap available. Now, your job is easy. You clone Chipotle. And you know what happens when you clone is there's some things that you're going to figure out that you can do better than them. Or different than them. But the core piece, which is the customization piece, make it the same. And just go from there.

It's fascinating because it's so true. We have a saying here. I started getting annoyed that people always start at innovate, and I think you should go imitate, iterate, innovate.

And you don't even need to do, you don't even need to think about that. What I would do is make it even simpler. I would say, just to be a shameless cloner. Okay. So don't even say that when I take Chipotle, I'm going to change anything. It's working. Yeah. Okay. It's working great. Why change anything? The change is going to come automatically because you're different from the founder. Right. You know, the funny thing about Chipotle is the founder was a fine dining chef in Denver. Right. He wanted to open a fine dining restaurant. And so he opened Chipotle as a stepping stone, saying, "I'll open this thing, I'll make some money here, and then I can open my fine dining restaurant." So actually what he did was he brought in fine dining nuances into Chipotle. The food is very fresh and all of that. And the funny thing was that was the idea. That was the idea. That was the scalable idea, not the fine dining restaurant. So what he actually wanted to do was very different. But what I'm trying to say is that I think that if you look at the world around you and you look at businesses that you admire, and even simpler than businesses that you admire, just make a list of all the products and services that you use. It is very difficult for any company to get even $1 from you? Very difficult. So the products and services that you're already using means that those are incredible businesses. And then look at, can multiple versions of that exist?

That's a great point. I'm actually gonna send this to my team, 'cause it's funny, one of them the other day came to me in one of our businesses and I said, well, what are our competitors doing? And what does their product stack look like? What does their sales stack look like? If this isn't working for us, go look at the people who it's working for. And I remember one of the leads of the team said to me, oh, well, I don't know if I could secret shop that. Is that ethical? I was like, have you read Sam Walton's book? Like, he used to go and lay down on the ground with a tape measure between aisles of all of his competitors. He knew everything about their business. And so I think there's some ego. And I see it a lot in our leadership teams where they want to figure out an innovative way to do it. And I'm like, why would you? You have no context. You haven't won at this before. You haven't done it before. So why would you, with no data, no context, and no history of winning, just go find a new way to run and use your hands instead of your feet? That's ridiculous. One thing Monish and I keep coming back to in this conversation is that rich people do not usually get rich by taking wild risks. They get rich by finding weird lopsided bet. And that is why I keep talking about buying boring businesses. This is why we built Main Street Millionaire Live. It's a virtual event where you can get with my team to do a live workshop, and I will show you how to find the best businesses to buy, how to evaluate them, fund them, and spot the things that make a deal either a really good risk or insane. If you have been listening to episodes like this thinking, I get it, and I'm interested in investing in businesses, but I don't know where to start, This is where you start. Grab your seat at this link at msm.live. This is the last event we are doing like this for all of 2026. So if you do not jump in now, you can wait another year to learn. Now, you took this even so far as to, for instance, I believe you paid like $650,000 to have dinner with Warren Buffett back in the day.

Lunch, yeah. Lunch. Dinner might be more expensive.

Oh my God, what would that be? A lot. It was a lunch special. Well, here it's not a fancy lunch.

The reason it was a lunch special is a few years later it went for $26 million.

You got a deal.

You are a value investor. One lunch went for $26 million.

It might be your best investment yet. You should have traded that. So what do you learn? Like when you're going into a meeting with Warren Buffett with this mentality you have of like cloning the best ideas, learning from the best. What did you learn?

