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Proven Playbook For Quitting Your 9-5 In 9 Months! (Fastest Way To Financial Freedom) Mohnish Pabrai

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Why do they call you the dando investor?

>> It's a way of doing business and making

money without taking risk. Like for

example, Mr. Gates, Mr. Walton, Mr.

Branson, all of these people followed

these simple mental models. So if they

won, they would win big and if they

lost, they'd lose nothing.

>> So I want to know everything.

>> Okay, let's start with this. Monish

Pabry is the self-made millionaire who

built one of the most respected

investment firms in the world, managing

over a billion dollars. And now he's

giving us the simple tools and

frameworks to create life-changing wealth.

wealth.

>> If humans understood that if I embark on

a business in a format where the risk is

close to zero, more people would do it.

And that's what these mental model do.

For example, cloning. We are taught if

you want to start a business, you need

to come up with something new. But

actually, if you are a great cloner, you

will be 90% ahead of the rest of

humanity. And in fact, everything that

Microsoft has done well at has come from

copying someone on the outside. And then

there's time. When you're starting a

business, don't quit the day job because

some other yo-yo is paying your rent.

But it does mean that you need to find

time to work on your business. But I

will show you the perfect way to

allocate your time. And that's not all.

There's models like lowhanging fruit,

skin in the game, givers versus takers,

and the circle of competence. And I'll

I'll explain all of them. What about

investing? Cuz you're very well known

for being an excellent investor.

>> There are three things that matter with

investing. And there's also something

known as the rule of 72, but I wish they

would teach it more in high school. And

it tells us how long it takes money to

>> I see messages all the time in the

comment section that some of you didn't

realize you didn't subscribe. So, if you

could do me a favor and double check if

you're a subscriber to this channel,

that would be tremendously appreciated.

It's the simple, it's the free thing

that anybody that watches this show

frequently can do to help us here to

keep everything going in this show in

the trajectory it's on. So, please do

double check if you've subscribed and uh

thank you so much because in a strange

way, you are you're part of our history

and you're on this journey with us and I

appreciate you for that. So yeah, thank you

Monish Pabry. With the work that you do

and the sort of public educating that

you've done more recently in your career,

career,

what is the message you're trying to

convey? If you had to summarize that

message and exactly who are you trying

to convey it to?

>> It really depends on uh what message.

There are uh a few different mental

models that I've figured out over the

last few decades. When you have uh kind

of clarity on these mental models and

especially when you can start overlaying

them, that's when you get 1 + 1 becomes

11. And uh so these mental models are

not all in the same direction or in the

same genre.

>> So just to pause there for a second. So

the the word mental models >> Yeah.

>> Yeah.

>> means it's basically a framework for thinking.

thinking. >> Yes.

>> Yes.

>> So one framework for thinking is this

idea of cloning. >> Yes.

>> Yes.

>> Um as one such example.

>> Yes. Let's take the mental model of cloning.

cloning. >> Cloning.

>> Cloning.

>> Cloning. Right. So um

what we are taught is that if you want

to start a business, you need to come up

with something new, something that

hasn't been done before. But the reality

is that the world will very easily

accept three of the same thing or five

of the same thing. And usually it is an

advantage to look at something that

already exists and say can another one

of those exist for example or can I take

what's there and tweak it a little bit.

So there's something peculiar in the

human psyche maybe going back into our

history and our ancestral evolution

where humans look down upon cloning. But

if you look at it so for example two of

the greatest cloners I think in human

history were Bill Gates and Sam Walton.

Now, we think of Bill Gates as an

innovator and we think Sam Balton

created Walmart, which was also new. But

actually, they're both meto models. And

And

Microsoft would not have existed without

being a great cloner. So, when we look

at um Microsoft Word, it came from Word Perfect

Perfect

>> which was a company

>> which a competitor that he took out. Uh

we look at Excel, it came from Lotus. Uh

we look at Bing, it came from Google.

And you know what Bing is, but it's not

Google. Everything that Microsoft has

done well at has come from copying

someone on the outside. And when we look

at Sam Walton, who's you know, the

Walton family, if you pull them all

together, it's the richest family in the

world. It's richer than uh Elon and

everyone. And Sam Walton, by his own

admission, would tell you that he has no

original ideas. So, originally Walmart

cloned Sears and Kmart.

>> For my international listeners, these

are two big supermarket chains.

>> Yeah. And they're both gone. They they

And in fact, Walmart buried them. And um

and Sam Walton

was one of the most intense cloners

ever. So if he was driving on vacation

with his family and he's passing some

retail store, he would tell his family

to stay in the car and he would go in

the store just to check it out. And he

said that there is there is no human who

has lived in history or will live in the

future who has visited more retail

stores than he has.

One time there was a manager of his and

he would go in with his managers to

these stores. Retail is one of the most

transparent businesses. You can go into

your competitor's store and you'll

figure out the entire business model in

10 minutes. You don't need to talk to

them. Okay? It's beautiful. So, he went

into this retail store and the manager

says to him, "Oh, what a terrible

operation. The whole store was topsy tur."

tur."

And Sam says to him, "Yeah, but did you

see the candle display? The candle

display was fantastic." So, Sam felt

that he could learn from anyone. It

didn't matter if you were a useless

operator, a great operator or whatever,

anyone in the middle. Walmart is just an amalgamation

amalgamation

of ideas from other places. If we look

at if you look at a company like Starbucks,

Starbucks,

we think of Starbucks as innovative, but

actually what Howard Schultz did is he

saw a concept in Italy and his idea was

that I think this is work in the US,

right? And so he cloned he cloned that

idea from Italy and brought that coffee

shop experience to the US. If you are a

great cloner,

you will be 90% ahead or 95% of the rest

of humanity. Now

another mental model humans have this perspective

perspective

that starting a business

is risky. In reality entrepreneurs do

not take risk. They do everything in

their power to minimize risk. And in

many cases when they embark on a

business the risk approaches zero. What

is extremely risky is a 9 to-ive job

because we have one life,

right? And it goes away and you may not

get to do what's in your heart. You may

not get your music out, right? And so

getting our music out is really

important. So, so this notion which is

drilled into us that if you're an

entrepreneur, you're taking risk really

kind of does a big disservice to most

humans. And if if humans understood that

if I embark on a business, I can do it

in a format where the risk is zero or

close to zero and I can clone an

existing business.

Right now you've combined two mental models

models

and we can start adding more to them.

But two has become 11. 1 plus 1 has

already become 11. It's nonlinear. And

why is it that why is why am I saying

that entrepreneurs do not take risk? So

if I take my own case as an example and

I can give you a hundred cases like that

but if I take my own case as an example

I was working 9 to5 at a company and I

had a business idea my employer expected

me to work 40 hours a week right there's

168 hours in the week so I felt like

there must be at least another 30 40

hours there that could work

on my startup.

>> Could you show me this in context of

>> right? So if we look at our whole week

for example these beautifully arranged

Legos if I take one of these blocks of

Legos. So each one of those blocks in

there is 2 hours. So 8 hours a day. We

sleeping 8 hours a day right?

>> And uh and we're doing that 7 days a

week. Right? So basically we've got 7

days a week, 8 hours a day we're

sleeping. The blue Legos are showing our

40 hours a week. Uh 8 hours a day, 5

days a week we're working. Right? Then

we get to

other, you know, uh preparing dinner and

showering, shaving, getting ready,

whatever else. So that's about 4 hours a

day on the weekdays, which is uh

including commute time, and about 8

hours a day on the weekend. Then we get

to free time, you know, social media and

watching Netflix and hanging out with

friends, going for dinner. And we've got

quite a bit. We've got about 4 hours a

day of doing that and about 8 hours a

day on the weekends. So this is kind of

typical what a typical week for most

people would look like. Right

>> now, when you're starting a business,

the important thing is don't shut off

the cash flow. Some other yo-yo is

paying your rent and some other yo-yo is

paying your groceries. So, we don't want

to rock the boat, but we're going to

make one change to blue,

>> which is the amount of hours I'm working

for my 9 to5.

>> Now, before I started my startup, um I

used to get top reviews as an employee.

uh you know I was very focused on doing

a great job for my employer allin right

the day I decided I'm going to run do my

startup I decided I need to be just

above firing level my performance needs

to be just good enough so they don't can

me but nothing beyond that because I

need all my energy to go into my startup

so that's the only tweak I'm making is

the blue stays but we're not doing extra

blues like we were doing before. Right.

>> And blue for anybody that doesn't can't

see because you're listening on audio is work.

work.

>> Exactly. Yeah. Blue is work. Exactly.

Now, when we embark on a startup,

we should never do a startup to make

money. It's the worst reason to start a

company. The purpose of business is not

to make money.

The purpose of business is to deliver an

incredible product or service to humanity.

humanity.

If you do that, the money is a side

effect. It'll happen. We don't need to

focus on it. So, what we are looking for

is do we have a product or a service

that we are thinking about that we could

bring into this world that is going to

improve the world in some way? How do I

know if it's a good idea?

>> Whatever idea you have come up with is

not going to work. Okay?

Okay?

Because you came up with it in an ivory

tower between your ears. Okay? And

that's not really a great place to find

great ideas.

What's going to happen is we're going to

be doing what I call rapid prototyping

which is we take this idea and show

humans what it is and when you show it

to humans you will get feedback. So I'll

I'll I'll um maybe I'll just give it in

more practical terms.

uh when I was um uh when I was starting

my first business uh it was going to be

a IT services business okay information

technology services and I was going to

be providing these services to very

large businesses companies that are you

know billion dollars or more in in

earnings or cash flows. Um, I was in a

meeting with a a senior IT guy at a very

large bank in Chicago

and I was going through my PowerPoint

deck with them.

I came to the 10th slide,

said my spiel, went to slide 11. So the

boss who was sitting in the meeting

said, "Go back to slide 10."

So I went back to slide 10 again gave my

speech that I had for slide 10 and took

it to 11. He said go back to slide 10

and do not change the slide.

I don't have an interest in any other

slide. Okay. So I took it back to slide

10 and all he wanted to talk about was

what was on slide 10. My deck was

talking about

seven things we could do. Slide 10 was

one of those seven.

It was an extreme pain point for him. He

needed help on that one thing. He didn't

need help on all the other riff raff

stuff I was talking about. So when

you're doing a startup,

you have to be listening very carefully.

Your customers or potential customers

will tell you exactly what you need to

do. Whatever you came up with may be 80%

right or 70% right or 40% right, but

your customer will tell you what is 100% right.

right.

>> Okay? Because that's a real pain point.

So I went back and thought about it and

I realized that his pain point and I

could see it was a severe pain point

because he gave me a purchase order at

the end of that meeting um was going to

be a pain point for a lot of people. So

I went back I took slide 10 blew it up

into 20 slides and that became the deck.

Okay. Everything else got thrown out

right now. I couldn't have done that

without him.

My brain is too small to have figured

that out. So, anytime you're doing a

startup of any kind and you have a

prototype or a early product or

something going on,

your users are going to tell you exactly

what tweak they want.

>> You've just reminded me of a

conversation I had this morning.

>> Okay. Yeah, where I interviewed someone

because much of what you're saying is

orientated towards startups, but it's

actually every single day of everyone's

life because I interviewed someone this

morning for a really critical role in

the company. And this person has spent

20 years at one of the biggest companies

in the world. And when I was doing the

interview, she was telling me about lots

of things she's done in those 20 years.

And I was just trying to get to this one

thing. Can you put on events? And she

was telling me about this and that and

the other thing and this and this and

the other thing. And I was just actually

I'd only come to this interview to

figure out if she could do put on big

scale events. So we spent of an hour

conversation. We spent 55 minutes

talking about a bunch of things I wasn't

interested in. And actually as you were

speaking I was going you know what she

could have done at the start of that

conversation. She could have gone

Stephen can I ask you one question? What

is the what are you looking for from

this person?

>> And if and then I would have gone I just

want someone that can put an event and

then the next 55 minutes could have been

persuading me that she can do that.

>> Sure. And it just applies to what you

just said there. How could you of the as

the saleserson that day in that meeting

with what you know now, how could you

have done a better job without going

through all of those slides?

>> Well, I think what what I would do now

if I were doing something like that is

that my my radar

on listening would be 10x.

You know, we don't learn when we speak. M

>> we learn when we listen. So I would

really be trying to talk less and

extract more.

