Mohnish Pabrai: Most Investors Are Too Smart For Their Own Good

During this presentation with YPO Waterloo Austin, Mohnish Pabrai says most humans are not able to stay with their investing program, and are too smart for their own good. Here’s an excerpt from the presentation:

Charlie Munger, Warren Buffet’s partner. One of his best quotes is never interrupt compounding unnecessarily.

Okay so don’t interrupt it.

So what that means is if you’re in a index, we don’t care about the market, we just dollar cost average every month, the savings are going in, and it’s irrelevant what’s happening to the market or economy or whatever.

We just keep on that program, and most humans are not like the janitor, they’re not able to stay with the program.

They are too smart for their own good.

The other thing about investing is it’s a very strange industry in the sense that people who pay the lowest frictional costs win.

So the richer you are… rich people like to think that they have got some exclusive guy, some fund manager, some hedge fund guy.

Very bad idea!

That guy will get rich skimming off the top, and if you bought the Vanguard S&P ETF your frictional costs are like five basis points a year, .05%.

If you’re at some hedge fund or something it’s like you know one and 20, two and twenty or something, most of them after fees are going to be behind the S&P.

And so even a 1% or 2% or 3% delta in returns if the 9% goes to 7% or 6% over a few decades will be a massive delta.

As we’ve seen with so it’s an interesting field in the sense that Joe public has an advantage over the YPOers because Joe public has no access to hedge funds.

And Joe public is forced to go to Vanguard and buy the S&P and then Joe public ends up ahead.

So please be like Joe public.

But the other thing is that don’t be like Joe public where Joe public leaves his job and goes to Hawaii on a vacation with the 401K before starting the next job, don’t do that.

Never interrupt compounding unnecessarily.

You can watch the entire discussion here: