How does one become a successful investor?
If you're a young, you probably think it goes like this: Go to an Ivy League School. Work for Goldman Sachs (NYSE:GS). Retire rich.
And that might work. But I interviewed someone last week who didn't take any of those routes and still became a hugely successful investor.
In an exclusive interview, I asked famed value investor Mohnish Pabrai how he learned to become a great investor. Here's what he had to say (transcript follows).
Morgan Housel: You didn't attend Harvard Business School, you're not a Goldman Sachs alum, you don't have a traditional Wall Street pedigree, and yet you're a successful investor. Can you tell me about the learning process you took that let you become a successful investor?
Mohnish Pabrai: Yeah, well that's a good question, and I would say that Buffet says that I'm a better investor because I'm a businessman, and I'm a better businessman because I'm an investor. So I came at investing after many years as an entrepreneur and a CEO running a business. And in fact, the reason why value investing appealed to me is because when you start a business or when you run a business, you will spend maybe 3%-5% percent of your time on figuring out the strategy and direction and the approach the business is going to take. Then the rest of the time is the heavy lifting of actually making things happen.
I always enjoyed the three to five percent of time more than the rest of it. The rest of it was fine too, but the figuring out part was more interesting. When I looked at value investing, especially looking at it from the lens that Buffet had looked at it, basically I found that you use the same analytics, the same part of your brain as an entrepreneur or CEO. The only difference is that 3%-5% of time becomes 70% of your time. And so that was very appealing to me in the sense that I loved the fact that I would get to spend more time on the parts of the business that I enjoyed the most.
And the second is that you get leverage. So one of the things about the investing business is it has more leverage than pretty much any industry. You are basically leveraging brain cells. And you're leveraging brain cells even more than a software developer or anyone else does because you're converting what I would say thoughts in to cash. That's always nice.
So I like the leverage. I like the fact that you could have somebody else run the business, do all the heavy lifting and you could figure out just which ones you wanted to partner with or be in. And so those are the reasons why it was interesting to me, and that's why I came at it from a different direction.