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Alternative Market Briefing

Opalesque Video: Why cloning is a virtue in investing

Thursday, August 05, 2021

William Green
B. G., Opalesque Geneva:

One of the greatest principles of financial success, according to William Green, is cloning. That seems incongruous since many investment ideas claim to be based on original ideas. But there's more to cloning than just blindly copying.

William Green authored "The Great Minds of Investing" (2015) and most recently "Richer, Wiser, Happier: How the World's Greatest Investors Win in Markets and Life". During a recent Opalesque webinar, he, Guy Spier and Matthias Knab discussed the habits of mind of remarkable billionaire investors and the five key strategies of their mental make-up.

This basic idea of cloning - you could also call it replication or modelling - is that we do not need to reinvent the wheel, he says. We understand there are people who are wiser, smarter, more experienced than we are, and who have already figured out the fundamental rules of the game we want to play. What one wants to do is figure out what people who are better at this game have figured out already.

William interviewed Mohnish Pabrai, an Indian-American businessman, investor, and philanthropist, for his book. He calls Mohnish a "super-cloner" whether it be in investing or philanthropy, as he realised cloning is "a kind of superpower."

Well-known for spending more than $650,000 for the opportunity to have lunch with Warren Buffett in 2008, Mohnish Pabrai follows the value investing dogma to a T. After selling his IT business for $6m in 2000, he launched Pabrai Investment Funds, an investment firm that was modelled after Buffett's investment partnerships. As of April 2021, Pabrai Investment Funds managed US$636.8m in assets. Mohnish has said, 'everything in my life is cloned. I have no original ideas.'

"His philosophy is, 'somebody has already figured this out, let me figure out what they did, and then clone it with this relentless attention to detail'," William says."What Mohnish has done in investing is a macrocosm of what we need to do not only as investors but in every other area of life."

Mohnish 'discovered' Buffet in 1994 and it was clear to him Buffet had revealed the laws of investing, which are as fundamental as the laws of physics. To understand them, he drew basic three rules. First, if you are buying a stock, it is not for speculation, it is to get a share in an ongoing business. Second, the market is bipolar, so businesses are not valued rationally. And third, one wants to buy stocks at a discount to their intrinsic value, which gives you a margin of safety. Mohnish looked at many fund managers and found they ignored those fundamental laws of investing. "It was like a whole generation of physicists rejecting the law of gravity," says William.

Monish decided to clone Buffet and Munger's investing method, and that gave him a 'colossal' advantage in investing.

"Munger said: 'take a simple idea, and take it seriously.' Like many of the great truths in life, it sounds like a platitude, but it's actually immensely important," William says. "So when you discover a profoundly important truth like cloning, or like compounding… as Monish said to me, you ought to go 1,000% on it." And he is not just dabbling, he is making this a guiding principle of his life, he adds.

Anthony Robbins doesn't call it cloning but modelling, says Guy Spier during the webinar. Guy Spier is a Zurich-based investor who runs Aquamarine Capital, and the author of a best-selling book titled, "The Education of a Value Investor". He is the other man who, with Mohnish Pabrai, bid for a charity lunch with Warren Buffett on June 25, 2008.

Guy followed in the footsteps of Warren Buffet and things started happening, he said. But that modelling was done according to what he was more attuned to. For example, he did not precisely copy the partnership structure that Buffet had done for the Buffet partnerships. Mohnish on the other hand decided to precisely copy the partnership documents. So Guy decided to change his stance accordingly.

It takes confidence and humility to decide not to prove yourself, adds William. So why don't other people do this? According to Mohnish, something in human DNA prevents us from cloning. We want to be original. We do not want to be derivative. It takes a degree of humility to set aside your own ego and say, 'I don't care about being original. Let me be humble enough to learn from people who are better and smarter than I.'

Those who want to apply this principle need to really study people who have figured things out, and pay relentless attention to reverse-engineer and replicate what these people are doing, William concludes. And this is not simply about plain replication. It is also about taking an idea and improving upon it while applying it to your own circumstances. In the end, you cannot help being original anyway because of the idiosyncrasies you bring to the table.

You can watch the entire video, Investor Workshop: Cracking the billionaire investor mindset with William Green, here:

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