>> And um I wouldn't even rely so much on

slides. I'd like to really try to bring

them in into what they are trying to

say. and uh and and so basically in uh

if if you study if you study businesses

you know ventureback non-benture back

whatever this is a very common thing

there are almost no businesses

who end up with the business model that

was originally conceived I mean that

just is would be such an anomaly it's

really the interplay between the

founding team and the early customers

which really leads to taking this wet

clay and making into something that

people want,

>> you know, and so you know, if you think

of something like uh Google Glass, you

know, when they came up with those

glasses that they thought the whole

world was going to wear. >> Yeah.

>> Yeah.

>> So, it didn't work. Well, why didn't it

work? Well, the reason it didn't work is

you're talking about something extremely

personal. Okay? Like for example,

Wrigley's chewing gum. Okay. My mouth is

a very personal space. I'm not going to

put Gloss Chewing gum in there.

>> What's chewing gum? >> Exactly.

>> Exactly.

>> Okay. Yeah.

>> You're not going to put some brand

that's half the price of Wrigley's. >> Yeah.

>> Yeah.

>> In there. Because you don't want to go

there. That's not of interest to you. So

when we wear glasses or sunglasses or

anything we wear, that's very personal.

So the the ergonomics and the human

factors are very important if it's

slightly off. Now Meta is trying to do

the same thing. But they went to RayBan,

right? They did a JV with Rayban.

Those glasses look like normal glasses. >> Mhm.

>> Mhm.

>> I think there's a higher chance.

>> Well, I've got some. We used them. Yeah.

>> You don't have any Google Glass?

>> No, no, no, no, no. I mean, I think they

they cut the project, didn't they?

Google. So, so what I'm trying to say is

that we we have to pay very close

attention to the customer. Uh I mean

Steve Jobs was right. The customer

doesn't know what he wants. Okay. But if

you put it in front of them, then they

can now tweak and tell you exactly what

they want.

>> Right. So, so that and that's another

mental model which is now we get to the

third model which is that you're not

smart enough if whatever founding team

you have is not smart enough to figure

out what people want. Period. So you

have to have very good listening skills

and you have to be have the flexibility

to and again when you're listening

separate the signal from the noise right

take in what is real signal and ex leave

out what is the noise and then you're

starting to get down a path which is

going to make more sense.

>> The other thing that's kind of a model

maybe woven into there was this idea of

just like attention to detail. I'm not

even sure if that's a model, but when

you told me about the Walmart founders

laying between the aisles to measure the

exact centimeter of length, the model

there for me was just like precision and detail.

detail.

>> It's a game of inches. I mean, what I'm

saying is that uh when when Sam Walton

was trying to figure out the name of the

company, one of the reasons he went with

Walmart was it was seven letters and he

was looking at the cost of putting up signage

signage

in his stores and he was trying to come

up with a name with the fewest letters

because it costs less.

>> Okay. And so I mean cost

cost sensitivity is all over the place

in Walmart, right? I mean that's just

front and center with what they do,

right? They just really squeeze blood

out of a rock, you know? So basically, I

mean, I think that was and that's the

reason why they became so successful.

One of the things you can always control

in business is your cost. you you may

not be able to control your margins and

selling prices and a lot of other things

but you can always control cost so

that's another model where you have to

have discipline

>> you have to have very strong discipline

on the cost side if you look at

something like LVMH you know uh the guy

who runs it I mean he's in luxury goods

he's in high-end

>> LVMH make Louis Vuitton and

>> yeah yeah I mean everything you know is

you know they've ten over Tiffany's

everyone. Um, but when you look at how

the company is run, it's very tight.

He spends money on the best real estate

because that's important. But the deals

he negotiates on those real estate is

mind-blowing, you know. So, it's it's a

very tightlyun operation on a product

category that doesn't necessarily need

it. M

>> but that's why they that's why he's

become the wealthiest guy in Europe

>> because that mentality will then apply

to every decision. >> Absolutely.

>> Absolutely.

>> And if you apply it to 100 things, it

does matter.

>> Oh, it does matter big time. Yes.

>> So I have these yellow blocks here which

represent working hours working on your

own business. Yes.

>> So show me how you would take some of

these blocks away. >> Yes.

>> Yes.

>> And introduce hours working on your own business.

business.

>> Yeah. So basically it's it's really

quite simple. Well, we're not really not

going to mess with our sleep cycles.

We're going to leave that alone.

>> Sleep staying the same.

>> And uh we we need our blue, which is our

work work space 40 hours. We need that

to continue. One of the changes we're

going to make is we're going to live

close to work. So, we're going to cut

down commute time as much as we can. >> Okay?

>> Okay?

>> Because every hour matters, okay? So,

the area that we're going to focus on is

the free time. Okay? And the reason why

taking out the free time is not a

problem is because what we are embarking

on like we just discussed is not about

making money. Is getting our music out.

>> Getting our music out. What do you mean

by that?

>> Which means that we have something in us

that we know the world needs and we want

to bring it to that world. We want to

bring it to the world and because we

want to bring it to the world, it's not

work. I think the audience might be

challenging themselves in their head and

saying, "But I love my the thing I do

for work. I'm I'm one of maybe the rarer

group of people that I get to work with

puppies every day and I love that."

Yeah. So, I think that I think this is

not for everyone. So, I think you have

to ask yourself who you are. If you are

truly excited about your 9-to-five job

and what you're spending your main

working main waking hours on, awesome.

That's great. I mean, everyone's not

going to be an entrepreneur. Everyone's

not going to have a startup. Everyone

they they may be getting their music out

in a different way on someone else's

platform, which is perfectly fine. And

but but if if that is not you, where

when you go to work, you're not super

excited to get up in the in the morning

and you're not tap dancing to work every

day. If that's not happening, then

there's something wrong. And you have to

ask yourself well is there something

else that is that you're passionate

about that you want to do and this is

not something that should take a lot of

effort. So if you go back and look at

for example Bill Gates and Paul Allen,

right? I mean, Bill Gates is at Harvard

and he sees a magazine which shows a

very early personal computer and he

realizes that there's a paradigm shift

and he realizes that he needs to be part

of it and Paul Allen is the one who sent

him that magazine and he told Bill, "We

got to go do this now. This is our time

now." And for Bill, it was a very easy decision.

decision.

Very easy decision. Very difficult for

his parents. His parents were in shock

that he's going to abandon his uh

degree. And you know, he he told his

parents, "Don't worry about it. I'm

going to come back and I'll finish the

degree." And several decades later,

Harvard gave him an honorary day. and

his parents were in the audience and he

told them, "I told you I'd come back,

finish it off." Right?

>> I put some numbers to this. 12% of

people according to the stats that are

listening right now are explicitly

unsatisfied with their job, which means

they hate it. 85% of workers globally

are disengaged, meaning they're not

fully invested or happy at work. So,

it's a huge number of people. More than

half of the US workers are at least

somewhat satisfied, but engagement

remains worryingly low. So if we look at

that 85% number, 85% of workers globally

are disengaged,

meaning not fully invested or happy at

work. So it's really those >> sure

>> sure

>> people and and the thing is it's not

it's not just enough to be unhappy at

work. That's one piece of it. the the

unhappiness can be a symptom and uh one

of the one of the causes can be that you

have a different calling in life and you

are not following following your

calling. Now

sometimes for someone like Bill Gates

for example and Paul Allen they figured

out their calling and they just went

right for many of us it may not be that

easy. So what we have to do is we have to

um try a few things. You know you try on

different shoes to see what fits. And so

you know have some thought experiments.

Talk to your friends. You know say okay

you know I'm a UPS driver. this is what

I do and I really like playing the

guitar or I like to make these art

figurines or something at home and

whatever else, right? So, you have to

figure out what your calling is and I'm

probably not the best person to tell you

how to figure out what the calling is.

Maybe another guest of yours can can uh

can help them with that.

>> Do you think everyone has a calling?

Yeah, I mean I think I think we are all

unique children of God and I think we

uh we all have some music we want to get

out and uh knowing what that is and

getting it out may not be the easiest

thing but it's a worthwhile journey to

try to get there. Right? So, we can't do

this just because we're dissatisfied and

we can't do this just because we want to

make money and get rich. We've got to

have something that we think the world

would be interested in. And

you know, in my case, I I'd gone through

this uh

session with a couple of industrial

psychologists and they told me, "Monish,

you like to play games. You're a game

player." And actually, they couldn't be

more accurate. So when I was doing my startup,

startup,

um I'm I'm a numbers guy and a math guy.

So I actually like that. So what I used

to do is because I had no money, I used

to send 200 letters a week to these

senior IT people at 200 different

companies. But what I did is so all

these people I was sending this letter

to, they had a gatekeeper, some

secretary etc. whose job was to not let

anything through. And my whole purpose

was I need this letter to get through.

It needs to get through the gatekeeper.

So I was using mailmerge which was mass-

prodducing these letters. But there was

a customization the mail word where if

person some person's name was David

Smith. It said dear Dave. Okay. And then

throughout the letter it talked Dave.

Dave's name came up like three four

times. When assistant got the letter she

couldn't tell whether I know Dave or not

>> because you used his shortened name.

>> His shortened name. And she doesn't want

to throw a letter that somebody that he

knows. So the letter would go through

>> enough times. Right now what I also did

is one week after those letters were delivered

delivered

I called I made 200 calls. I called all

200 people and basically if I got

voicemail, left a message, whatever else

right now they have entered the

salesunnel. Okay. So Dave Smith is in

the salesunnel. If I get no response

from Dave Smith, after one week there's

one more call. Then the calls start

getting spaced out double time. 2 weeks

out, then four weeks out, then 8 weeks

out, then 16 weeks out. But Dave never

leaves that funnel. Okay? Until he tells

me, "Do not bother me anymore and I have

no interest," they're going to stay in

that funnel. So the second week I send

out another 200 letters, make another

200 calls, right? And now I've got the

first week, second week. So you can see

as time goes on, I'm calling non-stop,

>> right? Because this thing is

>> But what I was tracking, because I'm a

math guy, what I was tracking is, okay,

these 200 letters went out. How many

people did I get any kind of positive

response from? Right? because not

everyone's telling me to get lost. Okay.

And how many meetings am I having? And

what is the ratio of calls to meetings,

meetings to close, etc. And

my ticket size of the item I was selling

was very large, hundreds of thousands of

dollars. Right?

9 months after doing this where now

let's go back here. So we're going to

take our free time. So what I'm trying

to describe is that what I'm doing is

actually more exciting than the orange.

The yellow is more exciting than the

orange. So basically

>> what is the yellow?

>> The yellow is our startup.

>> So that's working on your startup.

>> So on on the weekends I'm going to do 10

hours a day because I'm not working,

right? And on the weekdays, I'm going to

do four hours a day because I've got

other things to do because I have a job

and whatever else is going on. So

there's my weekdays,

5 days there where I'm putting in 4

hours a day and then I'm putting in 10

hours on the weekend. And the free time,

this is not as exciting as pounding Dave.

Dave.

Pounding Dave continuously till he says

either get off my back or here's your

purchase order is very exciting. It's

way more exciting than playing some

social media or watching Netflix or

whatever else

>> which is what people currently do with

their free time.

>> So one of your one of the litmus tests

of whether

you need to you should be doing a

startup or not is yellow

needs to be more exciting than orange.

Your startup needs to be more exciting

than your free time.

>> Netflix should be so painfully boring

for you and going on Facebook or

Instagram whatever should be very boring

for you

>> compared to

>> this is exciting

>> compared to building your company. >> Yes.

>> So you know um the Pink Floyd song, we

don't need no education. >> Yeah.

>> Yeah.

>> We don't need no thought control.

>> Yeah. We don't need none of this. This

is so useless. You understand how

useless this is? Yellow is where it's

at. It's not It's not the orange stuff.

We don't need this. Thank you, Stephen.

>> So, we don't need any free time.

>> This is better than free time.

>> Building your business.

>> You're having an orgasm every hour.

>> So, what can you what what can be better

than this? Much of what I do here when

I'm having these conversations is I'm

trying to put myself in the shoes of the

person who is currently sat in a in a

nineto-five job and they've got an idea

and their idea is isn't really hasn't

really gone anywhere yet necessarily and

the the pressure they're feeling in

their lives is is probably now a

financial one like they want financial

freedom. They want more optionality in

their lives to be able to go on holiday,

make more choices and have more freedom.

If you're that person, um what are the

mental models that we haven't discussed

yet that you need to be thinking about

to get from zero to one?

>> So, one of the things to keep in mind is

that we live in a world now where most

things that you would want to do in

terms of starting a business are not

capital intensive.

>> What does that mean?

