Introduction & Defining Cloning (0:00 - 4:01)
The session is titled "How to succeed in business and life by shamelessly borrowing other people's best ideas."
Pabrai begins by defining "cloning." He frames it as a powerful mental model, citing Charlie Munger. Most people follow common mental models, which provides no edge. The real edge comes from models most people don't follow, even when told about them.
He theorizes that humans have an evolutionary aversion to cloning (a "herd mentality") because, in a hunter-gatherer society, following the tribe was key to survival.
Because most people want to be innovative and think cloning is "beneath them," shamelessly borrowing great ideas provides a significant advantage. He states, "My life would be pathetic without cloning."
The Power of Simplicity (4:01 - 5:58)
The host quotes William Green's book, which notes that intelligent people often underestimate simple, powerful ideas.
Pabrai agrees, referencing Einstein's levels of intellect, with "simple" being the highest. He is naturally attracted to simplicity.
He applies this to investing: if he can't explain an investment thesis in three sentences to a 10-year-old, there's probably something wrong with it.
Cloning, when boiled down to its simple essence, becomes easy to execute.
Cloning the Buffett Partnership Model (5:58 - 8:00)
Pabrai shares his "light bulb moment" of cloning Warren Buffett's partnership fee structure (0% management fee, 6% hurdle, 25% of profits above that).
He was astounded that this "win-win" structure wasn't widely adopted. Thirty years after Buffett shut down his partnership, Pabrai launched his fund in 1999 using the same "0-6-25" model.
This proved to him that people are unwilling to clone, giving him a monopoly. He actively marketed this unique fee structure to attract investors.
He later learned from Charlie Munger that a few obscure managers had cloned Buffett, but they were virtually unknown, reinforcing the rarity of true cloners. He notes that even 56 years later, this model remains rare, citing Benj. Watsa (Prem Watsa) as one of the few who has successfully cloned and scaled it.
:Cloning Buffett's Investment Philosophy (8:00 - 13:19)
The host asks what investment philosophy ideas Pabrai cloned from Buffett and Munger.
Pabrai admits he was initially a "terrible cloner" because he "overdosed on Ben Graham and underdosed on Charlie Munger." He believes it should have been the reverse.
However, he notes that even suboptimal cloning can lead to great success ("you still end up in paradise").
His key, long-delayed realization was about extreme concentration. He states that if the job is done correctly, a portfolio should become 95% in one stock.
The logic is that there are very few truly great businesses with great managers. When you find one, you should "shut the brain off" and hold it indefinitely. Even a small initial position can grow to dominate the portfolio through compounding.
He admits that for decades, he was "too much of an idiot to keep them" when he found these great companies.
Applying Concentration in Practice (13:19 - 16:00)
Pabrai addresses the practical concern of managing money with such high concentration. He reveals that in one of his funds, two businesses now make up about 70% of the portfolio.
Embracing the cloning model, he told his investors they would not be diversifying away from these positions. He gave them a clear choice: if they were uncomfortable, they could redeem their capital.
He reinforced this by suggesting that if an investor had less than 20% of their net worth in the fund, they should simply leave it alone.
To his surprise, he received no calls or emails of concern and no redemptions, concluding that his investors were "immediately enlightened." This experience gave him the confidence to continue on this path toward even higher concentration.
(Transition)
The host then asks if Pabrai has ever tried to clone an idea that didn't work for him.
Pabrai confirms that most things he tries, whether cloned or not, do not work. He frames this through the lens of asymmetry, inspired by Jeff Bezos and Amazon.
The key is to make small bets where the downside of failure is limited, but the upside of a single success is enormous (like Amazon's AWS). The few successes can pay for dozens of failures.
Cloning Personal Traits: The Power of Truth (16:00 - 20:55)
The conversation shifts to cloning personal traits. The host asks about the influence of David Hawkins' book, Power vs. Force, which argues that true power comes from honesty and compassion.
Pabrai explains the book's controversial thesis: even if someone lies to you consciously, your subconscious knows and reacts to it.
He adopted this principle by committing to radical honesty, even in difficult social situations. He uses the example of his wife asking how she looks; he now gives his truthful opinion, even if it risks short-term conflict.
He argues this builds immense long-term trust, which is a huge advantage in life and business. He connects this to Charlie Munger's idea that "the world works on trust."
The goal is to move as far as possible up the "log curve" of truthfulness, towards the level of figures like Buffett and Munger.