So the lunch was a lot of fun and actually I had no, I didn't have many expectations for the lunch. So let me go back a few years before the lunch because then you can understand kind of why the lunch happened. When I read about the way Buffett did investing, it made all the sense in the world and he's an open book. He just said, this is how you should invest, right? Then I looked at the way the rest of the world did investing, the mutual funds and fund managers, and they're not following what Buffett is saying. So a mutual fund will have 100 or 150 stocks, and Buffett says 6, 10 at the most, right? So I said, the laws of investing are like the laws of physics, and I think this Buffett guy wrote The Laws of Investing. And whether you believe in gravity or not, it's going to affect you. Okay. So I said, we have this entire industry of investment management, which is operating without the laws of physics. And then you have this guy who's doing it this way and nobody else is doing it this way. This is Chipotle with no competitors. Right? I looked at all that. I said, you know, I think that if someone followed Buffett's approach to investing, they would do better than the 98%. And I also feel that an idea is like an asshole. Everyone has one. So an idea without execution means nothing. It was '94. I had just sold a portion of my business, uh, and after taxes, everything, I had $1 million. I didn't need the money. The company was profitable and fine. And for the first time I had cash in the bank. So I said, I'm going to take this million, I'm going to invest it using Buffett's approach. And so from '95 to 2000, the first 5 years I was doing this part-time while I'm running my company, the million became $14 million. And I was just making investments in public equities and doing what Buffett did, basically 10% bets, 10 bets. And it was like 60, 70% a year. It just blew the doors off. And I said, this worked way better than I thought. Well done, Mohnish. Well done. I knew you could do this. And I was losing interest in my IT business. And I was much more interested in the investing business. And so I found a CEO and I transitioned out. And then I had these friends where I used to give them stock tips because I'd already bought something. So they came to me in '99 and they said, we want you to manage money for us because this stock tip business is very random, right? And so basically, I set up a fund really as a hobby, $1 million from 8 people just to manage that. By the time I got to 2007, I'm managing $600 million. We haven't had a single down year and we've compounded at like 35% a year before fees. And I was extremely wealthy at that point because I'm getting one-fourth of the gains over 6%. And Warren is running these annual charity lunch auctions once a year where you get to have lunch with him. And I said, I owe the man a tuition bill. I said, I've taken all his intellectual property, everything is based on him, and he doesn't want anything. He's an open book, but I want to say thank you. So I said, the lunch would be a great way to say thank you. So I said, You know, I think at that time I had made $70 million off Warren. So I said, what's a reasonable amount to pay if someone made you $70 million? I said, 3%. 3% is pretty good, right? I don't think it's too much. That's how we come up with $2 million. And so at the lunch, I had no agenda. My only agenda was to look Warren in the eye and say, thank you so much, right? Warren, on the other hand, has a very different agenda at the lunch. He wants to make sure that whoever won that lunch feels they got a bargain. So he wants to deliver a lot of value. You know, it's just a great guy. He said, I'm free for the whole afternoon. So he says, whenever you guys are tired of me and you want me to go, let me know. But I don't have any place to be. I can be here as long as you want. After about 5 minutes, you think it was your grandfather. He puts you at ease. He was not the richest guy in the world, whatever. Anytime we would ask him a question, he would convert the question into a way to teach something. He's just such a great teacher. And I was really surprised when in the middle of the conversation, I told Warren that my wife, she's a fan of yours, but her real love in life is Charlie Munger, Warren's partner. And Warren got competitive. He said, "My partner Charlie Munger is a very boring guy." He says, "I'm going to set you guys up to have lunch with him and you're going to find that lunch with me is way more interesting than lunch with him." So I thought he's just joking, right? And 2 days after the lunch, I got a message from his assistant to Charlie's assistant and then lunch got set up with Charlie. And I found lunch with Charlie way better than lunch with Moore because Charlie's just so open. And so that lunch with Charlie led to a friendship with him where basically I used to meet him to play bridge with him, meet him once a quarter approximately to have dinner with him at his place. And with Warren also, we became friends, but not like Charlie. Because Charlie was in LA, I was in California at the time, and so that was easy. So It became buy one lunch, get infinite free.

