100 years of investing wisdom in 33 minutes

- March 25, 2026 (about 5 hours ago) • 33:24

Transcript

Start Time	Speaker	Text
00:00	Shaan Puri	"How would I take $10,000 and turn it into $1,000,000?"
00:02	MFM	> "Circa 2025, we cannot go into the S&P. The S&P is overheated. So what I would do is treat Berkshire Hathaway as the index."
00:10	MFM	If you bought the S&P when the P/E ratio was 23, your annualized return over the next ten years was between 2% and -2%. That's all you have.
00:17	MFM	"To know: Buffett has made at least 400 investment decisions. He's saying twelve are the ones that mattered. The 'God of Investing' has a 4% hit rate."
00:27	MFM	"Investing is an infinite game."
00:28	MFM	You don't really.
00:29	MFM	Win or lose, the players just decide to drop out. Don't be such a freaking idiot.</FormattedResponse>
00:33	MFM	The riskiest thing in the world is the belief that there's no risk. When the time comes to buy, you won't want to.
00:38	Shaan Puri	If I said, "What's the number one trait that makes a great investor?" — what comes to mind? So let's play a game: you're my coach, my investing coach. Let's say I have $10,000 and I want to turn it into $1 million. Right? Podcast called "My First Million." I want to go from $10k to a million, so that's a 100x. How would I take $10k and turn it into $1 million?
01:15	MFM	The thing about investing is that opportunities are not going to show up just because you have the cash. So I would make some tweaks to your thinking. First, about the 10-Ks: I would say, okay, the 10-Ks are a good starting point. But what I also want you to do, separately from that, is have a day job.
01:35	MFM	Yeah, okay...
01:36	MFM	I want you to spend less than you're earning, and I want you to take the 10 [10%]. I also want you to take your annual savings — maybe that's $5–10,000 a year [unclear] — and normally I would say put it into an index. The S&P is overheated; we can't go there right now — circa 2025. Maybe 2035 we can, but not 2025. So what I would do is treat Berkshire Hathaway as the index. The default currently is you put it, dollar-cost-average, into Berkshire Class B shares and you keep doing that day in, day out. If we did that, the math is really simple. Even if we were doing 10% a year — which I think is pretty reasonable for Berkshire — by the Rule of 72 we would double every seven years. Life is all about doubles. Okay, let's say we had a 20‑year‑old guy [20-year-old] with $10,000 and you go for fifty years (or forty-nine years). That's seven doubles.
02:45	Shaan Puri	Right.
02:45	MFM	Okay. Seven doubles is 128. Okay, it's 128 times your money. I gave you more than 100 times.
02:56	MFM	Right.
02:56	MFM	"I gave you 128 times in 49 years."
02:59	Shaan Puri	"Without having to be a genius."
03:02	MFM	Without doing anything, right? So, this is just Plan B.
03:05	MFM	Right.
03:05	MFM	"Where we put the $10,000 in, it becomes more than $1,000,000—$1,330,000 with no taxes paid, right? There's no dividend, there's no taxes, there's nothing. And we haven't even gone to Plan A yet, right? This is just sitting there."
03:19	Shaan Puri	Alright, let's take a quick break because I got a little freebie for you. If you listen to this episode and you like what Manish is talking about, you might be like me — you're trying to take notes, trying to remember the principles he's discussing because the dude is just a wealth of knowledge when it comes to investing. Well, the fine folks at HubSpot listened to this episode. They took the transcript, wrote down the nine principles he talks about, included the examples he gives, and put it all in a PDF for you. So you don't need to take notes — they did it all for you. You can read that, learn from it, and get more value out of these episodes. It's in the show notes below. Just go download that and enjoy. I want to ask about the S&P 500, because you don't know much about us, but the short version of the guy you see across from me there — Sam — is: Sam's an entrepreneur. Sam built his company, he sold his company, and he took the money that he made and he said, "Look, I worked hard for this money. Now I want this money to work hard for me, but I need it to be safe." So Sam went into mostly, you know, best-practice, low-cost index funds — the S&P 500. Anytime I ask Sam about his strategy, or I tell him, "Dude, you gotta buy Bitcoin, Ethereum, you gotta buy this, put some money over here..." I'm like, you know, "If Sam is vanilla, I don't even know what I am. I'm some flavor off on the side — that's strange, tutti frutti. Yeah, tutti frutti over here," and I keep trying to pull him over here. But he says, "No, no, no, I like vanilla." So he basically just says the long-term average of the S&P 500 is 10%. "If I just hold this for 50 years, I'm gonna double, you know, this many times — I'm good." But, you know, I do get a little wary when anything seems too safe or too certain, or too taken for granted — that this 10% number over the long term will be what it'll be. I guess, what would your message be to Sam? Is he right or wrong? Would you give him a caution or warning? If he was your nephew — he looks like he might be your nephew — what would you be telling him?
05:10	MFM	Well, on the one hand, Sam, you're right. If you have more money than you need to eat, the first purpose of your money should be to make you comfortable. It doesn't make any sense. Buffett says, "Don't risk what you have and need to get what you don't have and don't need." It makes no sense for somebody with a surplus of money to make their daily life less pleasant by going into investments that put them under pressure.
05:44	Sam Parr	But there's going to be a "but" on your statement, it sounds like.
05:47	MFM	But on the other hand, the riskiest thing in the world is the belief that there's no risk. The risk in the markets does not come from the companies, the securities, or the institutions like the exchanges. The risk in the markets comes from the behavior of people. For that reason, Buffett says, "When others are imprudent, you should be prudent. When other people are carefree, you should be terrified," because their behavior unduly raises prices and makes them precarious. "When other people are terrified, you should be aggressive," because their behavior suppresses prices to the point where everything is a giveaway. So I don't — I mean, look: in the long run you're right about the S&P. Over the coming years, American companies, on balance, are going to produce prosperity.
06:55	Sam Parr	"What's that defined as 'long term' in this?"
06:59	MFM	Well, I would say 20 or more years is the real long term, and I'll tell you in a minute how I get there. My favorite cartoon — I have a file of cartoons from over the years — shows a guy. His car is pulled over to the side of the road, the guy's in a phone booth (so you know it's an old cartoon because there are no more phone booths), a factory is going up in the background, and he's screaming into the telephone: "I don't give a damn about prudent diversification. Sell my Fenwick Chemical!" In other words, prudent diversification calls for certain investment positions in a variety of holdings in a certain composition. Reality says, "I see Fenwick Chemical burning to the ground — get me out," and you can't ignore reality. Now, what's reality in this case for you? Reality is recognizing where things stand. J.P. Morgan published a chart around '24 [2024]. It was a scatter diagram showing, over the years, if you bought the S&P 500 at a given purchase P/E ratio and the annualized return over the next ten years. It looked like this: on one axis we had return and on the other axis we had the P/E ratio. It was a negative correlation, which means the higher the P/E ratio you pay, the lower the return you should expect. Makes perfect sense. The chart showed a number — 23 on the P/E ratio axis, which was the P/E ratio on the S&P at the time — and it showed that historically, if you bought the S&P when the P/E ratio was 23, in every case (there were no exceptions) your annualized return over the next ten years was between +2% and -2%. That's all you have to know.
09:29	Shaan Puri	"I wonder, how do you manage your psychology in a time when your performance is not as good as you want? You seem like a really well-balanced, well-regulated—emotionally regulated—guy, but at the same time this is the game you're playing. How do you manage your psychology during a window of time like that?"
09:48	MFM	So yeah, it's an absolutely spectacular question. It's funny because I did a sort of dry run — I'm going to be talking about the fund to our investors in a day or two — and I think it's seven or eight years that I've underperformed the S&P index in this case. I don't know why it always comes up for me when I think of this. This is the question that was asked of me just after I'd published my book and I was invited to give a talk at Google. The outperformance was looking better at that time than it is right now. A very smart engineer asked the question: "How do you know that the outperformance you've gotten to date is not luck?" My answer then, as it would have to be now, is: we don't know. I'm just one data point among thousands of data points. You could argue that 25 years is a long time, but eight years of underperformance in that 25-year period is also a long time. So a year or two ago I said, in the face of underperformance, what am I going to do? Am I going to say, "This sucks, this isn't working, I need to change my strategy and risk everything that's dear to me," potentially? Or am I going to say, "Look, I understand what I'm doing; somehow the market's not rewarding it the way I would like it to be rewarded, but I know that what I'm doing will — even in the worst possible cases — lead to a really, really good life, even if I am underperforming"? For starters, my first investors — friends and family — had never invested in equities before. So even if they're underperforming the S&P, they vastly outperformed what they would have gotten in fixed income and cash instruments. They've won many, many times over. I like to call it courage: I kind of realized that the key is to compound and to make moves that I know will enable me to compound. If I can end up beating an index, that would be great. But I cannot jeopardize compounding for the sake of beating the index. I have to focus on compounding. If you step back, I think this idea is about playing the infinite game. So many people think they're playing a finite game, but they're actually playing an infinite game.