Cloning a Philanthropic Model: The Dakshana Foundation (20:55 - 24:00)
The host asks about Pabrai's philanthropic work with the Dakshana Foundation, noting it was also built through cloning.
Pabrai explains he cloned the model from a gifted teacher in Bihar, India. This teacher was taking extremely poor, bright students and, with 10 months of free coaching, achieving a 90% success rate in getting them into the IITs (the elite Indian Institutes of Technology).
Pabrai was amazed by this model, as the normal admission rate for IITs is less than 1%. He asked the teacher for permission to "clone and scale" the model.
Dakshana now supports about 1,000 students per year. For an investment of about $3,000 per student, it can transform a family's trajectory from poverty to a high-income career.
The model is highly leveraged because it relies on two existing, free government systems: the magnet schools (JNVs) that identify the talent and the IITs that provide the heavily subsidized world-class education.
The Success and Impact of Dakshana (24:00 - 28:00)
Pabrai elaborates on the phenomenal success of the Dakshana model. He highlights that it's even more effective for medical school admissions.
Gaining entry to the All India Institute of Medical Sciences (AIIMS), the top medical school in India, has an admission rate of just 0.1%.
Dakshana's medical program achieves a 25% admission rate to AIIMS—a 250x improvement over the general population.
He emphasizes the "asymmetric" efficiency of the model: Dakshana spends $3,000 per student, while the Indian government subsidizes their education to the tune of approximately $250,000, creating a massive social return on investment.
Personal Fulfillment and Legacy (28:00 - 30:54)
The host notes that this work must provide great personal satisfaction on Pabrai's "inner scorecard."
Pabrai confirms this, revealing that when he started Dakshana, his lofty goal was that when he passed away, people would remember him for Dakshana, not for his investing career.
He shares a powerful personal anecdote: his daughter has the Dakshana logo tattooed on her back, which he describes as the "highest accomplishment for a dad."
The Importance of Inactivity (30:54 - 32:00)
The host brings up one of Pabrai's favorite quotes from Blaise Pascal: "All of humanity's problems stem from man's inability to sit quietly in a room alone."
Pabrai adapts this for investors: "All investment manager misery stem from their inability to sit quietly in a room alone and do nothing."
He identifies "activity" as the single biggest issue for investors and states that the key skill to develop is becoming "really good at watching paint dry and enjoying the process."
Introduction & Defining Cloning (0:00 - 4:01)
The session is titled "How to succeed in business and life by shamelessly borrowing other people's best ideas."
Pabrai begins by defining "cloning." He frames it as a powerful mental model, citing Charlie Munger. Most people follow common mental models, which provides no edge. The real edge comes from models most people don't follow, even when told about them.
He theorizes that humans have an evolutionary aversion to cloning (a "herd mentality") because, in a hunter-gatherer society, following the tribe was key to survival.
Because most people want to be innovative and think cloning is "beneath them," shamelessly borrowing great ideas provides a significant advantage. He states, "My life would be pathetic without cloning."
The Power of Simplicity (4:01 - 5:58)
The host quotes William Green's book, which notes that intelligent people often underestimate simple, powerful ideas.
Pabrai agrees, referencing Einstein's levels of intellect, with "simple" being the highest. He is naturally attracted to simplicity.
He applies this to investing: if he can't explain an investment thesis in three sentences to a 10-year-old, there's probably something wrong with it.
Cloning, when boiled down to its simple essence, becomes easy to execute.
Cloning the Buffett Partnership Model (5:58 - 8:00)
Pabrai shares his "light bulb moment" of cloning Warren Buffett's partnership fee structure (0% management fee, 6% hurdle, 25% of profits above that).
He was astounded that this "win-win" structure wasn't widely adopted. Thirty years after Buffett shut down his partnership, Pabrai launched his fund in 1999 using the same "0-6-25" model.
This proved to him that people are unwilling to clone, giving him a monopoly. He actively marketed this unique fee structure to attract investors.
He later learned from Charlie Munger that a few obscure managers had cloned Buffett, but they were virtually unknown, reinforcing the rarity of true cloners. He notes that even 56 years later, this model remains rare, citing Benj. Watsa (Prem Watsa) as one of the few who has successfully cloned and scaled it.
Cloning Buffett's Investment Philosophy (8:00 - 13:19)
The host asks what investment philosophy ideas Pabrai cloned from Buffett and Munger.
Pabrai admits he was initially a "terrible cloner" because he "overdosed on Ben Graham and underdosed on Charlie Munger." He believes it should have been the reverse.
However, he notes that even suboptimal cloning can lead to great success ("you still end up in paradise").