>> Doesn't take much money. In fact, what's

been happening over time is startups

need less and less and less money

because they need more and more and more

brain power, right? So, the good news is that

that

a gating factor is not that you need

money. When when I started my business,

I took on I signed up for every credit

card that would come to me. So, I had

70,000 in unused credit lines in

probably a dozen Visa and Mastercards,

right? I had about $30,000 in my

retirement account, my 401k, which I

also took out. I said 25, I can make

that up later, right? So, basically, I

had $100,000 of capital and uh that

100,000 got used because once I got

going, I needed working capital and so

on. And but then the business was the

business was actually cash flow

positive. 9 months after I was doing this,

this,

I was able to get rid of this.

So after 9 months, my business was producing

producing

enough cash flow that I went and

resigned. Okay. And uh yeah, we can we

can put that in here as well. So what

happened is that I went to my boss and

his boss and basically told them that I'm

I'm

started a business. it's not competitive

with the company and I'm going to be

leaving in 2 weeks and this is my two

weeks notice and basically that was that

right and you know they they sat me down

and said you know monish we were so

confused for the last 9 months because

we met several times because we saw big

drop off in your performance but it was

never so low that we wanted to fire you.

I said, "Exactly. That was exactly what

I was trying to do. I was trying to say

just above firing level." He said,

"Well, you mastered it because we we met

several times, but we couldn't get rid

of you." So, they what they told me is

they said, "Look, when your business fails,

fails,

not if your business fails. When your

business fails, please come back. We'll

give you more money. You're going to get

a promotion, and we'd love to have you back."

back."

I could immediately come back. So I said

I got one free shot. >> Yeah.

>> Yeah.

>> Where I leave my job, I go,

>> I do this thing and if it doesn't work,

I'm back to almost exactly where I was.

Almost no change. Right.

>> Amazon's type one, type two decision-m.

>> Yeah. And so, and this is not just me.

What risk did Bill Gates take? Okay.

Bill Gates, what is his value as a

Harvard freshman in the job market?

Zero. Okay. He nobody would pay him

anything. And he could come back anytime

and finished a degree. So let's say he

went to New Mexico, things didn't work

out. He's got wealthy parents in

Seattle. Okay? He just comes back,

graduates a year later, and he goes on.

So what was the risk? There was no risk.

And if you study entrepreneur after

entrepreneur after entrepreneur, what

you're going to find, so if we look at

Sir Richard Branson,

he wants to start an airline. Okay? Now,

to start the airline, you need a jumbo 747

747

that costs like 150 million.

>> The plane.

>> The plane, right? That's some serious money.

money.

Richard Branson got Virgin Atlantic off

the ground with zero and with zero risk.

So here's what he did. You replace

capital with creative thinking. So he

which is directory assistance in

Seattle, Washington, and he asked for

the phone number for Boeing. Okay. So he

calls the main Boeing switchboard.

>> Boeing sell the planes, right?

>> Yeah. Boeing makes the 747. So he calls

the main switchboard of Boeing, giant

huge company, and says, "Uh, I'd like to

lease a jumbo." And they hang up on him.

Okay. He calls about 30 times. And they

keep hanging up. And finally, they get

tired of his calls and the lady says,

"Let me put you in touch with somebody

who's in charge of leasing and they can

tell you to get lost." Okay. So she

transfers him to a person who's actually

leasing jumbos and this person tells

Richard says look Mr. Branson in every

country we have one customer and in the

UK that is the British that is British

Airways so we have nothing to talk

about. So he says well just humor me for

a second. He said, "If British Airways

called you and said that they wanted to

lease a old used jumbo, do you have one

lying around?" So the guy says, "As a

matter of fact, we do, but that's

academic." He says, "Well, what would

you lease it to British Airways for?"

Just since we're having a conversation,

what ended up happening is Boeing leased

him that jumbo. And the reason they

leased him that jumbo is they had one

just sitting around. So they didn't

really have any risk because they said

the moment the guy doesn't make any

payments, we're going to pull the plane,

>> right? So now when you have an airline,

you sell all the seats 4 months in

advance. The cash has already come in.

You pay for the fuel 30 days after the

plane lands and you pay for the lease

after the plane lands. You don't need

any capital.

Virgin Atlantic got off the ground with

zero capital. Okay. Now if you can start

an airline with needs a jumbo with zero

capital, you can start any business with

zero capital. Okay. So, so basically

when you look at business after business

after business, all of them what they do

is they start small, they're embionic,

they minimize risk, they get a few

customers and then after that they just

roll with the customers, right? And then

that's how they get going. So,

so the important thing is that when we

take the blue out, when blue is no

longer here,

>> which is work,

>> which work is gone, yellow is going to

almost double or triple because this is

where all the orgasmic activity is.

>> So, we move the work, we quit the 9

toive job and we move that time over to work.

work.

>> I was I I was working on my startup like

from 7:00 to 9:00 in the morning and

then I would come back 6:00 p.m. and

work till 10 or 12:00 in the evening.

when you had a job?

>> When I had my job and then I'd work on

the weekends and I was so desperate to

just go full-time into it because I just

said, "If you just let me go full-time,

I can tear it up." And that's exactly

what happened. I mean, we in about five

first year we did 400,000 revenue,

second year 1.4 million, third year 3

million, and by the sixth or seventh

year we were at about 15 17 million. It

just grew because basically then I had

no shackles on me, you know, I could

just go full out, right? And the engine

I knew all the statistics of these

letters, so many calls, so many this, so

much this means this and all of that

>> and uh it works. So and and if if it

doesn't work, you can go back to your 9

to5 and give it another shot, you know.

So you actually could do this a few

times. I think that's a really

unappreciated framework as you call it

or mental model which is because you

said you sent 200 letters. I so many

times kids come up to me in the street

and they say look I've been looking for

a job. I've sent six emails. >> Yeah.

>> Yeah.

>> And they go no one's got back to me. >> Yeah.

>> Yeah.

>> And you can see that it's hit their

confidence and now they've actually

arrived at the conclusion that getting a

job is like harder and possible cuz they

sense six. >> Yeah.

>> Yeah.

>> Now when I interview people like you

they all give me much bigger numbers.

they say 200, 300, 5, you know, and

there's something in this sort of law of

averages which is just like just take

more swings, you know, you see it in

like cricket.

>> My my daughter when she was uh

graduating from Berkeley came to me and

I was really surprised. She said, I want

to work at a hedge fund. And so I I said

okay. And her degree was not in

business. So she was not a natural

candidate to be even considered. I said,

uh, can you make a list of every hedge

fund in New York and LA and put it in Excel,

Excel,

managing partner's name, address? Now,

we don't know people's email addresses,

but we know everyone's mailing address.

Okay. The mailing address is a public

piece of data.

>> The address,

>> the address is easy. Yeah. Right. And I

I said that uh so she she got a list of

about 1,200

funds in LA and New York. And I said,

"What you're going to do is uh you're

going to ask for the job, but you're

going to have two pages behind that

giving them a stock tip. You're going to

give them a pitch that you have written

up of a company that if they invest in,

they're likely to make money." We sent

the 1200 letters, physical letters,

okay? all physical letters, no email,

right? And um there's a 85 year old guy

in New York who gets the letter. He's

retired. The fund doesn't exist. It

shouldn't have been on the list,

whatever. But he has a friend in LA. He

says, "Hey, Jamie, weren't aren't you

looking for an analyst?" And this girl,

she seems to have the perfect kind of

background. and she ends up with a

higher salary than anyone who went to

Berkeley business school with a much

higher GPA than hers. I was thinking about

about

what you're saying um and I made a video

the other day which I think is somewhat

relevant where I was trying to describe

to people how to send a message to

someone in a way that creates impact and

the framework that I came up with which

I'll I'll we'll animate on the screen

but is basically so this axis here is

the signal versus noise of the channel

you're using. Mhm.

>> So a high signal channel is one where it

gets past the PA. >> Mhm.

>> Mhm.

>> It's less saturated, less busy. A high

noise channel, which is the opposite,

would be sending an email to the like

press at your company.com's email. So

like everyone goes through that path and

it doesn't get doesn't get to the

person. And then the other axis is

basically the emotional impact of the message.

message. >> Yeah.

>> Yeah.

>> So high emotional impact is doing what

you said, put a stock tip in there,

you're going to stand out, they're going

to think you're a little bit strange. or

what you said about like shortening the

name that creates more emotional

resonance and then low would just be

>> AI slop copy and paste jargon and really

like the most successful messages are up here.

here. >> Absolutely.

>> Absolutely.

>> High like high signal channel high

emotionally resonant. >> Absolutely.

>> Absolutely.

>> But what h ends up happening is people

send loads of messages down here and

then they get depressed and demotivated

so no one's going back to me.

>> Yeah. Like Michael Jordan used to say

you miss every shot you don't take.

>> Yeah. Yeah. Yeah. So basically it is I

mean I think one of the things about

entrepreneurs is that you need to have resilience.

resilience.

Um like for me for me what the data I

was looking for is that if I send 5,000

letters okay which takes 25 weeks 6 months

months

how many meetings does that end up in?

If that ends up with 10 meetings or 20 meetings,

meetings,

well, now I have my number, right? And

then the second part is the meeting to

close ratio, right? And so to me as a

math guy, I I was just interested to

know that it's not zero.

>> Okay, I just want to make sure and I

could see very quickly it was not zero.

Literally within first two, three months

I could see it's not zero.

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code diary.

I think one of the the most formative

experiences you can give your children,

which I got at 16 through through 16 to

19 years old, which is what I did, was

working in cold teley sales. So my job

at 16 years old, was to call people at

9:00 p.m. cold and try and get them to

buy windows and doors. And it taught me

the exact lesson you're describing,

which is yes, 80% of people tell you to off.

off.

>> 98% say that, but doesn't matter.

>> I always say like 80 80% told me to

off. 15% said it in a nice way. And then

5% were at least receptive to what I had

to say.

>> Maybe 1% close, but when you understand

that, you think of life through that lens.

lens.

>> And actually, Stephen, I had the almost

same experience. So my father was an

entrepreneur. He was really smart at

identifying what I call offering gaps,

like things that should exist in the

world but didn't. And he would get these

businesses off the ground with no money.

I saw him do it repeatedly. His downfall

was he was very aggressive in growing

the businesses. And so they didn't have

staying power. There was almost no

equity, always very levered. So I he

went bankrupt eight or nine times,

right? Repeatedly.

When I was um when I was about 11 or 12

years old, my brother and I, we were

like his board of directors, okay?

Because he had nobody else. The three of

us would sit down at night to figure out

how to make the business last for one

more day. Okay? Everything's caving in,

the creditors are caving in, the

business is collapsing. How do we make

it work for one more day? And then the

next night we'd get together and how do

we make get it work for one more day

again? Right

at 16 and I don't know why my dad did

this but I'm so grateful that he did. He

was at that time he had a gold jewelry

factory in Dubai and he was going cold

calling in person to jewelry shops to

buy his jewelry that he was

manufacturing. So he took me with him on

many of these trips and I was 16 just

like you, right? So we would uh take the

taxi from Dubai to Abu Dhabi and now

there's all these gold shops.

He doesn't know any of them, right? And

he's going one after the other after the

other after the other. And I would be

stunned that

fifth shop he makes a sale.

>> Yeah. And it's a very small sale because

he has no trust and all that, but he's

made the sale. Then I noticed that after

3 months, we go back to that same shop.

We made the little sale to the guy

brings out tea. He there's a there's a

lot of chemistry, bigger order, and then

I saw the orders increase, right? And

then he's continuing to do that. And I I

went with him to DohaQatar

uh Qatar and again the same thing. It

was like, you know, I saw how those

doors opened

>> and I saw how it didn't matter to him

when they closed. That was irrelevant to

him. You know,

>> really interesting new way to think

about it because what you're saying

there is actually when you get that one,

yes, it's actually a seed that's being

planted that can grow into something.

>> We just care about the ratio and the

number. Okay. So, what effort did it

take? Like I was saying, if I send 5,000

letters and I get 20 meetings,

that's awesome. >> Mhm.

>> Mhm.

