#7 - Sam Zell, Mohnish Pabrai, Francis Chou, and Michael Lewis Interview Learnings
May 14, 2020: Learnings from Sam Well COVID on his real estate portfolio, Q&A with Francis Chou and Mohnish Pabrai that’s been an amazing 2 hours of investment learnings, and Michael Lewis’ fascinating career as a writer.
Listen on:
Episode Notes:
Learnings from Sam Zell interview on Bloomberg on May 5, 2020
His multi-family and residential properties didn’t see much change in rent payments.. and that’s something to consider in investments where if you have high quality customers then the impact is less… and if I consider investments in companies.. those are lower grade customers may see large increases in value but their resilience is questionable in times of crisis… once again.. it’s the comparison of what helps you sleep at night.. and your tenant base is very important
Very cautious because the stimulus is not going to be sustainable by the government and it won’t be enough to help businesses last.. so as bankruptcies happen.. and the stimulus may have only delayed the inevitable for many… we should see this effect play out longer… with some comparisons to the Great Depression as well.
Interview with Mohnish Pabrai and Francis Chou at Harvard
On picking being a harsh judge of people. Buffett once told Mohnish during his dinner with him that he is a poor judge of character and how if there were a 100 people he would only be able to maybe tell 4 people as being great and 4 as being poor and the 92 he wouldn’t know what to say. Instead of trying to decipher the quality of the 92, Warren spends his time focusing on the 4 great people. Charlie Munger also advises that there are plenty of nice people in the world out there for you to be selective. That’s what Mohnish has done as well, where he culls his network to only surround himself with the best people. Something I’m continuously trying to be mindful of and implement. To have a high bar for people and not to waste time of ‘giving benefit of doubt’ but to only look for certainty in people’s characters. Time is to precious.
Francis Chou has never marketed his fund before and thus allows only people who like his style of investing to invest in his fund and that empirical trust and method has led to a strong investor base.
Charlie Munger says, to ask a question is to answer it. If you have to ask yourself if a company is in your circle of competence then it probably isn’t. Pabrai notes that it should be obvious to you whether you understand the business or not.
Per Pabrai, we are no way near the ’08-09 levels in regards to business valuations. Not yet anyway.
Chou: in 1982 he focused on net-net investments that also were great businesses
What people don’t understand is the difference between Berkshire and other P&C insurance company is that in most cases, regulators want insurance companies to invest the ‘float’ in low risk investments like bonds. A small surplus is allowed into equities (like some 5%). The state regulators in Nebraska is slightly more favourable. But, Berkshire has no restrictions that require them to have the float in fixed income. Its because of a mix of the triple A rating, and how hte insurance business is capitalized with a railroad business inside the insurance business. The regulators see the railroad practically as a $30bn bond investment that allows the Berkshire engine to invest the float into equities
Pabrai’s checklist focus: Leverage, quality of management and moat.
Looking for growing pies, not discounting pies. Not for businesses that will be 5x but 10x in 10 years. This makes it even harder for companies to hit that mark.
Investments fall into 3 categories. 1) discounted pies, 2) obviously great pies (Google, salesforce etc.. that the world knows), 3) hidden moats… where there are deep moats that no-one knows about.
Pabrai admits that the Kelly criterion was an error in his book, Dhando Investor. It doesn’t work because in investing you don’t get infinite bets. You get one shot in many cases.
Diversification = 8-10 bets without setting confidence intervals because you have no idea of knowing. Mohnish will limit the bet sizing to 10% max per bet for an ideal 10 stocks at 10% each diversified in the kinds of businesses as well because they all have different risk factors you just can’t foresee. So it seems that the cost basis will be 10% max for Mohnish and he’ll just let them run.
Michael Lewis interview
Started writing pieces for the Economist… and the person who interviewed him was Matt Ridley.. who was the chief science editor then.
Even when he was in university at Princeton, Lewis’ prof recommended he not try to make a career as a writer… and Lewis thought he would make a career writing about art history
Took a 250K bonus and left Salomon to write a book for $40K… his bosses and father gave the advice that he should wait and make a million or so before leaving to write a book… which became Liar’s Poker