His key, long-delayed realization was about extreme concentration. He states that if the job is done correctly, a portfolio should become 95% in one stock.
The logic is that there are very few truly great businesses with great managers. When you find one, you should "shut the brain off" and hold it indefinitely. Even a small initial position can grow to dominate the portfolio through compounding.
He admits that for decades, he was "too much of an idiot to keep them" when he found these great companies.
Applying Concentration in Practice (13:19 - 16:00)
Pabrai addresses the practical concern of managing money with such high concentration. He reveals that in one of his funds, two businesses now make up about 70% of the portfolio.
Embracing the cloning model, he told his investors they would not be diversifying away from these positions. He gave them a clear choice: if they were uncomfortable, they could redeem their capital.
He reinforced this by suggesting that if an investor had less than 20% of their net worth in the fund, they should simply leave it alone.
To his surprise, he received no calls or emails of concern and no redemptions, concluding that his investors were "immediately enlightened." This experience gave him the confidence to continue on this path toward even higher concentration.
(Transition)
The host then asks if Pabrai has ever tried to clone an idea that didn't work for him.
Pabrai confirms that most things he tries, whether cloned or not, do not work. He frames this through the lens of asymmetry, inspired by Jeff Bezos and Amazon.
The key is to make small bets where the downside of failure is limited, but the upside of a single success is enormous (like Amazon's AWS). The few successes can pay for dozens of failures.
Cloning Personal Traits: The Power of Truth (16:00 - 20:55)
The conversation shifts to cloning personal traits. The host asks about the influence of David Hawkins' book, Power vs. Force, which argues that true power comes from honesty and compassion.
Pabrai explains the book's controversial thesis: even if someone lies to you consciously, your subconscious knows and reacts to it.
He adopted this principle by committing to radical honesty, even in difficult social situations. He uses the example of his wife asking how she looks; he now gives his truthful opinion, even if it risks short-term conflict.
He argues this builds immense long-term trust, which is a huge advantage in life and business. He connects this to Charlie Munger's idea that "the world works on trust."
The goal is to move as far as possible up the "log curve" of truthfulness, towards the level of figures like Buffett and Munger.
Cloning a Philanthropic Model: The Dakshana Foundation (20:55 - 24:00)
The host asks about Pabrai's philanthropic work with the Dakshana Foundation, noting it was also built through cloning.
Pabrai explains he cloned the model from a gifted teacher in Bihar, India. This teacher was taking extremely poor, bright students and, with 10 months of free coaching, achieving a 90% success rate in getting them into the IITs (the elite Indian Institutes of Technology).
Pabrai was amazed by this model, as the normal admission rate for IITs is less than 1%. He asked the teacher for permission to "clone and scale" the model.
Dakshana now supports about 1,000 students per year. For an investment of about $3,000 per student, it can transform a family's trajectory from poverty to a high-income career.
The model is highly leveraged because it relies on two existing, free government systems: the magnet schools (JNVs) that identify the talent and the IITs that provide the heavily subsidized world-class education.
The Success and Impact of Dakshana (24:00 - 28:00)
Pabrai elaborates on the phenomenal success of the Dakshana model. He highlights that it's even more effective for medical school admissions.
Gaining entry to the All India Institute of Medical Sciences (AIIMS), the top medical school in India, has an admission rate of just 0.1%.
Dakshana's medical program achieves a 25% admission rate to AIIMS—a 250x improvement over the general population.
He emphasizes the "asymmetric" efficiency of the model: Dakshana spends $3,000 per student, while the Indian government subsidizes their education to the tune of approximately $250,000, creating a massive social return on investment.
Personal Fulfillment and Legacy (28:00 - 30:54)
The host notes that this work must provide great personal satisfaction on Pabrai's "inner scorecard."
Pabrai confirms this, revealing that when he started Dakshana, his lofty goal was that when he passed away, people would remember him for Dakshana, not for his investing career.
He shares a powerful personal anecdote: his daughter has the Dakshana logo tattooed on her back, which he describes as the "highest accomplishment for a dad."
The Importance of Inactivity (30:54 - 32:00)
The host brings up one of Pabrai's favorite quotes from Blaise Pascal: "All of humanity's problems stem from man's inability to sit quietly in a room alone."
Pabrai adapts this for investors: "All investment manager misery stem from their inability to sit quietly in a room alone and do nothing."
He identifies "activity" as the single biggest issue for investors and states that the key skill to develop is becoming "really good at watching paint dry and enjoying the process."
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