You know what's interesting? I've met a lot of investors by now, a lot of really successful ones. You seem really happy as an investor. And to me, investing is very stressful. Like I know in 2008 you had a tough year like most investors. That was a brutal year where many people— I was at Goldman at the time. No, that's wrong. I was at Goldman in like 2009, 2010. But those years were terrible too. Everybody thinks that 2008 is one year, but that was like when Goldman was under, we were having the trials actually for whether we caused the crisis or not. And I remember knowing a few people who actually killed themselves during that period that meant— Schmoydine. And I was in New York. And yet you've gone through these huge losses and huge gains but seem really happy and steady.

Well, something to keep in mind is if wealth is lost, nothing is lost. If health is lost, something is lost. And if character is lost, everything is lost. I didn't come up with that. Some guy much smarter than me a long time ago came up with that. Okay. Life has a way of changing overnight, both ways. It can go from very good to very bad, and it can go from very bad to very good. You can't resign yourself to the fact that, oh, I'm down and I'm going to be down forever. Well, if you think you're going to be down forever, you are going to be down forever. But if you just say, I can pick myself up and keep going, that's fine.

What do you think is the most amount of money you've ever made in investing and lost in investing? In a year? Like for people to understand the full weight of this.

Like what does that mean? Well, we've had companies we've invested in who have gone bankrupt. So we've had companies I've made investments which have gone to zero. Now typically when we make an investment, we don't do it more than 10% of our assets. So if I have, you know, 10 bets and 2 bets, for example, went to zero, which would be pretty extreme, It's not the end of the world because you've got the other 8 that are—

But it could be $50, $100 million.

Oh yeah. I mean, I manage $1.4 billion currently. So if I'm placing a bet today, it's a $140 million bet, right? And the $140 million, there are, I hope it doesn't happen, but there are chances it can go to zero and there are chances it can become a billion. We look very carefully at downside protection. Even before we look at the upside, we look at the downside. So they're designed not to be high risk, high reward. They're designed to be low risk and hopefully moderate to high rewards.

So what is that, like if you have to put dollar amounts on that? So let's say you have $140 million investment. Well, you've had some huge wins that at least I could find online historically. —like, which companies have you put in $10, $20, $100 million, and then what have they gotten out for you? Like, what's been the best investment you ever made?

In my career, two companies that have become more than 100 baggers, right? So they went up more than 100 times. One happened right at the beginning when I started in '95, where I put $100,000 into a company and it became $10 million. That was great. And another one Which also happened at that time was I put just $10,000 into a company and it became $1.4 million. That was $140,000. And then one that's happened more recently was a company in Turkey where that was just so mispriced. We couldn't— we were shooting fish in a barrel where the market cap when we invested in 2019 was $15 million and now It's $1.5 billion. So it's gone up 100x. And that one, we owned about 40% of that business.

How do you decide when to sell, to take money off the table?

Well, so when we make an investment, I always feel that you learn the business after you own it. You may think you know it before you invest, but you really get to know it as you live with it, right? And There is no such thing as a risk-free investment. The biggest mistake I have made in life is selling too early. Really? Yeah. So I used to, for example, I used to own, my funds used to own 1% of Ferrari at a cost base of $10 million. Okay. So in effect— What is it today about? It'd be about 50 times that. Okay. So, and the thing is that when I look at a business like Ferrari, it should never be sold. In capitalism, there are very, very few businesses that have long-term sustaining enduring moats. And when you end up with a business that is exhibiting those characteristics, you don't want to touch them. My biggest mistakes and greatest learnings have been to become more patient. Like for example, this company in Turkey, which has gone up 100x, it looks embryonic. It's still undervalued. It's still trading about half of what it's worth. And they could compound for 20, 30 years, 40 years. So that's a business we will just hold as long as we can. As long as I don't see secular declines in the We understand the business well. We hold it, and it's not our only holding. We have other holdings. So the nature of the way capitalism works is that very few of your investments will end up with giving you most of your wealth. And this is the way the Walton family got wealthy. This is the way the Berkshire Hathaway people got wealthy. This is the way the Koch founders got wealthy. It is by concentrated holdings in particular companies. And so Um, the key, the key to investing is that when you find yourself in the happy position of partial ownership of a great business, don't sell it when it's fully priced. Don't sell it when it's overpriced. Only possibly sell it when it's egregiously overpriced, like you can't justify it in any possible way. Then you can look at it.

