Mohnish Pabrai: Why “Master Cloners” Have An Edge In The Investment World

In this interview with YPO’s Mosaic Chapter, Mohnish Pabrai discusses the concept of cloning good ideas in business and investing. He learned early on about the power of copying successful strategies.

He came across a book by Tom Peters who argued that humans are bad at copying successful ideas. In an effort to prove Peters wrong Pabrai discovered that a small number of “master cloners” who readily copied successful strategies were very successful themselves, and concluded that there’s a strong advantage to be gained from being a good copier of good ideas. Here’s an excerpt from the interview:

One of the things I learned about very early was the power of cloning, and the power of copying.

And I remember when I was in my early 20s I read this book by Tom Peters – Humans aren’t good cloners.

He was a big management guru in the 80s where he was giving the example of these two gas stations in California that were diagonal on a busy intersection from each other.

And both the gas stations were self-served and so you come in, you pump your gas, and you leave. I0n one case the owner would come out maybe once an hour or something pick a random car and wash the windshield or check the oil, just some extra service at no charge.

And the guy who was diagonal across the street was seeing this take place and he said to himself well that’s kind of stupid you can’t do it for everyone, if you did it for everyone you’d lose your shirt because you’re not charging for it.

And he never copied or cloned that and over time what happened is that the gas station that was providing this random extra service saw an increase in business and the one diagonal from him saw a decrease.

Even after seeing the decrease the guy across the street did not change behavior.

So Tom Peters said, and this is what I found very unbelievable, he said that you can go to your most direct competitors and you can sit down with them and you can give them all your trade secrets, everything that you learned that has given you an advantage, and they will listen to you but there will be no behavior change,

Okay, so I read that I said this is ridiculous, this cannot be the the way the world works you know and I’m in my early 20s, I haven’t really kind of experienced life, and I don’t know kind of how things work.

But I made a promise to myself that I’m going to prove Tom Peters wrong okay and I was going to prove him wrong two ways.

One, I was going to look for instances where humans see something smart happening and copy or clone it because that would prove him wrong.

And the second is whenever I personally see someone doing something smart I’m going to copy it because that also proves him wrong.

And from my early 20s till now this year I’m going to be mostly right, humans are really… I still don’t know why it is the case, but humans have an aversion to cloning, they somehow consider it beneath themselves that you know I didn’t come up with this, or this is not my idea.

And that sort of thing, some weird thinking like that and what I also found is that when I forced myself to copy things that I found to be smart it gave me a big edge, and so this was an example of a simple idea.

And what I found is that there were a very small sliver of humans who were master cloners and these small sliver of humans owned the world. They really really did very well.

You can watch the entire discussion here: