Beginner's Mind

SP8: The Art of Successful Investing: Lessons from Mohnish Pabrai

May 27, 2023 Christian Soschner Season 4 Episode 24
SP8: The Art of Successful Investing: Lessons from Mohnish Pabrai
Beginner's Mind
More Info
Beginner's Mind
SP8: The Art of Successful Investing: Lessons from Mohnish Pabrai
May 27, 2023 Season 4 Episode 24
Christian Soschner

Navigating the investment landscape can be a daunting task. It's easy to feel like you're constantly making the wrong moves and not achieving your financial goals. This episode brings you the wisdom of legendary investor Mohnish Pabrai, who shares his insights on overcoming these hurdles and achieving success in investing.

Here's what you can expect from this episode:

  • Understanding Cognitive Biases Time Marker: (01:44): Our brains, evolved over millennia, are not naturally wired for investing. Mohnish Pabrai explains how understanding our cognitive biases can help us become better investors.
  • The Importance of Patience Time Marker: (03:28): Successful investing requires a long-term approach and a willingness to hold on to great businesses. Pabrai shares his thoughts on why patience is a virtue in investment.
  • Lifelong Learning Time Marker: (05:04): The investment landscape constantly changes. Pabrai emphasizes the significance of continual learning in staying ahead in the investing game.

By the end of this episode, you'll better understand how to navigate the investment landscape and make more informed decisions. So, tune in, take notes, and let's embark on this journey to financial growth together.

Don't forget to share this episode with your friends and colleagues who might find it useful. And if you enjoyed this episode, please leave us a review. Your feedback helps us improve and reach more people like you.

Youtube

Support the Show.

Join the Podcast Newsletter: Link

Beginner's Mind +
Help us continue making great content for listeners everywhere.
Starting at $3/month
Support
Show Notes Transcript

Navigating the investment landscape can be a daunting task. It's easy to feel like you're constantly making the wrong moves and not achieving your financial goals. This episode brings you the wisdom of legendary investor Mohnish Pabrai, who shares his insights on overcoming these hurdles and achieving success in investing.

Here's what you can expect from this episode:

  • Understanding Cognitive Biases Time Marker: (01:44): Our brains, evolved over millennia, are not naturally wired for investing. Mohnish Pabrai explains how understanding our cognitive biases can help us become better investors.
  • The Importance of Patience Time Marker: (03:28): Successful investing requires a long-term approach and a willingness to hold on to great businesses. Pabrai shares his thoughts on why patience is a virtue in investment.
  • Lifelong Learning Time Marker: (05:04): The investment landscape constantly changes. Pabrai emphasizes the significance of continual learning in staying ahead in the investing game.

By the end of this episode, you'll better understand how to navigate the investment landscape and make more informed decisions. So, tune in, take notes, and let's embark on this journey to financial growth together.

Don't forget to share this episode with your friends and colleagues who might find it useful. And if you enjoyed this episode, please leave us a review. Your feedback helps us improve and reach more people like you.

Youtube

Support the Show.

