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🚀 Strong year-to-date performance from tech giants such as Apple and Microsoft has driven the S&P 500 higher in 2023 (about 8% thus far).

So too have AI-related tech stocks. If not for the “AI trade,” the benchmark index would be down 2% this year, rather than up 8%, per SocGen research.

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—Matthew

Here’s the rundown:

MARKETS

*All prices as of market close at 4pm EST

Today, we’ll discuss two items in the news:

• Woes at venture capital giant Tiger Global

• Europe takes global lead in the race to regulate AI

• Plus, our main story on three lessons from investor Mohnish Pabrai

All this, and more, in just 5 minutes to read.

POP QUIZ

Last year, Warren Buffett held his 21st and final charity lunch. How much did the winner bid to eat with him? (Scroll to the end to see)

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THREE LESSONS FROM MOHNISH PABRAI

An expensive meal

In 2007, Mohnish Pabrai and Guy Spier forked over more than $650,000 to have lunch with Warren Buffett. They found a cozy nook at the Manhattan steakhouse Smith and Wollensky. It lasted near three hours, and Pabrai later said it was “worth every penny.”

Buffett gave them an unconventional method to determine their integrity, asking them, “Would you rather be the greatest lover in the world yet be known as the worst, or would you rather be the worst lover and be known as the greatest?”

“And he said, ‘If you know how to answer that correctly, then you have the right internal yardstick,’” Pabrai recalled.

Recently, our Stig Brodersen interviewed Pabrai, famed investor and author of The Dhandho Investor.

Since its inception in 2000, Pabrai has returned 989% to investors in his flagship fund, compared with “only” 401% for the S&P 500.

Here are three highlights from the conversation.

4% hit rate for the best

Pabrai mentions how Buffett recently noted that Berkshire Hathaway has owned a few extraordinary businesses.

Most have been good or mediocre. In 58 years, only about 12 decisions have created most of the company’s great outcomes (Berkshire has averaged a roughly 20% annual return since 1965.)

Aside from these 12 excellent investment decisions, such as Coca-Cola, American Express, and Apple, Buffett has made plenty of average decisions.

“Over 58 years, Warren has bought more than 80 companies,” Pabrai said. “In that period, he’s probably made at least 10 key hires and probably bought at least 210 stocks over that period. So collectively, well over 300 decisions.

“And when he says that 12 stand out, it’s like one in 25. It’s like a 4% hit rate for someone as great as Warren Buffett and Charlie Munger. They’ve said many times that if you took out 15 decisions, ‘Our record would be useless.’ ”

Bullish on Turkey

Pabrai has said Turkey might be “the cheapest market in the world.” He noted that the average holding period there is only a few days, giving investors like him with a longer-term orientation an advantage.

Many companies are trading at cheap price-to-earnings ratios, too.

Ben Graham said: “In the short run, the market is a voting machine, but in the long run, it’s a weighing machine.”

Pabrai commented “no one” is weighing the companies in Turkey; they’re voting, “dancing in and out” of positions. “Buffett has a great quote: He says the stock market is a mechanism to transfer wealth from the active to the inactive.”

“And it could not be more true than a place like Turkey. It’s almost a little bit of a time warp. It’s like going back to the 1960s and 1970s in the U.S. It almost feels like the early 1990s in India, where you had a lot of very high-quality businesses at single-digit multiples.”

Timeless lessons

Pabrai is worth a few hundred million dollars, but he knows he’s made plenty of mistakes. Two constants in the investing business?

You’ll make many mistakes, but it’s a forgiving business.

• “You can be wrong, even 98% of the time, and still come out smelling really nice,” he said. “But that is only going to happen if you buy businesses with great economics at reasonable valuations and then hang on to them forever.”

Pabrai believes in holding your winners, even when they get fully priced

When overpriced, winners shouldn’t necessarily be sold. “It’s only possible when they get completely ridiculously egregiously overpriced that you can consider selling,” he said, which aligns with Buffett’s ideal holding period: forever.

• “I think it’s very hard to beat the market if you don’t have this framework, because you’re going to be cutting the flowers and watering the weeds,” he added.
• “What we need to do is make sure we don’t cut the flowers. And it really doesn’t matter whether you water the weeds or not, but the important thing is you just don’t cut the flowers.”

Pabrai also clarified that the best investors might be wrong more than half of the time. With a portfolio of 10 stocks, more than half might be mistakes. You could lose money on them or not compound them and still do well if one or two turn into big winners.

Dive deeper

Check out the full conversation with Pabrai right here on We Study Billionaires.