12:18	Shaan Puri	"Explain the difference between finite and infinite games."
12:20	MFM	Yeah, yeah — sorry. So, finite. There's a clear distinction between finite and infinite games. A finite game is one which has a clear set of rules and a clear space in which it's played out, both in terms of time and physical location. For example, chess: there's a set of rules, it's played across the board, and there's a winner and a loser according to the time controls. Or a game of American football: it's played on an American football pitch, there are N players on each side, the game starts and it ends; there's a winner and there's a loser, declared according to the rules. But the most important things in life are infinite games. What is an infinite game? An infinite game has no clearly defined rules, no clearly defined game space, and no clearly defined time when it begins and ends. One of my favorite examples of an infinite game was the Cold War. The Cold War was fought across many battlefronts—whether it was Southeast Asia, building nuclear missiles, or rivalry between the superpowers in all sorts of ways. It wasn't really clear exactly when it started, and here's the thing: it played itself across multiple rules and multiple places. In the infinite game you don't really win or lose. Usually one or more of the players just decides to drop out. In the case of Russia, Russia kind of, in a way, imploded and dropped out of it. What's the most important.
13:45	MFM	The key—the key mistake we make so often in life is we think we're playing a finite game when we're actually playing an infinite game. Life is an infinite game. Investing is an infinite game. How many people, I would tell you, out of—I don't know how many funds were around at the time I started—how many are around today? It's like less than 2%. Some people left the game of investing because they were utterly superb, made enormous amounts of money, and decided to go and do something else. A famous example is Nick Sleep; he's in William Green's book. Those people exist. I did a study of this about ten years ago using a Lipper database where I could look up all the funds around at the time. They don't really give their reasons for dropping out, but in many cases it was because they had an implosion of one kind or another. You don't want to be the guy who implodes.
14:50	Shaan Puri	What's the "circle the wagons" philosophy?
14:53	MFM	Well, the "circle the wagons" philosophy actually came out of when I was thinking about Buffett's letter last year to shareholders — the 2023 letter. He pointed out that in 58 years of running Berkshire Hathaway there were only 12 decisions he had made that moved the needle for Berkshire. Now, Berkshire had a tremendous run. They've compounded — I mean, until recently they were compounding at 20%+ a year for 58 years. If you're doing about 20% a year, you are doubling every three and a half years. That means after 35 years it's 10 doubles, and 58 years is another 23 years, so you've got another... what, 6? So 16 doubles — two to the power of 16. The way to do two to the power of 16 is two to the power of 10 times two to the power of 6. Two to the power of 10, round number, is 1,000 — it's a thousand‑times. Two to the power of 6 is 64. So that's about 64,000 times what you started with. If you started with $100, it's about $6,400,000. [approximate] So he's saying — I would calculate that in the last 58 years Buffett's made 300 or 400, at least 400, different investment decisions. He's saying 12 are the ones that mattered. Right? The "god of investing" has a 4% hit rate. That's the god of investing. That's why we should index.
16:40	Shaan Puri	Right. Well, what are the rest of us mere mortals supposed to...
16:42	MFM	Now, the thing is that I was thinking about his 12 bets, and I thought about which were the twelve. I think he never mentioned them, but you could guess: Seas would be one of them, Coke would be another, Amex, Gillette, Cap Cities, Washington Post... you can come up with the names — Berkshire Hathaway Energy, Ajit Jain. Hiring Ajit Jain was probably the biggest bet for them, but it paid off huge. What I realized when I thought about these 12 bets was that it wasn't the buy decision. The buy decision is important, but the important thing was they never sold. Seas stayed in the stable for 50 years. Coke has been in the stable for 40+ years. So it wasn't the buy decision; it was the "paint drying" decision. That was the important thing. So when you find yourself in the happy position of a small ownership in a great business, just find something else to do with your time — play bridge or whatever.
17:50	Shaan Puri	"Right. Have you—have you considered golf?" "I have."
17:53	MFM	Golf is great.
18:01	Sam Parr	Can I ask you about your reading habits? How do you pick what books you read?