What is your mental model that you like the best for deciding the next bet you're going to take? If you only get 10, you must have very clear models for determining when you want to add on a risk.

Yeah. So what we are looking for is total no-brainers. So let's say I own a home in Austin. Okay. And let's say I bought the home for $2 million. Okay. And I go to my realtor after one month of buying the home and say, hey, what's my home worth? They said, oh, Mohnish, it's still worth $2 million. Okay. And let's say I go back after another month and the guy may say, yeah, still worth $2 million. And then maybe after a few months, he'd say, oh, you know, it's $2,050,000. Okay. So if you just kept writing down what the house is worth and what a buyer would pay for it, you're going to see very little change over time. If I look at all the stocks in the New York Stock Exchange and I throw a dart at any one of them, let's say IBM or Amazon or whatever, and I just look at the 52-week range on their prices, it'll be 100 to 200. Or 80 to 150. It's a wide range. Your house is not going to go from 1.5 million to 2.5 million or 1 to 2 million. It doesn't do that. So auction-driven markets accentuate price movements much more than you would if you were not auction-driven. And because they accentuate price movements, sometimes you get extreme mispricing in both directions. You get extreme overvaluation and you get some extreme undervaluation. So what I'm looking for is anomalies. I'm looking for weird things that make no sense. And because we have so many stocks and so many things going on, you will find weird things. And so when the weird things I remember, like, for example, there was a company called Level 3 Communications. Level 3 built this massive fiber optic network. You know, they were going to be transporting all the internet data everywhere. Massively overbuilt. Okay, the data never came, and the company is upside down. So the stock has collapsed. It was a darling. It collapsed. And people are concerned they'll go bankrupt. So they had a lot of debt. Now they had these bonds that they had issued where the bonds were trading at 18 cents on the dollar. So someone paid a dollar for the bond, they're now at 18 cents. The bonds had a coupon of 6%, which means if you bought it at 18 cents, You were getting paid interest of 33% a year, right? I looked at the Level 3 balance sheet and I saw that they had enough cash to make the debt payments for at least 4 or 5 years. So I said, in 3 years I get my money back and I still have a claim of a dollar because it's a bond, it's not a stock. And they still have money after that. And I think that in 3 years the— and it's a very high quality business with the people running it. They may sell assets, they may do different things. I said, I don't see how I can lose money there. I don't see if I buy Level 3 bonds. So I put 10% of the fund in Level 3 bonds. I didn't know it at the time, Warren made the exact same bet at the exact same time for the exact same reasons. Okay, what happened is We went for 3 years, we clipped the coupons, and after 3 years, the bonds at 60 cents. I didn't even wait, I sold them. So basically we tripled our money on what we paid for the asset, plus we got the interest in the meanwhile. And that wasn't even a stock investment, it was a fixed income investment. So basically, there's always weird things going on, and we just want to pay attention to them. And the other thing is that this is not a business of a lot of activity. If I find something like Level 3 once a year, I might only have 1 or 2 ideas like that, but that's all I need. I need an idea like that once every 2 or 3 years. I don't even need it once a year.

So part of the game is you really have to just stop yourself from doing too much.

My job is to just read and be with Codie Sanchez Sanchez at a podcast. That's my job. Well, it's funny.

I remember when I was at Goldman, Warren invested in Goldman and everybody thought he was crazy. But obviously, and I was a little peon, tiny little, nothing at that company. But I remember the senior people explaining how the deal got done and the price that he got it at and the terms and our balance sheet. And just there was so much noise about how we were something like a Countrywide that was doing all of the insurance, all of the backing of the mortgages, when in fact Goldman had none of that risk on its balance sheet. So he made one of the best bets ever.