Join the Podcast Newsletter: Link

0:00

here is a question for you are you


0:03

struggling to become a successful


0:05

investor do you feel like you keep


0:08

making the wrong moves in the market


0:10

over and over again yeah that's a that's


0:13

a great question stick and it's really


0:15

difficult to do and I think


0:17

most of us are definitely myself we fail


0:20

at it so yeah I mean our brains you know


0:24

they've evolved over the Millennia and


0:27

they are not optimized


0:28

or being great investors if so you are


0:32

not alone many aspiring investors face


0:37

these challenges so one


0:40

we're gonna make a lot of mistakes


0:42

two this is a very forgiving business


0:45

you can be wrong even 98 of the time


0:49

still come out smelling really nice


0:51

that's why I have compiled insights from


0:54

legendary investor monish paplay who


0:58

shares his wisdom on how to overcome


1:01

these hurdles and Achieve success in


1:04

investing and if you want to have you


1:07

know great deep relationships


1:09

great friendships


1:11

then again that that same thing is


1:14

really important I think your


1:16

your friends need to know


1:19

that you've got their back and that


1:23

when they come to you they're going to


1:25

get very authentic answers even if those


1:28

answers are not what they want to hear


1:30

the clips are from a podcast episode


1:33

produced by the investors podcast


1:35

Network in their podcast we study


1:38

billionaires


1:40

you find here the link to the podcast


1:43

episode and also in description below of


1:46

this video enjoy the show and this clip


1:51

monish papri discusses the challenges


1:53

our brains pose in becoming great


1:56

investors and how understanding our


1:58

cognitive buyers can help us overcome


2:01

them


2:02

yeah that's a that's a great question


2:04

stick and it's really difficult to do


2:06

and I think


2:07

most of us definitely myself we fail at


2:10

it so yeah I mean our brains you know


2:14

they've evolved over the Millennia and


2:17

they are not optimized


2:18

for being great investors they were


2:21

really a brain with optimize to help us


2:23

survive


2:24

and surviving on the African Savannah


2:26

needed a certain type of wiring and we


2:29

need a different kind of wiring to be


2:31

great investors so our brains have a lot


2:33

of quirks and a lot of biases and I


2:37

would say reading monger's essay and


2:41

reading cialdini's book is going to be


2:43

helpful in at least being aware of the


2:46

pitfalls but we are susceptible to it


2:49

you know the commitment and consistency


2:51

biases a number of the biases that come


2:54

in and that are very much part and


2:57

parcel of who we are it's just part of


3:00

who we are the best that we can do is


3:02

try to be aware of it


3:05

and try to sidestep


3:09

as many of the pitfalls as you can but I


3:12

don't think anyone has succeeded in


3:14

sidestepping


3:15

all the pitfalls so yeah I mean I think


3:18

that's a great essay and it is helpful


3:20

it's helpful to reread it and it's


3:24

helpful to be aware


3:27

that we are quirky living creatures with


3:32

quirky brains which don't necessarily


3:36

follow a you know rational path all the


3:38

time


3:39

after watching that clip it's clear that


3:41

recognizing and overcoming our cognitive


3:44

biases is crucial for success in


3:47

investing


3:49

now let's hear from monish on the


3:52

importance of patience and holding on to


3:56

great businesses for the long term


4:01

this one we're going to make a lot of


4:04

mistakes


4:05

two this is a very forgiving business


4:08

you can be wrong even 98 of the time


4:12

still come out smelling really nice


4:14

and three


4:16

that is only going to happen


4:19

if you are able to buy businesses with


4:24

great economics


4:26

at reasonable valuations


4:28

and then hang on to them forever so when


4:31

they get fully priced they don't get


4:33

sold


4:34

when they get overpriced they don't get


4:37

sold


4:38

it's only possibly when they get


4:40

completely ridiculously egregiously


4:43

overpriced that you can consider selling


4:46

and so this framework of circle the


4:50

wagons


4:51

is very fundamental


4:54

I think it's very hard to beat the


4:55

market if you don't have this framework


4:57

because you're going to be


4:59

cutting the flowers


5:01

and watering the weeds and what we need


5:04

to do is make sure we don't cut the


5:06

flowers and it really doesn't matter


5:08

whether you water the weeds or not but


5:09

the important thing is you just don't


5:11

cut the flowers it's okay if you want to


5:13

water the weeds


5:15

as monish explained successful investing


5:18

