In a captivating interview with Sonia Shenoy on The Money Mindset, billionaire investor Mohnish Pabrai opened up about his journey, investment philosophy, and the invaluable lessons he learned from Warren Buffett and Charlie Munger. Pabrai, known for his value investing approach and philanthropic endeavors, shared insights on patience, the inner scorecard, and the importance of playing the “game of life” with purpose. Here are the key takeaways from this masterclass in investing and life.
The Inner Scorecard: Warren Buffett’s Life-Changing Lesson
Mohnish Pabrai had one of the most insightful lessons he learned from Warren Buffett: the inner scorecard. Buffett had asked a very philosophical question once: “Do you want to be famous as the best lover in the world but secretly feel that you’re the worst, or do you want to be famous as the worst lover in the world but secretly feel that you’re the best?”
This question highlights the need for self-awareness and internal validation. Pabrai described the inner scorecard as measuring yourself against your own standards, not seeking external validation. In investing, this translates to concentrating on long-term value creation, not short-term market movements or popularity.
Pabrai strongly stressed that it has been one of the driving forces behind his success. Maintaining fidelity to his inner scorecard keeps him away from market noise and rooted in his investing principles. Through this method, not only did he become a better investor but also developed better as an individual and achieved better fulfillment.
The $650,000 Lunch with Warren Buffett
One of the most talked-about moments in Pabrai’s career was his decision to pay $650,000 for a charity lunch with Warren Buffett in 2007. At the time, Pabrai estimated that more than $70 million of his net worth was directly attributable to the lessons he had learned from Buffett.
Pabrai considered the lunch a “tuition fee” for the wealth of knowledge that he had accrued over the years. He cited that the ability to personally thank his idol and share a meal with him was priceless. The lunch proved to be even more gratifying than he had imagined.
Not only did Pabrai get to spend quality time with Buffett, but the encounter also resulted in a friendship with Charlie Munger. Pabrai became a frequent bridge partner with Munger and even got together for dinner every few months. The friendship opened doors to innumerable opportunities and life lessons that made the $650,000 investment a “no-brainer” looking back.
Patience: The Most Important Skill for Investors
Pabrai emphasized that patience is the most critical skill for any investor. He used the Walmart example to do this. If an investor had kept Walmart at a 2% portfolio weightage for 50 years, they would have achieved astronomical returns without requiring any portfolio adjustments.
He also stressed the need to stay away from leverage, as he was taught by Buffett and Munger. Pabrai justified that even slightly better-than-average investors can accumulate tremendous amounts of money over time if they adhere to some simple rules:
- Spend less than you earn.
- Do not use debt or leverage.
- Let the magic of compounding do the work.
Pabrai’s investment strategy is based on thinking long term. He is of the opinion that attempting to time the market or going for short-term returns is a losing proposition. Instead, he prefers a disciplined and patient strategy based on the fundamentals of the companies you are investing in.
The “Too Hard” Pile: Knowing What to Avoid
Pabrai borrowed Warren Buffett’s idea of the “too hard” pile, a psychological model for sidestepping complicated or unclear investments. Buffett keeps a box on his desk with the label “Too Hard” where he puts investment ideas that he can’t quickly comprehend or forecast.
Pabrai uses this idea in his own investment approach. For instance, he puts companies such as Nvidia, Tesla, and Palantir in the “too hard” category since it is difficult to predict their future cash flows with strong conviction. Pabrai doesn’t attempt to learn about each company. Instead, he learns about businesses that have transparent, predictable cash flows and solid fundamentals.
He reiterated that investors do not have to know every company—only a few good ones can create immense wealth. By not touching the “too hard” pile, Pabrai minimizes risk and maximizes the chances of making successful bets.
Life Lessons: Embracing Adversity and Playing the Game
Pabrai’s philosophy on life is deeply influenced by Stoic principles, particularly the idea that adversity leads to growth. He shared how every challenge he faced ultimately contributed to his personal and professional development.
He recounted how his father’s entrepreneurial failures taught him the importance of financial discipline and risk management. Despite facing bankruptcy multiple times, Pabrai’s father always bounced back, instilling in him the belief that setbacks are opportunities for growth.
Pabrai also considers life a game, with the objective of making the world a better place. He had explained his life as having two engines: one for making money and the other for giving it away. His objective is to have only $10,000 remaining in his account the day before he passes away, so that his money is utilized to help society.
This mindset has allowed Pabrai to approach life with a sense of purpose and detachment. He believes that by focusing on the process rather than the outcome, we can find greater fulfillment and happiness.
Parenting and Leaving a Legacy
Pabrai believes that one of the most important responsibilities in life is being a good parent. He shared practical advice for raising teenagers, emphasizing the importance of influencing their friend circles and being present in their lives.
He said that after 12 or 13, parents don’t have control over children much, and the child’s friend set actually dominates their lives. Pabrai recommended “hacks” like opening your house to your kids’ friends and driving them around because this is a way to see what’s happening with your child’s friend set and ensure they are not a bad influence.
Pabrai also spoke of a personal anecdote about his younger daughter, who was being bothered by a bad friendship. Although she cried in protest, he and his wife decided to transfer her school, which had the desired result on her social circle.
For Pabrai, what a well-lived life means leaving the planet better than how you found it as you pursue what gets you moving. Pabrai identifies becoming a great parent as one of the best ways in the book to leave the place better.
final Takeaway
Mohnish Pabrai’s interview is a masterclass in investing, personal growth, and life philosophy. From the importance of patience and the inner scorecard to embracing adversity and playing the game of life with purpose, Pabrai’s insights are both practical and profound. His journey—from humble beginnings to becoming a billionaire investor—serves as an inspiration for anyone looking to achieve success while staying true to their values.
below is the link of full interview
Disclaimer: This article is based on an interview conducted by Sonia Shenoy with Mohnish Pabrai on The Money Mindset. The original interview can be found above. All credit for the insights and quotes goes to Mohnish Pabrai and the interviewers.