And I want to tell you something about what happened then. Warren paid $130 a share at that time for Goldman Sachs during the financial crisis. The stock went down further. I bought it at $65 a share. Okay. Half of Warren's price. Now, like Ferrari, another stupid thing I did, which is a company like Goldman Sachs should never be sold. So I tripled my money. Well done, Mohnish. I sold. I should never have sold it. It's like a Ferrari. It's like these durable moats. And I made money on Goldman, I made money on Ferrari, but I should have never sold them. So eventually I will learn from these mistakes not to do that.

Well, I think you're doing pretty well to date. I, you know, I kind of want to talk about some cultural things happening. Yeah. Like for instance, kids buying Pokémon cards and trading them at crazy valuations today. Do you think that that's a good idea or no?

No, not a good idea.

How do you explain to this younger generation why that's a bad idea? If they go, no, no, but I bought it for $50 and today it's at $250. You don't understand. It's different today. What would you say to them?

Well, let me distinguish, let me look at two different examples of what you can invest in. So you can buy a Rembrandt and it's a million dollars, okay? Or you could buy three apartments which can be rented out, which are also a million dollars. And you make these two investments. The Rembrandt you say could be worth $2 million in the future or $3 million in the future. The future value of Rembrandt depends on the perceived value by other people in the future in a very subjective way. The future value of the apartment building that you bought will depend on the rents it's generating. So if you bought in a great place with a great demographic and the neighborhood becomes better, the rents could triple or double in some time and the apartment will be worth $2 or $3 million. So if you understand Rembrandt so well that you have a very high probability of saying this is going to be worth $10 million in 10 years, go buy the Rembrandt. That's like the Pokémon card. You should always be within your circle of competence. So if you're buying Rembrandt, you're buying Pokémon cards, or you're buying apartment buildings, all of these, you should be knowing them cold. And if you got the confidence that it's going to be worth more, that's fine. It just may be that you are correct about Pokémon cards because I don't understand them, and I'm correct about apartments because I do understand them.

Why do so many people get caught up in these? Bubbles. Like maybe you could say we might be in an AI bubble today. You might be able to say we're in a collectible nostalgia bubble today. Like what is it about human nature that makes you a bad investor emotionally sometimes?

Humans want to invest in things that have recently done well.

We just have giant recency bias basically. Right.

It's just the nature of people wanting to go to flavor of the day. And actually that going to the flavor of the day actually makes it possible for me to do what I'm doing. There is a lemming aspect to human behavior. There is a herd mentality. There is want to buy flavor of the day, want to buy what's popular. All of that is there. And it is those characteristics that allow someone like me to do what I do.

How do you go against the crowd to invest when everybody else might think you're crazy? Like, have you ever had somebody say like, this is crazy, don't do this, why are you investing? And you did it anyway?

Yeah, I mean, I think you've gotta have conviction on your ideas. I mean, the thing is that it's the same thing as starting a business. You wanna start some business.

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That's why you Rack. So everyone's gonna tell you it's not gonna work, right? And they may or may not be right, but, uh, you feel passionate about it, you go for it. If I've done the work and I understand things and I've got conviction, then I'm going to act based on that. Yeah, absolutely.

Take it from Manish and I, the most expensive mistakes don't happen because you are dumb or I'm dumb. They happen because we're alone moving fast and taking guesses. Business owners do this constantly. Boredom is for business owners doing 7 figures at least in revenue and who do not want to make the wrong decisions in isolation. Just like He is going to pay $650,000 to sit down with Warren Buffett to learn from him. I've realized that when I have a third party who gives me advice and I get to steal all their homework, I make way more money. How does it work? In Boardroom, you actually get to sit down with my operating team and partners. You bring the bottlenecks, the issues in your business like cash flow, hiring, sales, marketing, and we help you find the next lever to fix with our operating tools, advisors, weekly coaching, quarterly planning, and owners who follow our exact private equity playbook to scale revenue and profits. This is not for people who do not have a business. This is only for people who are already building their business. But if you are that, then you should apply to join Growth Boardroom here. You can go to contrarianthinking.co/growth-boardroom. You also kind of have famously said you don't lie. Is that true?

