Mohnish Pabrai: This will save you 10 years of bad investments

**Shaan Puri** (0:00)
What percentage of Americans who invest in stocks do you believe are good investors?

**Mohnish Pabrai** (0:04)
Well under 1%.
The game we are playing is transfer wealth from the active to the inactive. If you have that type of a temperament, it is orgasmic activity, okay? If you are even a slightly above average investor, you can't help but get rich over a lifetime.

**Shaan Puri** (0:22)
What's the mistake that smart people are making?

**Mohnish Pabrai** (0:24)
Many people die at 25 and are buried at 75 I saw Charlie make investments six days before he died.

**Shaan Puri** (0:33)
This is like life advice disguised as investing advice.

**Mohnish Pabrai** (0:36)
Yeah.

**Shaan Puri** (0:37)
Just quick reaction, bullish, bearish on the S&P index right now.

**Mohnish Pabrai** (0:41)
Bearish.

**Shaan Puri** (0:42)
AI, how do you think about it as an investor?

**Mohnish Pabrai** (0:44)
Invest in the pickaxe makers, because the alphabets and metas of the world are playing a game they haven't played before.

**Shaan Puri** (0:50)
So I want to ask you the hardest question, which is...
This is Mohnish Pabrai. He manages over a billion dollars in investments. He's friends with Warren Buffett and Charlie Munger, and he is a absolute sage, a wealth of wisdom when it comes to investing. We're lucky enough to sit down with him and learn from him some of the best frameworks for investing. I call them the 10 Commandments of Investing. Mohnish, round three. Here we are, elevated as always. We're on the pitch. What percentage of Americans who invest in stocks, do you believe are good investors?

**Mohnish Pabrai** (1:33)
Well, under 1 percent.
But the good news is, so a large number of investors invest in index funds, and index funds give you a great return without doing any work. So, you don't need to be a rocket scientist or understand businesses or any of that, and you get a pretty good outcome.

**Shaan Puri** (1:56)
Are you counting them in the 1 percent or are you saying that's a separate bucket?

**Mohnish Pabrai** (1:59)
No, I'm talking about the ones who are actually picking stocks, right? And so I'm just saying that you can take the approach of buying an index fund, and you're going to be ahead of 90 plus percent of the crowd, which is awesome, right? I mean, just think about doing some activity which takes no brain cells, and getting ahead of being in the top 10 percent.
But if you decide that you want to actually study businesses, and then invest in them after studying them, in that universe of people doing that, there'll be a very small sliver who would do well with that.

**Shaan Puri** (2:33)
Yeah. What's the mistake that smart people are making when it comes to investing?

**Mohnish Pabrai** (2:36)
It's not a mistake, it's the lack of patience. So most of the nuances that would lead to a great investment result have to do with temperament. They're not related to IQ or other things, but they have to do with temperament. So it all comes back to watching pain try.
So when we make an investment in a company, nothing may happen for three years or five years.
Just the nature of the beast is that it may not do a whole lot for a while. And also, sometimes you made it, in fact, many times you made an investment, it's a mistake. And you need to, at some point, reverse that message. So there is activity needed appropriately. But basically, the less the activity, the better the outcomes.

**Shaan Puri** (3:32)
You gave me one of the commandments, one of the truths about investing, which is thou shall enjoy watching paint dry. Yes.
I called your daughter in research for this podcast, because I knew you were very into mental models and these frameworks of ways of thinking that produce benefits. I said, what's one that he loves? And she said, the mistress is always hotter than the wife. So explain.

**Mohnish Pabrai** (3:55)
I didn't want to say that in front of my daughter, but unfortunately I did.

**Shaan Puri** (3:59)
That was the first one she mentioned.

**Mohnish Pabrai** (4:01)
Yeah, so what we own is the wife. We live with her every day.
And what we don't own is the mistress.

**Shaan Puri** (4:12)
Right.

**Mohnish Pabrai** (4:13)
And the unknown has exciting attributes. And so one of the things we have to keep in mind is the wife is someone we know extremely well. And we may be discounting some great attributes she has. The mistress is someone we don't know very well.
She just looks hot.

**Shaan Puri** (4:38)
Right.

**Mohnish Pabrai** (4:39)