digest
Intro
You could put me naked on a rock and I'll start a business. I don't need anything. Mohnish Pabrai built a billion-dollar investment business by copying principles that already worked. Entrepreneurs don't take risk. Well, that's easy to say when you're already rich. My starting salary was 31,000. There's something known as the rule of 72. If you just did this at 65 or 70, you would have too much money. What they don't teach you at Harvard Business School. I traveled to Texas to learn firsthand how one of the world's best investors thinks about money, work, and life. Society doesn't allow us to go all in because they want us to be a jack of all trades till we get later in life. But we have to force the issue the way Warren and Bill Gates did. I wish I had had that manual when I was 10 years old. You don't need to chase the next shiny object.
You’re already rich. Why should I listen to you?
When I first began my career, I was an engineer and my starting salary in 1986 was 31,000. So I joined the 401k which allowed me to put away 15% of my income pre-tax. If I did that every year and over time my income went up even slowly, it becomes a spectacular sum because there's something known as the rule of 72, which is a good kind of mental hack to tell us how long money takes to double. If I'm getting a 9% return, I can do 72 divided by 9, which is 8. That means at a 9% return, the money will double in eight years.
So let's say I'm 22 years old and I save $5,000. At the age of 30, ignoring all future savings, that $5,000 is 10,000. At the age of 70, it is 320,000. Now, that's only the savings from one time at the age of 22. I calculated that if you just did this, at 65 or 70 you would have too much money without having sacrificed much, because 15% savings pre-tax is like 10% after tax. You don't have to be rich to begin with; the important thing is to be consistent. You don't need to chase the next shiny object. Just put it in a boring Berkshire Hathaway index fund, keep your boring job, and everything's fine.
Yeah.
Spend less than you earn
The first most important thing is that you have to make sure you're spending less than you earn. Spending less than you earn is easy because you just do it pre-tax in a tax-deferred vehicle like a 401k or an IRA, and most companies are matching what you're saving. It's taken out before your paycheck gets to you. Do not interrupt compounding unnecessarily. When I sold Ferrari, that was interrupting compounding unnecessarily. Going to Hawaii with your 401k money is also interrupting compounding.
Entrepreneurs actually don’t take risk
I felt that starting my business was a risk-free venture. People think entrepreneurs take a lot of risk, but they actually do everything in their power to minimize risk. My father was the quintessential entrepreneur; he had started, grown, and bankrupted at least 10 different businesses. When the business started doing well, he would be very aggressive with leverage to try to grow as fast as possible. When the first storm came, he didn't have staying power.
When I finished college, I wanted to avoid that volatility. I had a good engineering degree and a good job. My dad told me it was time to quit because the company was so big that I would never get the direct rewards of my work. I told him I didn't want the volatility, but he said we have to live life fully. When I was about 15 or 16, I used to go on sales calls with him, and by the time I was 18 or 19, I had finished many "MBAs" in real life—better than Harvard Business School. I had seen my father start businesses with no money repeatedly.
I came up with a business idea for an IT services company in an emerging area. We used Visa and Mastercard as venture capitalists; they took no board seats and were very passive as long as I made the minimum payments. I had 30,000 in my 401k, which I emptied out, and I took about 70,000 in credit card debt. In a couple of years, that was all paid off.
I had a safety net: my boss told me that when my business failed, I could come back for a promotion and more money. I also researched US personal bankruptcy law; if the business failed, the 70,000 debt could have been wiped out for about 5,000 in legal fees since I had no assets. I had a moonshot with no downside. I ran my business and kept my job simultaneously for 9 months. I was working 80 hours a week, but once my cash flows exceeded my salary, I quit. The risk profile was very low because the customers were already there. I'm always willing to take calculated risks. I follow Jeff Bezos's playbook: invest ahead of the curve as long as the dollars generate a high return. You can be aggressive, but you're aggressive within constraints.
If you’re 16, you should be doing this!
When I was about 35, I went through industrial psychologists who gave me an "owner's manual" that explained who I was. I wish I had that when I was 10 or 15. At 16, you may not understand your calling, but there are clues. Warren Buffett was mathematical at 10 or 11; Bill Gates started coding at 11. My advice to a 16-year-old is to figure out your calling. Try different things—different subjects, sports, or activities—to see what excites you. When you find it, go all in. Society wants us to be a jack of all trades, but you have to force the issue.
I was clueless at that age, but I enjoyed the math and problem-solving in engineering. I found my passion for investing at 30. If you could say one thing to your teenage self, it would be to spend the time to really figure out what you're excited about. Success isn't a specific metric; it's about happiness. My dad used to say if you have one good wife and one good friend, that's all you need. I value good relationships.
I learned from Warren and Charlie that the best lessons have nothing to do with money; they are about how to lead a good life. I observed how they interacted with people—always with respect, regardless of status. They believed in the equality of humanity. Warren always said he just happens to have a skill set to allocate capital in a system that pays off.
I devote a portion of my earnings to the Dakshina Foundation to alleviate poverty through education. I realized I would end up with more resources than I could use to increase happiness, and large inheritances do more harm than good. I wanted to recycle the money back to society. I apply the same principles to charity as I do to investing: I want the dollar to go far. Buffett taught me that in charity, you should be willing to swing for the fences and be willing to fail to move the needle.