Well, we try not to lie. If I did not lie at all, I would be at a Jesus level. Okay, I'm not at Jesus level yet. Okay, or a Buddha level or a Gandhi level. So the whole lies versus truth is a very powerful mental model. There's a book I read a long time back called Power vs. Force, written by a kind of new age guy in Arizona, Dr. David Hawkins. But he had a theory that he said that If I lie to you, and in your conscious state, you don't know I'm lying to you. In your subconscious state, you do. And he said that there's a pipe that goes between the subconscious and the conscious, but for most humans, that pipe is mostly clogged. Okay, so the signal cannot get through, but he says the pipe is not fully clogged. So what happens is that you, in his terms, he said you either go weak or strong in the presence of a person telling the truth versus telling lies. So if someone is lying to you, you may not know directly that they're lying to you, but you will feel, I don't know if I want to spend time with this person. You know, like the used car salesman. You don't know what part of what he's telling you is a lie, but you know there's a lot of lies in there. Right? So you don't want to be there. That's why people want to shop at home. They don't want to go to the car dealership because it's not a pleasant experience. They'd rather just go online, buy the car, and have it delivered and they'll be done with it. And so basically, we know, we know at least subconsciously when people are not being truthful with us. And we see that play out. Humans get strong and love being around the truth. And so we crave that. And so in leadership and in entrepreneurship or in a selling situation, the more truthful you can be, the better off you are long term.

You know, it's interesting. We had a leadership meeting yesterday and the meeting was sort of last minute. And the reason that I held it, candidly, was because I heard little little bickerings, you know, little, oh, this person did this and this person did this, but they weren't going to each other to have any conversation. And so I heard it enough times that I just thought, well, we don't have time for this. So I pulled everybody into actually this room where we're sitting and I said, all right, this is your shot. It's free. But like, if you don't bring it up here, that means it's not a real issue. So you have to look the person in the face and don't say generalities. You have to say, Codie, you did this, blah, you know, so-and-so, you did this. And what's fascinating to watch out is how many people will not tell the truth because they'd rather be diplomatic. And I'm wondering, have you found ways to indoctrinate that culture, to get more people to have difficult conversations?

Yeah, when you have conflict or whenever team members are not being candid, I think that having them speak in a kind of moderated way where one person speaks without interruption, what their perspectives and feelings are and everything, then the other person speaks and again shares, eventually can lead to a better outcome. It may or may not solve the problem, but I would just say this, that I don't want to be part of a team which has dysfunction like that. So if you have things going on where the people talking behind the back and all these going on, you have to fix it.

Yeah, it's interesting. I've learned, like, Elon has this line that I love where he says running a company is just finding the series of compounding lies inside of your company. And I related to that because I think it's truthful and sort of non-egoic to say that and to say, hey, I'm one of the best entrepreneurs in the world. And I still know that whether it's, to your point, not complete deceit, but just sort of hiding the truth or not even realizing it or whatever, your job as an investor is sort of to find the truth in a company or not. And then when you're running a company, it's probably to find the truth even inside of your own company, which was a crazy realization for me to realize the first time I ran the company.

Yeah, also I think when Elon interviews people, and he interviews a lot of people, I think he interviewed the first 3,000 hires at SpaceX himself. He asked them, one of the questions he asked the engineers is, what's the most difficult problem you solved? And he says that when they start answering the question, if they really didn't solve that problem, it's going to become obvious. Because he's smart enough as a problem solver to figure it out. So he just goes deeper and deeper into that area with the person. And he says eventually just reveals itself, whether they actually solved that difficult problem or whether they heard about it and they think they can, you know, fudge their way through it.

Now you only have 10 investments. That's, and you hold them for a long time. That is like having a relationship, I would imagine, with a lot of that senior executive team or the CEO team in some way. You know, you could compare it to marriage, you could compare it to dating. You could say that they become partners of yours in some way. How important is it screening the CEO and the founders and the key team not just the underlying assets in the balance sheet? And if it is important, then how do you determine whether you want to bet on a person or not?