18:05	MFM	I've never read any books about how to be an investor—"multiply this by that and add this and subtract that." The books I've found most interesting have always been the ones about investor behavior. I mentioned Devil Take the Hindmost ('99). One of the greatest books I ever read was, before that, John Kenneth Galbraith's book called The Short History of Financial Euphoria. That was really pivotal for me. Since I'm a slow reader, I like the fact that it was only about 100 pages. Back in '74, I think Charlie Ellis wrote an article, "Winning the Loser's Game," where he said that because you can't predict the future, active investing doesn't work. He was a believer in the efficient market. So, rather than try to hit winners like a tennis player, you should try to avoid hitting losers and keep the ball in play. That has always defined my investing style. In fact, I wrote a memo in '23 or '24 called "Fewer Winners, Fewer Losers" or "More Winners," and that's the basic choice of investing style.
19:20	Shaan Puri	There's a great — I think — sort of math paradox that you've pointed out, which is that, you know, a fund — I don't know if it was your fund, but any fund — could be never in the top 10% but also never in the bottom 50%. There's a strategy of just consistently being above average that will place you...
19:39	MFM	Right.
19:39	Shaan Puri	In the top 5%, right? It’ll place you in the top 5%. Can you unpack that idea a little bit? I just... I just sort of butchered it.
19:45	MFM	In 1990 I wrote a memo called "The Route to Performance." I had dinner in Minneapolis with my client Dave Van Benskoten, who ran the General Mills pension fund. Dave explained to me that he had run the fund for 14 years, and in 14 years the General Mills equity portfolio was never above the 27th percentile or below the 47th percentile. So, 14 years in a row—solidly in the second quartile. Now, if you asked a normal person not in the investment business, "This thing fluctuated between the 27th and the 47th—where do you think it was for the whole?" they would say, "Well, I think probably around the 37th." The answer is fourth. So if you can do well for 14 years in a row and avoid the tendency to shoot yourself in the foot in a bad year, you can pop up to the top. At the same time, another investment management firm had a terrible year because they were deep-value investors and heavy in the banks, and the banks suffered terribly. They were at the bottom. The president came out—and of course people in the investment business are great rationalizers and communicators—and he said, "The answer is simple: if you want to be in the top 5% of money managers, you have to be willing to be in the bottom." Well, that makes great sense, except that my clients don't care if I'm ever in the top 5%, and they absolutely don't want to see me in the bottom 5%. My reaction is that the first guy's approach is the right one for me. That's why at Oaktree we go for fewer losers, not more winners.
21:25	Shaan Puri	Yeah, I love that because it's one of the unsexy ideas. I think any idea you can't — you know — make a movie about or that won't make you sound really cool are generally undervalued when they actually logically math out the way that one does. I sort of... that was one that stuck out to me. I think nobody's going to give you a motivational video about being consistently above average and just never shooting yourself in the foot, right? It's all about heroic greatness and huge risks you can take and, you know, being willing to do it. So, you know, that's all you hear.
21:59	MFM	Every Saturday, the Financial Times of London runs a column called "Lunch with the FT." They take somebody to lunch and write an article about the person, the restaurant, and the food. They did that with me in late 2022. I took the reporter to my favorite Italian restaurant near the office in New York, where I go 100% of the time if I have a lunch. I said to her, "Eating in this restaurant is like investing at Oaktree: always good, sometimes great, never terrible." To me, that sounds like a modest boast, but if you can do that for forty or fifty years, I think it will compound to great results—if you never shoot yourself in the foot. I don't know if the SEC is listening, but I think it's descriptive of what we've accomplished.
23:08	MFM	The most important thing in life is how long something takes to double. That basically leads to everything else. For example, if you look at someone like Warren Buffett: he started his compounding journey when he was like 10 or 11 years old. I think he'd say it was when he was seven. He's going to be 94 this year — that's an 87-year runway so far. If you have a really long runway, then a low rate of compounding will still get you a big number. If you have a shorter runway and a higher rate, you can get the same result. It's very important in life, and that's why I wish they'd teach this in high school — to start that engine early. For example, take someone who just finished college at 22. They get a job, maybe making $7,080,000 a year or something, and they put away $10,000 in their 401(k) at 22 into an index fund that does 10% a year. That 10% a year means the $10,000 will double about every seven years. Now suppose that person is 64 — they started at 22, so that's 42 years. Forty-two years is six doubles (I do this to make it easy). Two to the power of six is 64. So the $10,000 that the person saved at 22 is $640,000 at 64. But that's not all: at 23 they save $11,000, and that's again sitting and growing into a big number. You keep going, and over time these amounts compound. Sometimes we see news articles about a janitor at some college who gives $4,000,000 to the college and lived in a one-bedroom apartment. Why are we surprised? If you actually run the math, he didn't even save that much in raw contributions, and he didn't necessarily have some incredible compounding engine like finding Apple early. What happened was consistency. My pushback to my dad when he was telling me to start a business was: I told him I had a 401(k) with $30,000 in it and that I was continuing with 15% a year. My employer at that time was matching the first 2%, so it was becoming 17% tax-deferred. My income was going up over time. When I first started working my salary was $31,000, so I was saving $4,500 a year. But if I had stayed working, my pay would have been hundreds of thousands...