>> I mean, that's a fantastic ratio because

one sale is going to get me about

200,000 or 300,000. It's a significant

amount, right? I mean, so that I don't

need large numbers and

>> but the lifetime value of that,

>> it's huge. Yeah. Yeah. I mean I mean uh

these uh these relationships I got then

they're still with me,

>> you know, so it's uh it's it's like

forever. Here's a philosophical way to

think about that for just everybody,

which is you can remember probably

conversations you had in your life that

you thought were totally

inconsequential, but then 8 years later

that seed became a business

relationship. The example I always give

is when I was 14, I applied for the

apprentice. They did this like junior

apprentice on the BBC. And it's a long

story, 35,000 kids in London and across

the UK applying. I met a kid in the line

while I was queuing up for my audition.

and he said to me, "Oh, my dad runs this

um $500 million company." And I was

like, "Yeah, whatever." Like not

interested. I went through the

auditions. I didn't and didn't end up

getting on in the show for whatever

reason. But then I ended up cuz we were

waiting in the queue that day. I was

really nice to this kid and I added him

on Facebook. 5 years later, I get a

message on Facebook. Hey, 5 years later,

although I didn't get on the show, which

would have got me about $25,000

investment in my company if I'd won. 5

years later, I'm working on a startup.

That kid from the line says, "Hey, um,

my dad has sold his business for a

billion dollars and I've been watching

you on Facebook for the last five years.

My dad would love to meet you." It was

an Indian family, the Alawalias. They

had sold a business called Euro Car

Parts. They took me to London when I was

literally so broke. I was like

shoplifting food to feed myself. And his

dad invested double what I would have

won on the show into my business. Um and

I and that always reminded me that like

every conversation that I have is like

planting a seed that at any point in my life

life >> sure

>> sure

>> could turn into something

>> like you know

>> I mean you know um I always bring up

Adam Grant's book uh uh givers and

takers. I don't know if you've seen that

all humans on the planet fall into one

of three categories. They are either a

giver or a taker or a matcher.

Okay, these are there are no other

categories of humans. Just these are the

three categories. Now the matchers

are relatively simple to understand.

Their mental framework is if Steven does

me a favor, I'm going to try to do

something similar for him. You know, one

to one. They can do matching in the math

in their heads. The takers

who you don't have anything to ever do

with are trying to scam and screw

everyone and always take and never give.

Okay? The takers basically go nowhere.

Okay? And if you have any takers in your

life, get rid of them. Okay? Now, the

givers, what the givers do is the givers

um are not focused on what comes back to them.

them.

They just want to help you. They want to

help humanity.

And what ends up happening is the

universe conspires to help them.

>> So the givers

become the most successful.

Everyone is trying to give to them even

though they're not asking for it. So basically

basically

when we and that's the book that Adam

Graham Grant wrote givers and takers is

one of the mental models. This is a

great mental model to have is to be a

giver. Don't play math games, you know,

always try to make sure the other guy

gets the better end of the deal and just

keep going through your life that way

and that goodwill will compound and it

will take care of itself.

>> And the time horizon, you don't worry

about the time horizon.

>> You're not doing it for getting

something back. That's the key. You're

not doing any mathematics like I'm going

to do. You're not calculating. I'm going

to do this so XYZ happens. You're just

doing it. End of story. I was sat with

my girlfriend last night. She runs a

breath work business. So, she's

essentially a soloreneur. Um, and she's

at that point where she's trying to

scale. In fact, I just meet so many I

think actually ran a survey before and

the vast majority of business owners are

in that theme category, that small small

sort of business category. It's the back

startups are the backbone of our

economy. But they they come to me with

the same problem which is maybe I

started as an individual. I've got high

demand and now I'm a bottleneck and I

don't know how to get out of being like

a freelancer. How does the freelancer

become an agency? And the thing I was

chatting to my girlfriend about last

night was um

the steps she hasn't taken yet is to

hire someone exceptional. And so many

founders come to me, these early stage

founders, they're like, uh, like I I my

customers like me, I do it better. I

don't trust anybody. I I wondered if you

had like a mental model for thinking about

about

>> the the thing is, so if you look at

people like Elon Musk and Steve Jobs,

they believe their number one job is recruiting.

recruiting.

The first 3,000 people who joined SpaceX

all personally interviewed by Elon.

Just think about that. Those are 3,000

hires. Think about the number of

interviews to get the 3,000 hires. Okay? He

did not believe there was any other way.

And what Steve Jobs used to say is that

A players

want to work with A players.

The moment you start introducing B players,

players,

B players will hire B and C players.

They will never hire an A player. So

your downhill the journeys already

started the moment you get a B player.

And so as an entrepreneur,

you know, we have a lot of demands on

our time, right? But recruiting

has to be at the top and you've got to

be willing to spend inordinate amounts

of time on recruiting. Okay? And um

there's, you know, there are tools that

you can use. We use uh there's a company

called Caliper. we use for

pre-employment testing.

And the thing is that between the

genetics of a human and the first 5

years of their life experience, who they

are, their traits are hardcoded.

That is not going to change from 5 to

95. Okay? So it's not like you're going

to change a human. Human is the way they

are. Okay? Now, these pre-employment

testing tests can get you data that

you're not going to get in an interview.

>> One of my companies I'm building at the

moment is called cultureest.com.

It's exactly this. >> Okay.

>> Okay. >> Um

>> Um

I mean, you're just like preaching

preaching to the choir here.

>> But what I'm saying is that

>> it we need to get really good at recruiting.

recruiting.

>> Yeah. It's it's my absolute absolute

obsession. And what I found out is that

funnily enough from doing these culture

tests. So I've I've culture tested tens

of thousands of people in the general

population now. And the shocking part

was just to give you some context on

what it does. It benchmarks our best

performing people and how they make

their decisions. The assumption here is

that culture isn't the thing you come up

with at the offsite. Culture is how you

would behave on Christmas Eve when you

get a text message from a client. Like

what you do there is your company

culture. So it basically creates these

questions which simulate optimal culture in that team and it puts you in that

in that team and it puts you in that scenario and says what do you do? This

scenario and says what do you do? This is probably a good point to talk to you

is probably a good point to talk to you guys about culture test.com which is the

guys about culture test.com which is the website we're about to launch for anyone

website we're about to launch for anyone who has the responsibility of hiring

who has the responsibility of hiring someone which is probably everybody

someone which is probably everybody listening. One bad hire can destroy your

listening. One bad hire can destroy your entire company. So, we made

entire company. So, we made cultureest.com

cultureest.com so that you guys at home can spot those

so that you guys at home can spot those red flags and avoid those hires that

red flags and avoid those hires that might be the end of your business.

might be the end of your business. Culture Test will make you your own

Culture Test will make you your own personalized culture test so that you

personalized culture test so that you can screen every single person that

can screen every single person that wants to be in your team and your

wants to be in your team and your current team members and people that

current team members and people that have left to see how they align. Just go

have left to see how they align. Just go to cultureest.com

to cultureest.com and put your email address in and the

and put your email address in and the minute we launch, I'm going to send you

minute we launch, I'm going to send you an email so you can try it before

an email so you can try it before anybody else. So recruiting is really

anybody else. So recruiting is really important and I think the other thing is

important and I think the other thing is uh we're willing to hire people who may

uh we're willing to hire people who may not do things as well as we do but

not do things as well as we do but actually also what I've also found is I

actually also what I've also found is I have so many people on my team who are

have so many people on my team who are better than me.

better than me. >> You know they're better at many of these

>> You know they're better at many of these things because it's not my natural bent

things because it's not my natural bent to do those jobs. Mhm.

to do those jobs. Mhm. >> So that's really when you get a huge

>> So that's really when you get a huge bang for the buck is you end up with

bang for the buck is you end up with team players that are way better than

team players that are way better than you.

you. >> How do you think about firing people?

>> How do you think about firing people? Because this is the other thing I hear

Because this is the other thing I hear from founders.

from founders. >> Hire slow, fire fast.

>> Founders really struggle with the fire fast thing

fast thing >> and uh

>> and uh it is very important

it is very important to fire fast. I think fire fast is more

to fire fast. I think fire fast is more important than high or slow

important than high or slow and you're doing the person a a service

and you're doing the person a a service because they may be exceptional in

because they may be exceptional in another role at another place. So you

another role at another place. So you are helping them

are helping them try to find that

try to find that >> and you're helping your other team

>> and you're helping your other team members.

members. >> If I was trying to work for your

>> If I was trying to work for your companies, what is the one

companies, what is the one non-negotiable? Like what is the trait

non-negotiable? Like what is the trait that I would demonstrate where you would

that I would demonstrate where you would immediately not even consider me?

immediately not even consider me? >> The most important is integrity.

>> The most important is integrity. >> You know, I mean

>> You know, I mean we we want three traits, right? We want

we we want three traits, right? We want intelligence,

intelligence, we want integrity, and we want

we want integrity, and we want willingness to work hard, right? And

willingness to work hard, right? And none of these three are really

none of these three are really negotiable.

negotiable. >> And what does integrity mean in your

>> And what does integrity mean in your definition?

definition? >> Well, it's absolute honesty is pretty

>> Well, it's absolute honesty is pretty simple. You know, it's black and white.

simple. You know, it's black and white. and you conduct yourself with the

and you conduct yourself with the highest levels of ethical standards.

highest levels of ethical standards. So on all fronts when you're dealing

So on all fronts when you're dealing with a customer or internally or

with a customer or internally or externally, it's the moral standards

externally, it's the moral standards need to be very high.

need to be very high. >> When you think about your wealth, how

>> When you think about your wealth, how much of it has come from building

much of it has come from building businesses versus being a great investor

businesses versus being a great investor of the capital that you manage to make

of the capital that you manage to make from those businesses?

from those businesses? >> I think currently most has come from the

>> I think currently most has come from the investing side. You're very well known

investing side. You're very well known for being a really excellent investor

for being a really excellent investor over many many many many many years.

over many many many many many years. I'll put a graph on the screen that I

I'll put a graph on the screen that I found which I think shows the returns of

found which I think shows the returns of your investment strategy versus the the

your investment strategy versus the the Dow Jones. This graph, have you seen

Dow Jones. This graph, have you seen that one before?

that one before? >> I haven't seen it this way, but people

>> I haven't seen it this way, but people put up all kinds of things. Yeah.

put up all kinds of things. Yeah. >> I mean, all this says is that you're

>> I mean, all this says is that you're extremely good at investing. So, I want

extremely good at investing. So, I want to know if I if I'm in starting my

to know if I if I'm in starting my investing career. I'm working in a

investing career. I'm working in a nineto-five job at the moment. I've got

nineto-five job at the moment. I've got a couple of thousand dollars in my my

a couple of thousand dollars in my my bank account. How should I be thinking

bank account. How should I be thinking about investing? Should I be investing?

about investing? Should I be investing? So,

So, there are um

there are um there are three things that matter

there are three things that matter in terms of getting a great outcome with

in terms of getting a great outcome with investing.

investing. um starting capital, how much the amount

um starting capital, how much the amount you start with,

you start with, length of the runway, how long are you

length of the runway, how long are you going to invest the money

going to invest the money >> and the rate of return.

>> and the rate of return. Okay. So before I answer your question,

Okay. So before I answer your question, I want to tell you a story. So and this

I want to tell you a story. So and this is a true story.

is a true story. Um, in 1623

Um, in 1623 in New York, the Native American Indians

in New York, the Native American Indians in New York who owned the island of

in New York who owned the island of Manhattan, the Dutch settlers wanted to

Manhattan, the Dutch settlers wanted to buy the island. And so they went to the

buy the island. And so they went to the Indians and said, "We'd like to buy the

Indians and said, "We'd like to buy the island of Manhattan, great natural

island of Manhattan, great natural harbors. It can be a great place for

harbors. It can be a great place for us." And the Indians and the Dutch

us." And the Indians and the Dutch reached an agreement to sell the island

reached an agreement to sell the island of Manhattan for $23.

of Manhattan for $23. And when people hear that, they think,

And when people hear that, they think, "Oh, the Indians got taken." You know, I

"Oh, the Indians got taken." You know, I don't know of Manhattan for $23 is

don't know of Manhattan for $23 is ridiculous. But let's say let's say the

ridiculous. But let's say let's say the Indians had a trust officer who they

Indians had a trust officer who they said invest this $23 for the benefit of

said invest this $23 for the benefit of the tribe and try to do a decent job.

the tribe and try to do a decent job. Right now there's something known as the

Right now there's something known as the rule of 72.

rule of 72. And the rule of 72 is a is a very

And the rule of 72 is a is a very important rule and I wish they would

important rule and I wish they would teach it more in high schools and

teach it more in high schools and elementary school. It tells us how long

elementary school. It tells us how long it takes money to double. And it's a

it takes money to double. And it's a kind of a mathematical hack. So for

kind of a mathematical hack. So for example,

example, if I'm going to get a 7% return and I do

if I'm going to get a 7% return and I do 72 / 7, that's approximately 10.