Yeah, so the culture and the nature of the people is very fundamental, and that takes time. Some of it we can get by looking at long histories of the business. Business been around for a while. You could say, what did they say 10 years ago? And then what happened? And so definitely we have to have a good understanding of the people and we have to be comfortable and confident that we can be long-term partners. And the other thing about investing is that it tolerates a high error rate, right? The moats of the companies, the competitive advantage of the company, the nature of the CEO, the nature of his team, many of these things we may or may not have gotten it exactly right. And sometimes they are much better than where you think they are, and sometimes they're much worse. But we definitely try.

Is there a question that you ask or that you— I know if they're public CEOs, you can't always go direct to them to ask questions in the same way. But is there a question that you ask to screen an individual that you find really helpful?

Well, one of the, one of the things that, uh, which I got from Warren is he says that when you go meet a company, you ask the company leadership that if I were not investing in your business, which of your competitors would you suggest I should invest in, and which of your competitors do you think I should short, or I should never invest in?

It's a great question even to ask if you run a company. Like I'm thinking about what would my answer to that question be? And that also tells me who do I want to go hire from those competitors? Like, you know, which products do we want to launch? Which should we kill? What have they already done that we're trying right now that may or may not work? That's a very, that's a good mental model. What does a day in the life of a billion-dollar investor look like? Are you up at 6 AM? You have 16 meetings, coffee breaks?

No. I work from home even though my office is half a mile away. Maybe 2 or 3 times a week, I speak to some of my team on Zoom. I go to the office maybe once a year or something, very rare. But I just decide on a— I don't have a lot of preconceived, I want to do this and that for the next 3 months. I leave it very free to have the flexibility to go into any area I want to go into. So I'm just, it's very, very much seat of the pants based on what is going on.

Yeah. You know, it's so interesting. I've, you know, I ran our biggest asset management company we've had. We only manage, you know, just a little bit over 9 figures, but we— it's interesting, my husband is the one who runs our investment portfolio now. And I always joke, I want to come back in my next life as that instead of operating companies. We still are not good enough. You know, I think we're good operators of company. We've grown a lot every year, you know, sort of tripled or, or a little bit more each year. But it's the leverage there is so different than investing. And so I think a lot of times the cool part of you sharing stuff like this is most people don't realize like you said, the power of compounding. They don't realize the power of not taking an action every decision, which you've talked about. They don't realize the power of being patient. And when you have capital, allowing that capital to do the work for you as opposed to you having to do all of it. And so I think it's a give to share that with people because most people, I mean, how many employees do you have to manage your fund group roughly?

There are just 2 people full-time. And there are 2 part-time. I mean, it's wild.

And then you imagine if our company does, let's say, shy of 9 figures a year here, we'll have 130. Yeah. And so the leverage is so different.

And also the other thing is that if I went from $1.4 billion to $14 billion, it might be a couple more people. That's wild. It's not going to be 10 times the number of people we have. It's just going to— because that's the beauty of the business. The reason I went into this business is because I could just see that the economics are great. It just works great. I'm a single player, single game player guy. So I'm not the kind of person who's happy being on a soccer team. I'm probably going to be happier playing tennis.

Yeah. That makes sense. So maybe for somebody listening, explain, sort of wrap it up. If you are looking at business models,— and deciding, I think a lot of what matters is the game you choose to play. Not just because of who you are, but also whether that is a good game or not. Like, you know, we talk about a silly thing like vending machines. I like vending machines to learn how to do business. It's cheap. There's not a lot of risk. You have an entire business and company with very little CapEx. It's sort of a great, but it's a terrible business at scale, actually really tough business. How do you think about business models in general? Do you have a mental model to determine if one business model is better than another?