26:39	Shaan Puri	Mhmm.
26:40	MFM	Or more, and I'm putting away a lot of money. By the time I get to retirement, it's like it's game over, right? Lots of extra cash available—no problem. I never missed the money because it was pre-tax, taken out, so it's just great. So, I think—I wish that young people understood that. Yeah, listen: you can pursue lottery tickets, you can pursue entrepreneurial dreams; you can do all of that, that's fine. But on the side, keep this goal.
27:20	MFM	I came across a great quote within the last year from a guy who's a retired trader: "When the time comes to buy, you won't want to." That encapsulates so much wisdom, because what is it that causes the great moments to buy? </FormattedResponse>
27:45	Shaan Puri	It's probably the point of lowest consensus. So, when most people don't believe, that would be the time that the price is going to be the lowest, right? It's the time with either the most uncertainty, the most pessimism, the most fear, or the most conservatism. So you also want to be all those things.
28:02	MFM	What causes those things you're talking about? You're talking about the manifestation—what's the cause? </FormattedResponse>
28:12	Shaan Puri	Bad news... I don't know. Bad news. Bad events.
28:15	MFM	Bad news — either exogenous, geopolitical, or in the economy: faltering corporate fortunes, declining stock prices, widespread losses, and a proliferation of articles about how terrible the future looks. That's why you don't want to buy at the low. Who would want to buy under those circumstances, right? You talked before in your introduction about zigging when others zag. The only thing I'm sure of is: if you zig when they zig, you're not going to outperform.
28:58	Sam Parr	Do you still feel that fear? You know, like when you know you're supposed to buy—do you still feel fearful, or do you feel like, "Nice, hello my old friend; I love this emotion. This is what I'm supposed to do"?
29:11	MFM	Right. I mean, it's not easy, but you have to know—you have to do it. If you think about it, the fortunes of companies and the outlook for companies doesn't change much. What changes is how people think about what's going on and think about the future. So what changes is the relationship of price to what I'll call value. Sometimes they hate them, sometimes they love them. When they love them too much, you should expect prices to probably go down—that sounds like a bull market or a bubble. And when they hate them too much, you should expect prices to go up—that sounds like a bear market or a crash. So you have to do the opposite. The same developments in the environment that affect everybody else will affect you. You're subject to them. You feel them. You read about them. You hear about them. Everybody tells you how dire the outlook is, and it's hard to ignore. You have to do the right thing in the face of them. In 1998, we had the Russian ruble devaluation, the debt crisis in Southeast Asia, and the meltdown of Long-Term Capital Management. One of our portfolio managers, who was young, came to me and said, "I think this is it. I think we're going to meltdown. I think it's all over. I'm terribly pessimistic." I said, "Tell me why." He went through his reasoning. I said, "Okay, now go back to your desk and do your job." A battlefield hero—and I don't want to compare what we do literally to being a battlefield hero—is not somebody who's unafraid. It's somebody who does it anyway. That's the way you have to be.
31:22	Shaan Puri	Can you get it? I think there's a Monish [name uncertain] — I don't know. Or maybe he got it from somebody else: the two gas stations across the street. I thought this was a great metaphor. </FormattedResponse>
31:30	MFM	So, yeah — it comes from Good to Great. It's a beautiful idea that I haven't thought about in an enormously long time. The story in the book is about two gas stations on opposite sides of the road. When the owner of one station gets a customer, he does simple things: he paints the wall, puts out flowers, and makes his gas slightly cheaper. Those are all actions the guy on the other side could do. Not only could he do them, he's literally watching the other guy do them right in front of him. The fact is, in so many cases in life, the person on the other side who has every opportunity to copy the successful business just doesn't do it. Years later, it can be hard to understand why one is so successful and the other isn't. I tell the story in my book about sitting with Monish Pabrai. He's told this story a few times and I was like, "What a dumb guy on the other side of the road — he isn't copying any of the things the successful business is doing." Then I realized: actually, you're the guy on the other side of the road. Here's Mr. Monish Pabrai doing all these things, and you're not doing any of them. Why the hell not? Don't be such a freaking idiot.

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100 years of investing wisdom in 33 minutes

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