72 / 7, that's approximately 10. And at the 7% return, it's going to take

And at the 7% return, it's going to take 10 years for the money to double. 7%

10 years for the money to double. 7% compounded will take 10 years. If I have

compounded will take 10 years. If I have a 10% return,

a 10% return, it will take 7 years. 72 divided by 10

it will take 7 years. 72 divided by 10 is 7. If I have a 15% return, it will

is 7. If I have a 15% return, it will take 5 years. 72 divided by 15 is five

take 5 years. 72 divided by 15 is five approximately.

approximately. And if I have a 20% return, it'll take

And if I have a 20% return, it'll take three and a half years. So this rule of

three and a half years. So this rule of 72 is a nice hack. And it's very

72 is a nice hack. And it's very important to know how long money takes

important to know how long money takes to double because then we can start

to double because then we can start doing a lot of math in our heads. So

doing a lot of math in our heads. So when we look at these Indians with the

when we look at these Indians with the $23 if they were getting a 77% return

$23 if they were getting a 77% return it would become $46 in 10 years and then

it would become $46 in 10 years and then it would become $92 in 20 years and $184

it would become $92 in 20 years and $184 in 30 years so on. Now if you go 100

in 30 years so on. Now if you go 100 years

years right it's 10 periods of 10

right it's 10 periods of 10 and 10 periods of 10 is 2 ^ of 10

and 10 periods of 10 is 2 ^ of 10 and 2 ^ of 10 is 1,024.

and 2 ^ of 10 is 1,024. So we throw away the 24 because we don't

So we throw away the 24 because we don't want to complicate the math. So at 7%

want to complicate the math. So at 7% for a 100 years you would have a

for a 100 years you would have a thousand times what we started with. And

thousand times what we started with. And this is why because compounding becomes

this is why because compounding becomes nonlinear. People have a hard time

nonlinear. People have a hard time getting their hands around it. So

getting their hands around it. So >> nonlinear meaning

>> nonlinear meaning >> it's not going up in a straight curve.

>> it's not going up in a straight curve. It's going up in a

It's going up in a >> hockey stick.

>> hockey stick. >> Hockey stick club. Yeah. So in 1723 the

>> Hockey stick club. Yeah. So in 1723 the Indians would have 23,000. It would have

Indians would have 23,000. It would have gone up a,000. And then if they continue

gone up a,000. And then if they continue at the 7% in 1823 they would have 23

at the 7% in 1823 they would have 23 million.

million. And in 1923 they would have 23 billion.

And in 1923 they would have 23 billion. And in 2023 they'd have 23 trillion.

And in 2023 they'd have 23 trillion. >> Okay. Now the entire wealth of every

>> Okay. Now the entire wealth of every man, woman, and child in the United

man, woman, and child in the United States is 150 trillion.

States is 150 trillion. 16th of that is not

16th of that is not undeveloped land in Manhattan. So if the

undeveloped land in Manhattan. So if the Indians had invested at 7% a year for

Indians had invested at 7% a year for the last 400 years,

the last 400 years, they would have more money than owning

they would have more money than owning the land.

the land. >> So they were not taken. They were given

>> So they were not taken. They were given a fair deal, but they just didn't have a

a fair deal, but they just didn't have a good trust officer who could actually

good trust officer who could actually make it happen for them. So the

make it happen for them. So the magic of compounding is that we started

magic of compounding is that we started with $23

with $23 and we end up with 23 trillion without

and we end up with 23 trillion without having a great rate of return. It's just

having a great rate of return. It's just an okay 7% is just okay. It's not great.

an okay 7% is just okay. It's not great. It's not bad, but it's okay. Now if you

It's not bad, but it's okay. Now if you go back a 100 years, so we started at

go back a 100 years, so we started at 1623. Go back 100 years to 1523.

1623. Go back 100 years to 1523. We had 2,300 cents in 1623.

We had 2,300 cents in 1623. >> 2,300 cents.

>> 2,300 cents. >> $23 is 2,300 cents.

>> $23 is 2,300 cents. >> Oh, okay. If they had got it

>> Oh, okay. If they had got it >> just converted to cents instead of

>> just converted to cents instead of dollars, right?

dollars, right? >> Now, if you make it 1,000th of that,

>> Now, if you make it 1,000th of that, >> so just so I'm clear here. So, if you're

>> so just so I'm clear here. So, if you're saying if you went back a 100 years from

saying if you went back a 100 years from that point and you gave them just 23

that point and you gave them just 23 cents,

cents, >> if you gave them two cents,

>> if you gave them two cents, >> if you gave them two cents,

>> if you gave them two cents, >> 2.3 cents to be exact, but if you just

>> 2.3 cents to be exact, but if you just gave them two cents,

gave them two cents, >> Yeah.

>> Yeah. >> 100 years later that would be $20.

>> 100 years later that would be $20. >> If you gave them 2.3 cents, 100 years

>> If you gave them 2.3 cents, 100 years later, they'd be $23 and now it would be

later, they'd be $23 and now it would be the 23 trillion. Right? So what I'm

the 23 trillion. Right? So what I'm trying to say is that

trying to say is that if the runway is long enough, the

if the runway is long enough, the starting capital doesn't matter.

starting capital doesn't matter. Even the rate of return doesn't matter

Even the rate of return doesn't matter if the runway is long enough. Now so

if the runway is long enough. Now so when people are thinking about

when people are thinking about investing,

investing, they have to keep a few things in mind.

they have to keep a few things in mind. The first thing is spend less than you

The first thing is spend less than you earn.

earn. So, always try to save the first dollar

So, always try to save the first dollar rather than the last dollar. So, if you

rather than the last dollar. So, if you are making $50,000 a year, put 5,000

are making $50,000 a year, put 5,000 into savings to start with and then do

into savings to start with and then do the rest of your expenses after that.

the rest of your expenses after that. Now, it's very important when we saw

Now, it's very important when we saw with this example, you start young.

with this example, you start young. So when people start working at 22 or 23

So when people start working at 22 or 23 whenever they start working they have to

whenever they start working they have to be saving then because that early money

be saving then because that early money at 22 can compound for 50 years

at 22 can compound for 50 years and that's what we want. So we don't

and that's what we want. So we don't need to do heroic things with finding

need to do heroic things with finding the next Nvidia or whatever else. We can

the next Nvidia or whatever else. We can just put it into an index. And the

just put it into an index. And the important thing is spend less than you

important thing is spend less than you earn and keep putting that 5 7 10,000

earn and keep putting that 5 7 10,000 every year into the savings. Don't go

every year into the savings. Don't go have a vacation in Hawaii with it. Let

have a vacation in Hawaii with it. Let it keep compounding and just put it into

it keep compounding and just put it into a broad index and we don't really care.

a broad index and we don't really care. >> So for someone who has never invested

>> So for someone who has never invested before, yeah,

before, yeah, >> which would probably be the majority of

>> which would probably be the majority of the audience, how do we simplify even

the audience, how do we simplify even further in terms of just put it in an

further in terms of just put it in an index? What does that mean? So

index? What does that mean? So basically,

basically, you could open an account at Fidelity or

you could open an account at Fidelity or Interactive Brokers or Robin Hood, any

Interactive Brokers or Robin Hood, any of these places. You could open a

of these places. You could open a brokerage account for very little money.

brokerage account for very little money. >> And there's lots of them in every

>> And there's lots of them in every country.

country. >> Yeah. And then you could just uh

>> Yeah. And then you could just uh ask them to give to buy you the S&P 500

ask them to give to buy you the S&P 500 index, for example, and they will get

index, for example, and they will get you invested in that. And the S&P 500 is

you invested in that. And the S&P 500 is basically the top 500 companies.

basically the top 500 companies. >> It's the Yeah. the 500 dominant

>> It's the Yeah. the 500 dominant businesses in the US like Nvidia's in

businesses in the US like Nvidia's in there and Microsoft and Apple and so on.

there and Microsoft and Apple and so on. >> And you're going to get your 10% a year

>> And you're going to get your 10% a year if it if the trend holds over the last

if it if the trend holds over the last century.

century. >> The S&P has plenty of periods where it

>> The S&P has plenty of periods where it does nothing.

does nothing. Uh it's somewhat overheated right now.

Uh it's somewhat overheated right now. Uh but I think if you have a long enough

Uh but I think if you have a long enough to time horizon and you're dollar cost

to time horizon and you're dollar cost averaging in it's perfectly okay. Uh

averaging in it's perfectly okay. Uh what you could also do as an alternative

what you could also do as an alternative is buy Burkshire Hathaway. So that's a

is buy Burkshire Hathaway. So that's a stock BRKB. So you could again tell

stock BRKB. So you could again tell these people that just put it into

these people that just put it into Burkshshire Hathaway. It's like an index

Burkshshire Hathaway. It's like an index and and again it's like set it and

and and again it's like set it and forget it. You don't need to think about

forget it. You don't need to think about the investing side. You focus on yellow.

the investing side. You focus on yellow. Okay. and uh keep putting this little

Okay. and uh keep putting this little money away on the side and it's going to

money away on the side and it's going to compound. And so at 18,

compound. And so at 18, if you put away $5,000

if you put away $5,000 and you fast forward to when you're 68,

and you fast forward to when you're 68, 50 years later, right now, if if you got

50 years later, right now, if if you got a

a 10% return on that money,

10% return on that money, >> every year,

>> every year, >> let's say, every seven years it would

>> let's say, every seven years it would double.

double. Okay. 72 / 10 is 7. 50 years is 7

Okay. 72 / 10 is 7. 50 years is 7 doubles. 7 * 7 is 49.

doubles. 7 * 7 is 49. And

And 2 ^ of 7 is 128.

2 ^ of 7 is 128. Okay? So, we can throw away the 28. Keep

Okay? So, we can throw away the 28. Keep it simple.

it simple. You're going to have 100 times what you

You're going to have 100 times what you started with. So, the 5,000 at 18 is

started with. So, the 5,000 at 18 is going to be 500,000.

going to be 500,000. Okay, at 19, if you put money away,

Okay, at 19, if you put money away, that's another 500,000.

that's another 500,000. 20, you might have 10,000 you can put

20, you might have 10,000 you can put in. So, you can start seeing that over a

in. So, you can start seeing that over a lifetime,

lifetime, you know, you're going to be having too

you know, you're going to be having too much money.

>> As you might have been able to tell, I'm absolutely fascinated by the psychology

absolutely fascinated by the psychology behind high performing sports teams. I

behind high performing sports teams. I think it started with my love for Sir

think it started with my love for Sir Alex Ferguson as a Manchester United

Alex Ferguson as a Manchester United fan. So, when I was told about a new

fan. So, when I was told about a new Netflix series that covers the rise of

Netflix series that covers the rise of the Dallas Cowboys, it immediately

the Dallas Cowboys, it immediately piqued my interest. And this isn't

piqued my interest. And this isn't because I'm mad about American football.

because I'm mad about American football. I'm not. I don't even watch it. But I do

I'm not. I don't even watch it. But I do know about the Dallas Cowboys. And for a

know about the Dallas Cowboys. And for a lot of Texans, they're much more than a

lot of Texans, they're much more than a sports team. I watched this series and

sports team. I watched this series and it is absolutely

it is absolutely brilliant. It centers on Jerry Jones, an

brilliant. It centers on Jerry Jones, an oil businessman with no football

oil businessman with no football background who bought the Cowboys in the

background who bought the Cowboys in the late 80s and transformed them into the

late 80s and transformed them into the most valuable sports franchise in the

most valuable sports franchise in the world. It's all about how one guy

world. It's all about how one guy assembled a powerhouse team in the 1990s

assembled a powerhouse team in the 1990s made up of legendary players and coaches

made up of legendary players and coaches and through fearless decision-making led

and through fearless decision-making led his team to three Super Bowl victories.

his team to three Super Bowl victories. And I really enjoyed it and I think you

And I really enjoyed it and I think you might too. Check out America's Team, The

might too. Check out America's Team, The Gambler and His Cowboys, which is

Gambler and His Cowboys, which is streaming right now only on Netflix, and

streaming right now only on Netflix, and they now sponsor this podcast. I've just

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And I'm so honored that once again a company I own can sponsor my podcast.

company I own can sponsor my podcast. You've been referred to as the the Dando

You've been referred to as the the Dando Investor. And uh I've I've got a book

Investor. And uh I've I've got a book here which you wrote called the Dando

here which you wrote called the Dando Investor. What what what does this word

Investor. What what what does this word dando mean and why do they call you the

dando mean and why do they call you the dando investor? Dhando is actually a

dando investor? Dhando is actually a word from Gujarat which is on the on the

word from Gujarat which is on the on the western coast of India where Gandhi came

western coast of India where Gandhi came from. They are extremely astute business

from. They are extremely astute business people and dando if you translate it

people and dando if you translate it directly in Gujarati

directly in Gujarati it means business

it means business but it doesn't really mean business.

but it doesn't really mean business. What it means is it's a way of doing

What it means is it's a way of doing business

business where the downside is non-existent.