Yeah, I mean, I think that a lot of that comes naturally. I'll give you an example that I think you might find interesting is when Buffett was a teenager, he was in Washington, D.C. His father was a congressman and he hated being in D.C. He wanted to be back in Omaha, but he was in D.C. And there was a guy in his high school, Don Danley. And one day Warren went to Don's house and he saw Don tinkering with a pinball machine. Okay. And he said, what are you doing? He said, oh, you know, I got this pinball machine that doesn't work for like $5 because people are just giving it away. And I think for another $5 or $7 in parts, I can get it working. Okay. And so Warren says to him, are there a lot of pinball machines that you can get that are not working? So there's people just have them sitting all over. So what Warren did was he's like 16 or something, 15. He tells Dan Lee to fix pinball machines nonstop. Like they get 20, 30 of them., right? And puts them to work fixing those. And then he and Dan Lee go to the barbershops in DC and they tell the barber that we work for Mr. Wilson because they're two kids, right? There's no Mr. Wilson. Mr. Wilson is a fictitious character. They say, we work for Mr. Wilson and Mr. Wilson has authorized us to make you an offer, which is we'll put the pinball machine in your barbershop for free. And every week we'll come and pull out where coins are there and half come to you and half we take for Mr. Wilson. So the barber said, put the machine in the corner. I mean, there's no downside, right? So those pinball machines, when Warren was leaving DC after high school, he had 45 barber shops with the pinball machines. And he said the first week he went into the first barbershop, there was $5 in there and he gave $2.50 to the barber. He thought he died and went to heaven because on a $10 investment, in 4 weeks they were going to clear the money. And then the return on capital is infinite. So what I'm trying to say is that you talked about the vending machines, right? The vending machine, the entrepreneur is not doing anything unusual. If Warren bought pinball machines at market price and put them in the barber shops, it'd be a terrible business, right? Yeah. It became a great business because they flipped it a little bit. So understanding the economics of a great business is not difficult. In fact, what I would just say, I would say the following, my filter, for understanding whether a business is great or not is, does it blow me away? Okay. Does it hit me in my head with a 2x4? Like when I see Buffett's pinball machine business, you instantly know that's a great business, right? You know, they're not spending anything on the pinball machine. It's fantastic, right? And the same business, when you buy it at list price and you put it there, you lose your shirt. You're going to be a terrible business. So what we want to do is we want to find the anomalies, right? And so that's exactly how I look at businesses, that is it the pinball business? Is it Buffett's pinball business? And if it is, like Level 3 was like Buffett's pinball business, right? So we look for these weird things and we are looking for weird things that make no sense. And then we find them and we go back to doing what we're doing and look for the next weird thing.

So good. Not enough people try to take the complex, simplify it, and just do it a few times.

Yeah. So we can make the vending business really good. We just have to get the machines for free. That's true.

Be the one that can fix them. Because you're right, that's where the best businesses in vending when we had a bunch of them, because we owned a bunch of laundromats, so you put vending machines in the laundromats. Similar to Warren. But the best part of that business ended up being the people who fix the vending machines because they break all the time. Absolutely, yeah. And they do the same thing. They then take the vending machines, fix them up, resell them.

So I think that's the thing is the business opportunities are all over. These were kids coming up with this who didn't even have any experience. And Warren had so many, he had this other kid where he used to sell golf balls on the street corner in Omaha. But he had a couple of friends who'd go dive in the water to get the golf balls out. And Warren never wanted to do it. He said, "I never want to do any hard work." So, he paid those kids to dive and then he sold the golf balls. But again, the golf ball is free. It's free. And so, you're going to make a lot of money when you do that. So basically, we want to I'm trying to look for these businesses where some part of the equation is different than the mainstream, and that just changes it completely. Ambitious but lazy.

I love it. This was such a useful conversation. Thank you so much for being here. Where do you like people to follow along?

Well, you know, I'm on, I'm on X and LinkedIn, Mohnish Pabrai. Okay. Yeah. So let's start there.

Okay. Follow along for the ride. But thank you so much for being here.

Always a pleasure, Codie Sanchez Sanchez. Thank you so much.

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