requires a long-term approach and a


5:21

willingness to hold on to great


5:23

businesses


5:24

in this next clip monish shares his


5:28

thoughts on lifelong learning and how it


5:30

contributes to becoming a better


5:32

investor well I very much enjoy the game


5:37

and one of the things with this


5:39

particular game it's actually very


5:41

similar to bridge


5:42

is that you know Bridge is a game that


5:45

would take you 15 minutes to learn


5:48

and you cannot Master it in a lifetime


5:50

so you can keep learning forever there's


5:53

really no Plateau that shows up in


5:56

Bridge even if you're playing 30 40


5:58

hours a week for your whole life you


6:01

would still be learning and I think


6:03

investing is very similar in the sense


6:05

that this is a game with a lot of twists


6:08

and turns and anytime you look at a


6:12

business


6:13

the my rate of factors that affect where


6:16

it might be in the long run


6:18

are so diverse and some of them you may


6:21

be able to understand some of them may


6:23

be within your circle of competence


6:25

a lot of them may not be so you know


6:27

lifelong learning


6:29

is going to serve you very well so I


6:31

think I am as excited


6:33

about the investing game as I was nearly


6:37

30 years ago but I think what has


6:40

happened in the previous almost three


6:43

decades is that more competency has been


6:46

built up uh more mental models have been


6:49

refined and Incorporated and so


6:54

the pattern recognition


6:57

is probably faster


6:59

now than it used to be and it's broader


7:02

now than it used to be


7:05

continually learning is key to staying


7:08

ahead in the investing game as monish


7:11

demonstrated next we will hear monish


7:15

talk about the importance of recognizing


7:18

mistakes and learning from them in


7:21

investing


7:22

yeah so you know we have to separate the


7:25

signal from the noise


7:27

as we saw with these examples of the


7:29

nifty 50 and


7:31

naspers and Buffett and so on is this is


7:35

a business with a high error rate


7:37

even the best investors will be wrong at


7:40

least half the time


7:41

and so one of the backdrops we have to


7:44

keep in mind is that if you have a


7:46

portfolio of 10 stocks


7:48

more than likely half are mistakes now


7:51

you may not lose money on them they may


7:53

not just compound at a high rate they


7:55

may you know


7:56

be four percent compounding instead of


7:58

15 that you're expecting for example


8:01

so knowing that there's a high error


8:04

rate and


8:06

separating the signal from the noise


8:10

when you have a good amount of data


8:13

telling you


8:14

that the signal is saying that you were


8:17

probably wrong


8:19

then yeah you


8:21

you cut your losses then you move on


8:24

acknowledging and learning from our


8:26

mistakes is a vital part of becoming a


8:29

successful investor now let's see what


8:31

monish has to say about the significance


8:34

of Truth and authenticity in building


8:37

trust and strong relationships


8:41

yeah well I think that's a great


8:42

question it is going to feel


8:45

uncomfortable


8:46

I think that it is the small white lies


8:51

are just very comfortable you know you


8:53

don't you don't hurt anyone and


8:56

why would anyone care and how is anyone


8:58

ever gonna know that you really thought


9:01

it didn't look great you know you know


9:02

so you move on but it's not authentic


9:05

and I think that many times when we meet


9:08

people


9:09

we don't know why


9:12

but we sometimes just don't want to be


9:15

around certain people we can't put a


9:17

finger on it and it may be that there's


9:19

too much implicit and explicit lies


9:23

around what that person is saying or


9:25

doing


9:26

so I think that the inversion of that is


9:29

that if you want to build trust


9:32

you have to make a commitment


9:35

to the truth


9:37

and the truth is going to not be easy


9:42

many times


9:44

but I think that once you kind of cross


9:47

that Rubicon and you know are on the


9:49

other side what you're going to find is


9:52

that trust goes up a lot


9:55

and basically this world functions on


9:58

trust


9:59

it doesn't function on contracts the


10:03

best contracts are ones that you never


10:04

look at after you sign them


10:06

I think that if you if you want to have


10:10

a lot of success in business


10:12

you have to have a very high standard


10:15

for Candor and integrity


10:17

and if you want to have you know great


10:19

deep relationships


10:21

great friendships


10:23

then again that that same thing is


10:26

really important I think your


10:28

friends need to know


10:31

that you've got their back and that


10:35

