In one sentence: Phil and Danielle start a multi-week reading of a June 2018 Forbes interview with Mohnish Pabrai, using it to discuss investing as a practice, why fee structures shape fund managers' behaviour, and why Buffett wants his stocks to fall.
Key ideas
- Value investing versus Rule #1. Phil says value investing is "buy cheaper than it's worth", while Rule #1 puts "don't lose money" first. [03:00–04:00]
- Investing as a practice. Danielle contrasts a goal ("get there") with a practice that has no finish. Munger says great investors read about everything, and the reading feeds their sense of what is mispriced. [04:00–07:00]
- Pabrai's path. Engineer from India, built and sold an IT firm, read Lowenstein's biography of Buffett and then every Buffett letter. His books: The Dhandho Investor and Mosaic. [11:00–13:30]
- Fund fees. Pabrai charges no management fee and takes a share of profits above a hurdle, copying Buffett's early partnerships. Munger had him stand and be applauded at the annual meeting. [13:00–15:00]
- Why mutual funds can't do this. Phil says the SEC does not let public mutual funds take profit participation, so fees are charged on assets. He argues that rewards gathering assets more than performance, so most managers shadow the index. [14:30–18:00]
- Zero-fee funds are hard to start. Danielle read a white paper: you need savings for two or three years of costs (lawyers, administration) before the fund pays for itself. [18:00–21:00]
- Why Buffett closed his partnership. Phil guesses three reasons: no good prices, a wish to avoid fees and dealing with redemptions, and fatigue with investors who didn't grasp the method. He promised to check whether Buffett charged a small fee. [21:00–24:00]
- Consumer of stocks. Buffett hoped his holdings would fall 50% in 2008 (and the audience moaned). If you keep adding capital, lower prices are better, like a hamburger buyer. [24:00–27:00]
- Retirees differ. Someone with no new money coming in benefits from a crash only if they deploy capital at the bottom. Phil says the strategy stays the same at any age (buy wonderful businesses on sale), and what changes is how long you hold. [27:00–31:00]
- Teaser. Pabrai said he owned no US companies, which sets up the next episode. Also owner earnings (promised for later). [07:30–09:00, 30:30]
How it maps to RuleOne
- "Consumer of stocks" fits the /stocks/ screen: a price drop in a company you understand is a buy signal only if the business is unchanged.
- The /holdings/ page is the place to keep cash for those moments.
Buffett, Munger and Graham links
- The Buffett Partnership letters and its 1969 wind-up; Lowenstein's Buffett: The Making of an American Capitalist (cited by the hosts).
- Buffett's "consumer of stocks" idea: the 1997 Berkshire letter describes the buyer's preference for lower prices (recalled by Phil; the hamburger comparison is his, not a quote).
- Munger's "read everything" habit, mentioned in the episode.
Words to know
- Management fee: percent of assets charged regardless of results.
- Participation (hurdle): share of profits above a minimum return.
- Institutional imperative: Buffett's term, here the pull to follow peers.
Try this
Find the interview ("Forbes Mohnish Pabrai", June 25, 2018). Write down three specific actions he takes that a solo investor could copy. Then check /holdings/: how much cash would you hold ready if prices dropped 30%?
Check yourself
- Why does Phil dislike asset-based fees?
Answer
The manager is paid for gathering assets, not results, so staying near the index is safest. - When does a crash help a buyer?
Answer
When you have new capital to deploy, such as savings or cash, and the business is unchanged. - What does "practice" imply that "goal" does not?
Answer
Learning never ends, and the daily work matters more than a finish line.
Short quotes
"I am a consumer of stocks. I'm a buyer, not a seller." (Phil, paraphrasing Buffett, ~25:30, auto-transcribed)