We already discussed how Mr. Branson is a dando investor. He had no downside.

is a dando investor. He had no downside. Uh Mr. Gates was a dando investor. He

Uh Mr. Gates was a dando investor. He had no downside. Mr. Walton was a dando

had no downside. Mr. Walton was a dando investor. They had no downside. So all

investor. They had no downside. So all of these people embarked on businesses,

of these people embarked on businesses, built huge fortunes

built huge fortunes without taking risk. And so the dando

without taking risk. And so the dando investor was written from the

investor was written from the perspective of how can we minimize risk

perspective of how can we minimize risk while keeping the returns intact.

while keeping the returns intact. >> You use this example of the Patels.

>> You use this example of the Patels. >> Mhm.

>> Mhm. >> What is what is that story?

>> What is what is that story? >> The Patels uh went to Uganda

>> The Patels uh went to Uganda more than 100 years ago. Maybe close to

more than 100 years ago. Maybe close to 130 years ago.

130 years ago. >> It was a family. It's a ethnic group,

>> It was a family. It's a ethnic group, okay, in India.

okay, in India. >> And so this ethnic group came to Uganda

>> And so this ethnic group came to Uganda to build the railroad. And

to build the railroad. And but they're very savvy business people.

but they're very savvy business people. And over the course of the last 100 odd

And over the course of the last 100 odd years uh when they were in Uganda

years uh when they were in Uganda through their dando methods of doing

through their dando methods of doing business they became very successful

business they became very successful entrepreneurs

entrepreneurs and they controlled large parts of the

and they controlled large parts of the Ugandan economy and Idi came to power in

Ugandan economy and Idi came to power in Uganda in the 1970s

Uganda in the 1970s and he said Africa is for Africans. So

and he said Africa is for Africans. So what he did is he threw all the Patels

what he did is he threw all the Patels out and he nationalized all their

out and he nationalized all their assets.

assets. So now the Patels

So now the Patels were stateless.

were stateless. The US took them in, the UK took them

The US took them in, the UK took them in, Canada took some of them in. And

in, Canada took some of them in. And when they landed in the US, they

when they landed in the US, they basically really didn't have any skills

basically really didn't have any skills that would allow them to get good jobs,

that would allow them to get good jobs, white collar jobs in the US. And

white collar jobs in the US. And what a few of them started to do was

what a few of them started to do was they realized

they realized that if they bought a motel, a small 10

that if they bought a motel, a small 10 or 20 room motel,

or 20 room motel, uh the family could live in one or two

uh the family could live in one or two of the rooms and they could use the

of the rooms and they could use the money they got out and get a bank loan

money they got out and get a bank loan and run the motel. Now motel are very

and run the motel. Now motel are very labor intensive businesses. So what they

labor intensive businesses. So what they did is when a patel took over a motel,

did is when a patel took over a motel, they fired all the staff and the family

they fired all the staff and the family took over all the jobs, you know, the

took over all the jobs, you know, the cleaning and front desk and everything

cleaning and front desk and everything else, right? And the Patels are

else, right? And the Patels are vegetarians and they are very they live

vegetarians and they are very they live a very simple life. So when a Patel took

a very simple life. So when a Patel took over a motel in an area, what they were

over a motel in an area, what they were able to do is they were able to undercut

able to do is they were able to undercut the prices of all the other motel in the

the prices of all the other motel in the area because they have no labor. They

area because they have no labor. They have no payroll. They have no workers

have no payroll. They have no workers comp, none of those things. And so they

comp, none of those things. And so they were if everyone else is charging $25 a

were if everyone else is charging $25 a night, they're charging, you know, 19 a

night, they're charging, you know, 19 a night. So the occupancy was higher than

night. So the occupancy was higher than everyone else. And they saved their

everyone else. And they saved their money. And then what they would do is

money. And then what they would do is buy the next motel, send the nephew to

buy the next motel, send the nephew to run it, and then buy the next motel. And

run it, and then buy the next motel. And this started happening in the early '7s.

this started happening in the early '7s. And when you fast forward to today,

And when you fast forward to today, 80% of all the motel in the US are in

80% of all the motel in the US are in the Patel ownership.

the Patel ownership. 80%. So the Patels make up.1%

80%. So the Patels make up.1% [Music]

[Music] of the US population.

of the US population. Indians make up about little over 1%

Indians make up about little over 1% maybe 1.2 1.3%.

maybe 1.2 1.3%. Just onetenth of that is the Patels. And

Just onetenth of that is the Patels. And this.1% population

this.1% population is controlling 80% of the motel in the

is controlling 80% of the motel in the country. And um

country. And um it's because of the Dando way.

it's because of the Dando way. >> So if I want to steal from the Dando

>> So if I want to steal from the Dando way, you told me it's good to be a

way, you told me it's good to be a copier. Um what are the principles of

copier. Um what are the principles of the Dando way that I need to be thinking

the Dando way that I need to be thinking about? Cuz you I think there was was

about? Cuz you I think there was was there nine? Yeah, there was nine

there nine? Yeah, there was nine principles in total in the book.

principles in total in the book. >> Well, the most important one is heads I

>> Well, the most important one is heads I win, tails I don't lose much.

win, tails I don't lose much. Everything we discuss today, Stephen, is

Everything we discuss today, Stephen, is heads I win, tails I don't lose much.

heads I win, tails I don't lose much. When I started my business,

When I started my business, when Bill Gates started, when Sam Walton

when Bill Gates started, when Sam Walton started, when Richard Branson started,

started, when Richard Branson started, that was the formula.

that was the formula. If they won, they would win big. And if

If they won, they would win big. And if they lost, they'd lose nothing. So

they lost, they'd lose nothing. So everything has to be in business

everything has to be in business about risk reduction. Everything has to

about risk reduction. Everything has to be about free lunches. We love free

be about free lunches. We love free lunches. Okay. So, we always have to

lunches. Okay. So, we always have to think about how do we get this done

think about how do we get this done without capital, without risk. Free

without capital, without risk. Free lunches. Do you think there's an

lunches. Do you think there's an opportunity for people because

opportunity for people because everybody's at the moment thinking about

everybody's at the moment thinking about AI and technology and these like really

AI and technology and these like really advanced um new innovations as an

advanced um new innovations as an opportunity but does that create an

opportunity but does that create an opportunity in the boring in the motel

opportunity in the boring in the motel in the laundry mat?

in the laundry mat? >> Yeah. So you know the reality is so

>> Yeah. So you know the reality is so entrepreneurship is not studied much in

entrepreneurship is not studied much in business schools because there's nobody

business schools because there's nobody going to give you consulting project for

going to give you consulting project for studying entrepreneurs.

studying entrepreneurs. If we really study startups in the US or

If we really study startups in the US or actually anywhere in the world, 99.99%

actually anywhere in the world, 99.99% of startups are non venturebacked.

of startups are non venturebacked. >> What What does that mean?

>> What What does that mean? >> What I what I mean by that is those are

>> What I what I mean by that is those are your laundromat, your Chinese

your laundromat, your Chinese restaurant,

restaurant, your you know eBay seller, whatever,

your you know eBay seller, whatever, Amazon seller, so on, right? The small

Amazon seller, so on, right? The small businesses.

businesses. None of those companies were formed

None of those companies were formed because of venture capital. So the media

because of venture capital. So the media focuses on all the venture capital le

focuses on all the venture capital le businesses. And so people think that oh

businesses. And so people think that oh if I have to do a startup I got to do

if I have to do a startup I got to do something in technology. Well that's

something in technology. Well that's like onetenth of 1% or less. You can

like onetenth of 1% or less. You can ignore it. You don't need to really

ignore it. You don't need to really worry about it. Uh the important thing

worry about it. Uh the important thing is to be an observer

is to be an observer and to look at uh what what uh my dad

and to look at uh what what uh my dad would call offering gaps. So let me

would call offering gaps. So let me explain an offering gap, right? So let's

explain an offering gap, right? So let's say

say there's a town, let's call it town A.

there's a town, let's call it town A. Town A. There's a barber shop in town A.

Town A. There's a barber shop in town A. Okay? Okay. And the barbers,

Okay? Okay. And the barbers, one of many barbers doing well, etc.

one of many barbers doing well, etc. There's another town about 30 mi away,

There's another town about 30 mi away, town B, which also has barbers. They're

town B, which also has barbers. They're also doing fine.

also doing fine. There's a new township coming up in the

There's a new township coming up in the middle of these two towns called Town C.

middle of these two towns called Town C. Town C doesn't have much of a

Town C doesn't have much of a population, but it's growing fast.

population, but it's growing fast. So, the barber in town A goes to see

So, the barber in town A goes to see what the all the hoopla or town C is all

what the all the hoopla or town C is all about. So he makes a takes a trip there,

about. So he makes a takes a trip there, sees that there's some increase in

sees that there's some increase in population. People are moving in and he

population. People are moving in and he notices there's no barber shops. Why

notices there's no barber shops. Why would there be any barber shops? Because

would there be any barber shops? Because it's brand new, right? So he's thinking,

it's brand new, right? So he's thinking, how do I do this without taking risk?

how do I do this without taking risk? And what he does is he rents a subleas

And what he does is he rents a subleas leases a small storefront,

leases a small storefront, buys some used barber equipment, and

buys some used barber equipment, and then decides that one day a week he's

then decides that one day a week he's going to go into that town and cut hair

going to go into that town and cut hair every Wednesday and puts up a note board

every Wednesday and puts up a note board saying, "I'm available Wednesdays."

saying, "I'm available Wednesdays." And what happens is people start coming

And what happens is people start coming in.

in. They come in because they have no

They come in because they have no choice. if you don't go to this barber,

choice. if you don't go to this barber, you got to spend half an hour driving to

you got to spend half an hour driving to one of those two towns. Now, he normally

one of those two towns. Now, he normally charges 30 bucks for a haircut.

charges 30 bucks for a haircut. But here, he doesn't need to charge 30

But here, he doesn't need to charge 30 because there's an opportunity cost of

because there's an opportunity cost of the time you're saving. So, he can

the time you're saving. So, he can charge 45.

charge 45. So, he's charging 45 over here and then

So, he's charging 45 over here and then when he's in his own town, he's charging

when he's in his own town, he's charging 30. Now, what he what he notices is

30. Now, what he what he notices is Wednesdays are filled up. So, he says

Wednesdays are filled up. So, he says Tuesday and Wednesday. Okay? And

Tuesday and Wednesday. Okay? And gradually what ends up happening is that

gradually what ends up happening is that that business

that business is full-time

is full-time and he's making 45 bucks an hour per

and he's making 45 bucks an hour per haircut.

haircut. >> Mhm.

>> Mhm. >> But the nature of capitalism is more

>> But the nature of capitalism is more barbers are going to show up. So the

barbers are going to show up. So the second barber comes in, the third barber

second barber comes in, the third barber comes in, eventually the haircut there

comes in, eventually the haircut there is going to be 30 bucks. It's going to

is going to be 30 bucks. It's going to neutralize. But in the meanwhile, he's

neutralize. But in the meanwhile, he's doubled his business.

doubled his business. >> Mhm.

>> Mhm. >> Right.

>> Right. What risk did he take? So going into

What risk did he take? So going into Town C was addressing an opportunity

Town C was addressing an opportunity gap. When Howard Schulz started

gap. When Howard Schulz started Starbucks,

Starbucks, he saw an offering gap. He thought that

he saw an offering gap. He thought that what Italians love about cafes

what Italians love about cafes might be what Americans love too.

might be what Americans love too. It didn't exist, right? And he went and

It didn't exist, right? And he went and did it. you know that barber that moves

did it. you know that barber that moves into town C first and they're really

into town C first and they're really having a great time because there's no

having a great time because there's no competition. One of your points when

competition. One of your points when you're talking about the Dando method is

you're talking about the Dando method is this idea of creating a durable moat.

this idea of creating a durable moat. It's point four of the nine.

It's point four of the nine. >> So, so sometimes what happens is that

>> So, so sometimes what happens is that you start a business every business

you start a business every business starts off without a moat.

starts off without a moat. >> What is a moat?

>> What is a moat? >> We have a castle.

>> We have a castle. a knight in charge of the castle to keep

a knight in charge of the castle to keep the invaders away. And one of the ways

the invaders away. And one of the ways to keep the invaders away is you put a

to keep the invaders away is you put a motor water around the castle. So when

motor water around the castle. So when you put a motor water around the castle,

you put a motor water around the castle, it makes it harder for anyone to take

it makes it harder for anyone to take the castle.

the castle. >> And a business with a moat around it is

>> And a business with a moat around it is a business that competitors

a business that competitors will have a difficult time take business

will have a difficult time take business away from. So what can happen with our

away from. So what can happen with our barber in town C? Humans are creatures

barber in town C? Humans are creatures of habits. We don't like to change our

of habits. We don't like to change our barber every month. We like the same

barber every month. We like the same barber. So if he's competent and good,

barber. So if he's competent and good, what's going to end up happening is that

what's going to end up happening is that his client base will stay with him. What

his client base will stay with him. What about loyalty points? I was just struck

about loyalty points? I was just struck the other day when I was shopping in LA

the other day when I was shopping in LA at Airwan, which is a supermarket here

at Airwan, which is a supermarket here in LA, and I someone had recommended to

in LA, and I someone had recommended to me on the plane, which actually goes to

me on the plane, which actually goes to your point about actually give a great

your point about actually give a great product because an airline hostess on my

product because an airline hostess on my flight over here went, "Oh, you're um

flight over here went, "Oh, you're um you're on keto diet. You need to go

you're on keto diet. You need to go check out Air1." I got to So, that's the

check out Air1." I got to So, that's the recommendation

recommendation >> that's 10x more powerful than any ad or

>> that's 10x more powerful than any ad or anything else they could drive.

anything else they could drive. >> And I went there.

>> And I went there. >> Yeah.

>> Yeah. >> When I landed cuz I needed a supermarket

>> When I landed cuz I needed a supermarket and didn't know the place. But then

and didn't know the place. But then interestingly, when I was at the

interestingly, when I was at the checkout yesterday after my second

checkout yesterday after my second visit, the lady at the checkout goes,

visit, the lady at the checkout goes, "Hey, are you are you an Air1 member?"

"Hey, are you are you an Air1 member?" And I was like, "Air1 member?" And she

And I was like, "Air1 member?" And she was, "It does cost." She went, she was

was, "It does cost." She went, she was honest. She went, "It costs money, but

honest. She went, "It costs money, but here's what you get." She goes, "On this

here's what you get." She goes, "On this order today, you would have got 10% off

order today, you would have got 10% off this entire order. It's expensive one."

this entire order. It's expensive one." And she goes, "And we give you a drink

And she goes, "And we give you a drink every month." She listed all the things

every month." She listed all the things off.

off. >> I signed up and bought the membership

>> I signed up and bought the membership tow. I tell you now,

tow. I tell you now, >> I'm not going anywhere else.

>> I'm not going anywhere else. I don't know what it is, but now that

I don't know what it is, but now that I'm a member and I have the app, I'm not

I'm a member and I have the app, I'm not going anywhere else.

going anywhere else. >> Well, that's now that's the hack that

>> Well, that's now that's the hack that Amazon did, right? With Prime and um

Amazon did, right? With Prime and um two or three years ago, I was uh I was

two or three years ago, I was uh I was seated at dinner next to Bill Gates. You

seated at dinner next to Bill Gates. You know, my middle name is Forest Gump.

know, my middle name is Forest Gump. These things happen once in a while. And

These things happen once in a while. And Bill is Bill is describing to me how the

Bill is Bill is describing to me how the business model of Costco and the

business model of Costco and the business model of Amazon is illegal.

business model of Amazon is illegal. Okay. So I said, "Why is it illegal?" He

Okay. So I said, "Why is it illegal?" He said, "When you when you put a

said, "When you when you put a membership fee,

membership fee, what what you're doing to the consumer

what what you're doing to the consumer is you're locking them in." Mhm.

is you're locking them in." Mhm. >> Which means the consumer is no longer

>> Which means the consumer is no longer going after the lowest price because

going after the lowest price because they the distortion in their behavior.

they the distortion in their behavior. >> Yeah.

>> Yeah. >> Okay. So now the FTC doesn't believe

>> Okay. So now the FTC doesn't believe it's illegal, but Bill Gates does. And I

it's illegal, but Bill Gates does. And I was just thinking, well, that's because

was just thinking, well, that's because you're competitive with Amazon,

you're competitive with Amazon, >> you know.

>> you know. >> Yeah. Yeah.

>> Yeah. Yeah. >> That Prime thing with Amazon is super

>> That Prime thing with Amazon is super smart.

smart. >> Yeah. And and that was taken from

>> Yeah. And and that was taken from Costco.

Costco. >> Oh, okay. you know, but basically, yeah,

>> Oh, okay. you know, but basically, yeah, the lock in lock in is very powerful.

the lock in lock in is very powerful. >> One company I wanted to talk to you

>> One company I wanted to talk to you about was Apple because Apple, I find,

about was Apple because Apple, I find, is a really interesting company. You

is a really interesting company. You talked about being a copycat, kind of

talked about being a copycat, kind of arriving later to the party with new

arriving later to the party with new things.

things. They've kind of been a story of both

They've kind of been a story of both sides of the equation. They've been

sides of the equation. They've been innovative, it seems, especially under

innovative, it seems, especially under Steve Jobs. And more recently,

Steve Jobs. And more recently, >> I mean, they were like copying other

>> I mean, they were like copying other people, but now I'm not even sure what

people, but now I'm not even sure what they are. Well, so Apple is a very

they are. Well, so Apple is a very unusual company in that everything

unusual company in that everything emanated from one guy.

emanated from one guy. >> Okay? And that one guy has been gone for

>> Okay? And that one guy has been gone for a long time. And if you look at Apple,

a long time. And if you look at Apple, basically nothing new has come out since

basically nothing new has come out since he left.

he left. We don't have a Steve Jobs at Apple. We

We don't have a Steve Jobs at Apple. We And and the same thing happened at

And and the same thing happened at Disney. you know, they had to buy Pixar

Disney. you know, they had to buy Pixar because there was no Disney anymore. Mr.

because there was no Disney anymore. Mr. Disney was gone. And so Apple actually I

Disney was gone. And so Apple actually I I find

I find somewhat risky

somewhat risky >> as an investment.

>> as an investment. >> Yes. Because if the form factor So

>> Yes. Because if the form factor So currently humans walk around with a

currently humans walk around with a brick in their pockets or in their

brick in their pockets or in their hands,

hands, at some point that form factor is going

at some point that form factor is going to change. It may be integrated into

to change. It may be integrated into something we wear or some other more

something we wear or some other more ergonomic situation

ergonomic situation that may or may not be Apple. And in

that may or may not be Apple. And in fact, more likely not to be Apple. It's

fact, more likely not to be Apple. It's probably some guy in a garage somewhere.

probably some guy in a garage somewhere. And so if they are smart enough to find

And so if they are smart enough to find the guy in the garage early enough and

the guy in the garage early enough and buy them, they're okay. And bring them

buy them, they're okay. And bring them in as the next street jobs, that's okay.

in as the next street jobs, that's okay. But even there the odds are low.

But even there the odds are low. >> What does this say to you about

>> What does this say to you about founders?

founders? The specialness of founders. Are they a

The specialness of founders. Are they a unique animal or can you swap them out

unique animal or can you swap them out and still be tremendously successful?

and still be tremendously successful? >> Well, I would I would say that

>> Well, I would I would say that there's

there's there are a lot of elements of luck. So,

there are a lot of elements of luck. So, first of all, founders are all great at

first of all, founders are all great at what I call offering gaps, right? They

what I call offering gaps, right? They find something that the world doesn't

find something that the world doesn't have that needs etc and they go after

have that needs etc and they go after it.

it. Sometimes what happens with the offering

Sometimes what happens with the offering gaps is a moat gets built right someone

gaps is a moat gets built right someone starts Visa it becomes a multi company

starts Visa it becomes a multi company or American Express and so on and it

or American Express and so on and it perseveres and scales

perseveres and scales >> like Apple with their ecosystem their

>> like Apple with their ecosystem their closed ecosystem

closed ecosystem >> but

>> but 100% of businesses

100% of businesses eventually will go to zero

eventually will go to zero and so it very well could be that a

and so it very well could be that a business could last for 50, 100, 200

business could last for 50, 100, 200 years, 150 years

years, 150 years uh could last well past the founders's

uh could last well past the founders's lifetime.

lifetime. Those are businesses which were built

Those are businesses which were built with a lot of principles and a lot of

with a lot of principles and a lot of great core values. You know the founder

great core values. You know the founder of IKEA,

of IKEA, every decision he took was with a 500y

every decision he took was with a 500y year view.

year view. How many businesses think with a 500y

How many businesses think with a 500y year view?

year view? and

and IKEA, you know, I was I was uh studying

IKEA, you know, I was I was uh studying IKEA. Some very remarkable things about

IKEA. Some very remarkable things about it. First of all, he never ever took

it. First of all, he never ever took debt. Every single store they built,

debt. Every single store they built, they built out of retained earnings and

they built out of retained earnings and cash. He never took debt. And I've

cash. He never took debt. And I've studied business failure quite a bit.

studied business failure quite a bit. The single biggest reason why businesses

The single biggest reason why businesses fail is leverage. They owe people money

fail is leverage. They owe people money and they can't pay it back and that

and they can't pay it back and that they're gone. So IKEA has never taken

they're gone. So IKEA has never taken debt. If you never take debt as a

debt. If you never take debt as a retailer, you're going to grow slower,

retailer, you're going to grow slower, right? You got to keep uh kind of

right? You got to keep uh kind of bringing in the cash, but it's a very

bringing in the cash, but it's a very solid foundation

solid foundation because

because it's it's on a rock solid balance sheet.

it's it's on a rock solid balance sheet. >> Mhm.

>> Mhm. >> And and such. And um his second

>> And and such. And um his second principle was

principle was no two IKEA stores can be the same. So

no two IKEA stores can be the same. So what he said is that whenever we opening

what he said is that whenever we opening a new IKEA store, there has to be some

a new IKEA store, there has to be some innovation

innovation that is going into that store that does

that is going into that store that does not exist in our previous stores because

not exist in our previous stores because he says that if I don't keep innovating,

he says that if I don't keep innovating, I'm done. And so if we don't notice it

I'm done. And so if we don't notice it because we think all the IKEAs are the

because we think all the IKEAs are the same, but actually if you study them and

same, but actually if you study them and look at when they were when they were

look at when they were when they were built, etc., you start seeing these

built, etc., you start seeing these these incremental changes that they're

these incremental changes that they're making.

making. >> That's a really interesting idea that I

>> That's a really interesting idea that I could implement into everything that I

could implement into everything that I do, which is just making sure that every

do, which is just making sure that every podcast I do,

podcast I do, >> there's one new experiment or innovation

>> there's one new experiment or innovation or every piece of work you do, whatever

or every piece of work you do, whatever team you're in is just to run out one

team you're in is just to run out one experiment in every Absolutely. But you

experiment in every Absolutely. But you have to make it measurable, right? or

have to make it measurable, right? or else it's not a

else it's not a >> experiment. So, um you also talk about

>> experiment. So, um you also talk about making fewer big infrequent bets.

making fewer big infrequent bets. >> Who who's that relevant for and in what

>> Who who's that relevant for and in what context?

context? >> So,

>> So, one of the things that Warren Buffett

one of the things that Warren Buffett says, he says that you get a punch card

says, he says that you get a punch card which you can punch 20 times in your

which you can punch 20 times in your lifetime and each time you buy a stock,

lifetime and each time you buy a stock, it's one punch that's gone. So what what

it's one punch that's gone. So what what Warren is saying is

Warren is saying is if there was a rule which said that you

if there was a rule which said that you cannot buy more than 20 stocks in your

cannot buy more than 20 stocks in your whole life,

whole life, what would happen is you would be very

what would happen is you would be very thoughtful

thoughtful about what you bought. Okay? And chances

about what you bought. Okay? And chances are those decisions might be good

are those decisions might be good decisions because uh you only have 19

decisions because uh you only have 19 left and then you only have 18 left etc.

left and then you only have 18 left etc. So

in in venture investing, a very small sliver of companies that

a very small sliver of companies that venture capitalists invests in do well,

venture capitalists invests in do well, right? There's a high high burnout rate.

right? There's a high high burnout rate. And if you look at the stock market,

And if you look at the stock market, 4% of listed companies

4% of listed companies generate 90% of the return.

generate 90% of the return. So most companies that we may think

So most companies that we may think about investing in are likely not to do

about investing in are likely not to do well

well >> for us. It's a 96% odds

>> for us. It's a 96% odds that that's why the index is so

that that's why the index is so important is when you buy the index

important is when you buy the index you bought that 4%.

you bought that 4%. And if you go pick stocks

And if you go pick stocks you have one in 25 chance of getting one

you have one in 25 chance of getting one of those 4% there. You said earlier the

of those 4% there. You said earlier the punch card analogy of 20 things in the

punch card analogy of 20 things in the punch card. You got to pick 20 in your

punch card. You got to pick 20 in your life. If you only had three or three to

life. If you only had three or three to five things that you you would bet or

five things that you you would bet or back now,

back now, >> which I think is actually kind of what

>> which I think is actually kind of what you do, what would those things be?

you do, what would those things be? >> Well, I mean, uh, so I'm trying to

>> Well, I mean, uh, so I'm trying to resist going to specific names.

resist going to specific names. >> Yeah.

>> Yeah. >> Because I think that would hurt people

>> Because I think that would hurt people more than help people.

more than help people. >> Okay, that's fair. What I would prefer

>> Okay, that's fair. What I would prefer that people do is focus on the other two

that people do is focus on the other two variables, which is the amount you're

variables, which is the amount you're saving and the length of the runway and

saving and the length of the runway and focus on the index.

focus on the index. So I I I think that it's it's kind of

So I I I think that it's it's kind of like saying I want to be a great AI

like saying I want to be a great AI developer because it's the way it be.

developer because it's the way it be. Well, to be a great AI developer is

Well, to be a great AI developer is going to take time. It's just the nature

going to take time. It's just the nature of the situation. What do you think

of the situation. What do you think about these people that day trade?

about these people that day trade? Because so many young people,

Because so many young people, specifically men, are being sucked in by

specifically men, are being sucked in by these adverts that you can day trade

these adverts that you can day trade your way to wealth.

your way to wealth. >> It's not good. I think I think it's um

>> It's not good. I think I think it's um the broker is going to make all the

the broker is going to make all the money. Robin Hood will do well,

money. Robin Hood will do well, not you.

not you. >> Do you think anyone can make loads of

>> Do you think anyone can make loads of money as a long-term day trader?

money as a long-term day trader? >> I look at it this way. If you study the

>> I look at it this way. If you study the Forbes 400, the 400 richest people in

Forbes 400, the 400 richest people in the U, in the world, in the world

the U, in the world, in the world actually,

actually, I don't see any day traders in there.

I don't see any day traders in there. >> One of the last things I want to speak

>> One of the last things I want to speak to you about is this idea of um circling

to you about is this idea of um circling the wagons.

the wagons. >> Yes.

>> Yes. >> What does circling the wagons mean?

>> What does circling the wagons mean? Warren Buffett

Warren Buffett um said that over a

um said that over a 50-year period of running Burkshshire

50-year period of running Burkshshire Hathaway,

Hathaway, he's made hundreds of investments

he's made hundreds of investments and only 12

and only 12 have move the needle for Burkshire

have move the needle for Burkshire Hathaway. So it's the same 3 or 4% rule

Hathaway. So it's the same 3 or 4% rule where if we say that Warren made

where if we say that Warren made 300 investments, he probably made more

300 investments, he probably made more than 300 but let's say he made 300

than 300 but let's say he made 300 decisions

decisions only 12 have resulted in what we see as

only 12 have resulted in what we see as Burkshshire Hathway today. And the

Burkshshire Hathway today. And the important thing was not

important thing was not the buy decision on those 12.

the buy decision on those 12. The important thing was never selling

The important thing was never selling them.

them. So,

So, circle the wagons is a term that comes

circle the wagons is a term that comes from

from the 19th century when these pioneers

the 19th century when these pioneers were moving west, the wagon trails

were moving west, the wagon trails moving west and the native Indians would

moving west and the native Indians would attack or bandits would attack these

attack or bandits would attack these wagon trails. So, what they would do is

wagon trails. So, what they would do is they would put themselves in a circle.

they would put themselves in a circle. Mhm.

Mhm. >> They would circle the wagons, then

>> They would circle the wagons, then defend that circle as best they could

defend that circle as best they could with their guns and so on, but the

with their guns and so on, but the wagons being circled was the best

wagons being circled was the best possible possible way of trying to face

possible possible way of trying to face off that attack.

off that attack. >> So in effect, they circle the wagons

>> So in effect, they circle the wagons around the crown jewel. So when I'm

around the crown jewel. So when I'm talking about circular wagons, what I'm

talking about circular wagons, what I'm saying is that in a lifetime of

saying is that in a lifetime of investing, there are very few times when

investing, there are very few times when you're going to actually have a huge

you're going to actually have a huge multibagger.

multibagger. >> What's that?

>> What's that? >> A big big winner. You know, something

>> A big big winner. You know, something that goes up 10x, 50x, 100x.

that goes up 10x, 50x, 100x. And what you want to do is you want to

And what you want to do is you want to effectively circle the wagons around

effectively circle the wagons around that idea so it doesn't get sold.

that idea so it doesn't get sold. So

So we are not going to know before we

we are not going to know before we invest

invest whether something is going to be a

whether something is going to be a multibagger or not. But we may figure it

multibagger or not. But we may figure it out after we own it.

out after we own it. >> So after we we only going to know a

>> So after we we only going to know a business after we own it. We're not

business after we own it. We're not going to know it before we own it. After

going to know it before we own it. After we own it, we may understand the

we own it, we may understand the business well enough to know that this

business well enough to know that this is a great business. And when we figure

is a great business. And when we figure out it's a great business,

out it's a great business, you don't want to sell that.

you don't want to sell that. >> When I meet people like you, I I'm

>> When I meet people like you, I I'm always so inspired because we spend a

always so inspired because we spend a lot of time thinking about the wins, the

lot of time thinking about the wins, the great decisions. We've talked about

great decisions. We've talked about that. I've shown you the graph of your

that. I've shown you the graph of your great decisions. What is the worst ever

great decisions. What is the worst ever decision you made in terms of financial

decision you made in terms of financial performance?

performance? >> Well, I've had so many zeros.

>> Well, I've had so many zeros. So, I mean, uh

So, I mean, uh >> or the one that got away.

>> or the one that got away. >> I mean, yeah. I mean so the there's

>> I mean, yeah. I mean so the there's mistakes of commission which is uh

mistakes of commission which is uh things going to zero and there's

things going to zero and there's mistakes of omission. The mistakes of

mistakes of omission. The mistakes of omission are

omission are far

far um far worse. Okay. So the biggest

um far worse. Okay. So the biggest mistakes I have made aren't the ones

mistakes I have made aren't the ones that have gone to zero. The biggest

that have gone to zero. The biggest mistakes I've made are the ones that I

mistakes I've made are the ones that I sold and I shouldn't have. Where I

sold and I shouldn't have. Where I should have circled the wagons and I

should have circled the wagons and I didn't.

didn't. and those have been very costly.

and those have been very costly. >> Give me one example.

>> Give me one example. >> Well, so I think this was in about 13

>> Well, so I think this was in about 13 years back 2012. I invested in uh

years back 2012. I invested in uh company called Fear Chrysler

company called Fear Chrysler Automobiles. Um basically it was uh

Automobiles. Um basically it was uh coming out of bankruptcy after the

coming out of bankruptcy after the financial crisis. They had gotten rid of

financial crisis. They had gotten rid of all that debt and everything and the

all that debt and everything and the stock was very cheap. It was about5 or 6

stock was very cheap. It was about5 or 6 billion uh that you could buy the whole

billion uh that you could buy the whole business. One of the things I didn't pay

business. One of the things I didn't pay too much attention to at the time was

too much attention to at the time was that 80% of Ferrari was inside Fiat

that 80% of Ferrari was inside Fiat Chrysler and they owned Ferrari 80% of

Chrysler and they owned Ferrari 80% of it and um but they had many other assets

it and um but they had many other assets which I like. They had the Ram trucks

which I like. They had the Ram trucks and Jeep and Maserati and so on. And

and Jeep and Maserati and so on. And when I looked at the business, I thought

when I looked at the business, I thought the business was worth many times the

the business was worth many times the five or six billion even ignoring

five or six billion even ignoring Ferrari. And I was right. So in the end,

Ferrari. And I was right. So in the end, I made several times my money.

I made several times my money. And in 2017 or 2018, they took Ferrari

And in 2017 or 2018, they took Ferrari public. So they actually then listed the

public. So they actually then listed the company. And um it looked like that they

company. And um it looked like that they had captured all the value and so I sold

had captured all the value and so I sold I used to own approximately

I used to own approximately 1% of Ferrari as part of that purchase

1% of Ferrari as part of that purchase that I had made.

that I had made. So 80% of Ferrari was in this $5 billion

So 80% of Ferrari was in this $5 billion company. Ferrari now has a market cap of

company. Ferrari now has a market cap of almost a hundred billion.

almost a hundred billion. And I

And I would have about a billion more

would have about a billion more if I had not done that stupid thing. So

if I had not done that stupid thing. So I I made a couple of hundred million on

I I made a couple of hundred million on this whole thing, but it would have been

this whole thing, but it would have been a lot more. And all I needed to do was

a lot more. And all I needed to do was just not sell it.

just not sell it. >> Do you deal in crypto at all? Do you

>> Do you deal in crypto at all? Do you invest?

invest? >> No, it's outside my competence. I don't

>> No, it's outside my competence. I don't understand it. I was going to say one of

understand it. I was going to say one of the things I notic about you that's

the things I notic about you that's quite rare for someone that deals in

quite rare for someone that deals in bees, billions, is you have a smile on

bees, billions, is you have a smile on your face. You seem like a really

your face. You seem like a really genuinely happy person.

genuinely happy person. >> Well, what would be the point of the

>> Well, what would be the point of the bees without being happy?

bees without being happy? >> Well, a lot of people aren't as as you

>> Well, a lot of people aren't as as you know.

know. >> Well, then they've lost their way

>> Well, then they've lost their way somewhere.

somewhere. I mean, on a daily basis, I specifically

I mean, on a daily basis, I specifically ask myself, how do I want to spend

ask myself, how do I want to spend today? And I focus on spending it not

today? And I focus on spending it not with the focus on maximizing money. I

with the focus on maximizing money. I focus it with maximizing what Monish

focus it with maximizing what Monish loves.

loves. And that changes all the time. But

And that changes all the time. But that's the way it is. You know

that's the way it is. You know >> what is that?

>> what is that? >> Well, currently it's golf.

>> Well, currently it's golf. Like one of the things I really

Like one of the things I really struggled with today was there wasn't

struggled with today was there wasn't going to be any golf. So I said it's

going to be any golf. So I said it's either Steven or golf. Should I go to

either Steven or golf. Should I go to Steven or should I go for golf? I said,

Steven or should I go for golf? I said, you know what? Give the arms a rest.

>> Let's go meet Stephen. >> I'm glad you did. We have a You probably

>> I'm glad you did. We have a You probably just answer this question. We have a

just answer this question. We have a tradition where the last guest leaves a

tradition where the last guest leaves a question for the next not knowing who

question for the next not knowing who they're leaving it for. And the question

they're leaving it for. And the question left for you is if you could go anywhere

left for you is if you could go anywhere right now instantly, where would you go?

right now instantly, where would you go? >> I'd go to the golf course.

>> I'd go to the golf course. >> Thank you so much for everything that

>> Thank you so much for everything that you do. so incredibly important and I

you do. so incredibly important and I now know why you're why people love

now know why you're why people love listening to you and learning from you

listening to you and learning from you and it's because you have this most

and it's because you have this most remarkable ability to tell deeply

remarkable ability to tell deeply engaging stories. Thank you so much.

engaging stories. Thank you so much. This has always blown my mind a little

This has always blown my mind a little bit. 53% of you that listen to the show

bit. 53% of you that listen to the show regularly haven't yet subscribed to the

regularly haven't yet subscribed to the show. So, could I ask you for a favor?

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YouTube Transcript:Proven Playbook For Quitting Your 9-5 In 9 Months! (Fastest Way To Financial Freedom) Mohnish Pabrai

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Proven Playbook For Quitting Your 9-5 In 9 Months! (Fastest Way To Financial Freedom) Mohnish Pabrai