when they come to you they're going to


10:38

get very authentic answers even if those


10:41

answers are not what they want to hear


10:44

and so those are I think these are these


10:47

are very powerful principles where


10:50

once you gonna get comfortable with it


10:53

and start to apply it in your life


10:56

the paybacks are so enormous that it


10:59

just becomes a no-brainer I think any


11:01

other way of living


11:03

it's kind of dumb and it's going to make


11:05

your life


11:07

a lot more pleasant


11:09

you know it's very easy when you don't


11:12

lie because you don't have to remember


11:13

your lies


11:15

you know this makes it really simple


11:17

anytime you're saying something or


11:19

talking about something you don't have


11:22

to remember oh I said this and I said


11:24

that and I got to keep consistent with


11:25

that or any of that just say the truth


11:28

you know and and that's the end


11:31

trust and authenticity are essential for


11:36

Success both your business and personal


11:38

relationships finally monish shares his


11:42

perspective on the importance of openly


11:45

discussing financial matters


11:47

yeah so actually what what I have found


11:50

is that you know your remarks about


11:52

people don't like to talk about money I


11:55

think that is universal across cultures


11:59

you know guy always gets a chuckle


12:03

because many times he and I


12:05

will be in a conversation with someone


12:09

who's having has some


12:13

important issues folk in the road trying


12:16

to figure out what to do you know I'll


12:19

be asking a bunch of questions to try to


12:21

get


12:22

the data to try to help the person and


12:25

one of the first questions


12:27

will go to really understand in detail


12:30

the financial situation you know what's


12:32

the network what's the income what's the


12:34

expense and all that and guy always kind


12:36

of goes into a cubby who'll say oh there


12:38

we go again she's asking all these


12:39

uncomfortable questions you know and and


12:42

when he's he's now learned that monish


12:45

is going to ask those questions


12:47

okay and and what I find surprising is


12:52

the people who hear those questions who


12:55

have never answered those questions to


12:58

anyone


12:59

openly give the answer


13:02

and then they say I want to let you know


13:04

I have never discussed this with anyone


13:06

no one knows this please don't I said


13:09

it's all confidential we're not going to


13:11

talk about it to anybody but people


13:14

actually get relieved


13:17

to be able to share the data I recently


13:19

I had a call with a friend who wanted


13:21

advice career advice you know and he's


13:25

at an age where he could retire or he


13:27

could take job a or Joby or whatever and


13:30

one of the first things I asked him is I


13:32

I needed to know his financial situation


13:34

before I could tell him what made sense


13:37

for him you know and so he shared his


13:41

information that he's never shared with


13:43

anyone you know other than his wife had


13:45

never talked about it I don't think his


13:47

kids are aware of it but that gave me


13:50

the information to be able to be most


13:53

helpful to him and also I think he felt


13:56

relieved that he was not having a


13:58

conversation around eggshells you know


14:02

where I'm in a vacuum you know trying to


14:04

say well if this is your situation then


14:07

do this I actually knew exactly what a


14:09

situation was and I could tell him what


14:11

I would do in that situation so yeah I


14:13

mean I think I think people don't like


14:16

to talk about money but many times when


14:17

they are confronting different issues


14:20

those conversations can be very


14:23

Enlighten the Lord for them and I think


14:26

it's important


14:28

that in a safe and confidential


14:31

environment


14:32

with the people near you when you're


14:35

trying to you know help them with some


14:37

things where that information would be


14:39

relevant that go there you go to the the


14:42

land you're not supposed to go to that's


14:44

okay open and honest discussions about


14:48

finances can lead to better decision


14:50

making and overall Financial well-being


14:53

I hope you found these insights from


14:57

monish popular valuable in your journey


15:00

to become a successful investor if you


15:02

want to hear more insights from Manish


15:05

papri you'll find a link to the full


15:07

podcast episode from the investors


15:10

podcast Network who produces


15:13

we study billionaires in the description


15:16

below remember to like share and


15:19

subscribe for more content like this


15:22

good luck and may your Investments


15:25

prosper