Mohnish Pabrai's Interview with Knowledge Inside podcast on August 19, 2026 - Episode 1

Chai with Pabrai

Mohnish Pabrai joins the Knowledge Inside podcast to distill three decades of value investing into foundational principles like spending less than you earn and strictly avoiding

Key takeaways

• Pabrai recommends retail investors start by buying Berkshire Hathaway Class B shares before attempting individual stock selection.
• He identifies SK Hynix, Samsung, and Micron as the essential 'pickaxe makers' for the AI boom, benefiting from an oligopolistic market and take-or-pay contracts.

Main topics

• Foundational investing principles & spending habits
• AI semiconductor memory market dynamics

Notable quotes

"Spend less than you earn! If you spend less than you earn, you don't need to know much about investing."

Conclusion

Pabrai's core takeaway is that disciplined capital allocation, avoiding leverage, and patiently

Transcript preview

Speaker 1 (0:20) Today, Speaker 3 (0:25) I'm sitting down with Monish Pabrai. For the past 30 years, he's built his career around one simple idea. Don't reinvent what already works. He started with 1 million. Today, he manages 1.4 billion dollars. So what have these three decades taught him? I traveled to Texas to find out. Monish, welcome back to the show. So the last time you were on the show, you mentioned that you enjoy eating sundubu jjigae and Korean audiences responded so enthusiastically to that comment and some even said that they would personally treat you to a bowl if you visited Korea. So any plans? Speaker 2 (1:07) I used to go to Korea quite a bit for business, and I have many good friends there. And I'm hoping I can visit soon because I love the place, love the food. And also, you know, I used to live in California. Yeah. Speaker 3 (1:19) And Speaker 2 (1:20) we have Koreatown. In fact, Charlie Munger lived right next to Koreatown. Speaker 3 (1:24) I see. And Speaker 2 (1:24) he loved it. He said, I love the fact that I'm surrounded by Koreans. When he moved there, there were no Koreans. He moved in the 60s. Speaker 3 (1:33) In the LA area. In the Speaker 2 (1:34) LA area and Bangkok Park neighborhood. And then the Koreans came in the 70s, 80s, 90s, and it became Koreatown. There's a lady who came from Korea. She was actually the mistress of the guy she came with. And he started a number of businesses that all failed. And she said, let me try. Let me try do a business of my own. So she started. BCD Tofu House. Speaker 3 (2:03) That's legendary now. Speaker 2 (2:05) Yes, and there's one in New York. Speaker 3 (2:06) There's one in New York. So she Speaker 2 (2:07) started that. Speaker 3 (2:08) Right. Speaker 2 (2:09) And it took off. Of Speaker 3 (2:10) course. Speaker 2 (2:11) Very recently, she passed away. You know, she got, I think, unfortunately, ovarian cancer. She passed away relatively young. And recently, a friend of mine, I was having dinner with him in L.A. maybe two, three years ago, and he brought a friend who was her son. Speaker 3 (2:28) Oh, wow. To Speaker 2 (2:30) the dinner. And the son's a doctor, but he became the CEO of BCD and the medicine was put on the side. And he probably thought I'm a stalker because I kept telling him how much I love BCD and all this stuff. I was asking him about his mom, about whether she was a good cook and all of that. He said, no, she could tell her taste buds were really good. And so she could tell what was kind of right on, right off. So I think BCD worked really well. And that was my introduction to Korean food. Speaker 3 (3:03) And Speaker 2 (3:04) then I went from there. So Speaker 3 (3:05) you have visited Korea. Oh, Speaker 2 (3:07) yeah, many times. Yeah, yeah, yeah. What Speaker 3 (3:09) was your impression of the country? Speaker 2 (3:11) Korea is a very advanced civilization. probably one of the most advanced civilizations in Speaker 3 (3:17) the world. I Speaker 2 (3:18) mean, you know, the history is very unfortunate, North and South being divided, and then also economic situation in Korea wasn't that great in the 50s and 60s. But then, you know, the rapid rise after that. You know, the funny thing is that Japan basically came in to help Korea develop. And what ended up happening is the student became better than the teacher. and the students surpassed the teacher. So on a number of fronts, like if you look at POSCO, POSCO originally got its start from Nippon Steel. Nippon Steel was the one which helped them. But POSCO surpassed Nippon Steel. It became more advanced. And the same with Hyundai and so many other, you know, Samsung and all of that. So every time I go to Korea, I feel when I come back, I've come back to... like a step down, you know, because everything is so well done and so efficient. Like, you know, even if you go to fine dining in Seoul, you pay at the counter, Speaker 3 (4:24) right? Speaker 2 (4:25) It's just efficient. You know what I'm saying? It's efficient. Speaker 3 (4:28) I Speaker 2 (4:29) like that, you know, because when we're done, we're done. We just want to go. It's been great. Yeah, it's wonderful. So Speaker 3 (4:33) we're here in Austin. It's our first time. I'm having a great time here, but I want to start with this. After our conversation, if I take everything that you say to heart and act on it, what will change about the way that I invest? Speaker 2 (4:48) I would say that even before we get to... Speaker 2 (4:54) changing how you invest is to change how you spend. So before we change how to invest, we should change how to spend. And the very simple change on how to spend is spend less than you earn. Speaker 3 (5:08) Now, Speaker 2 (5:08) Koreans are, they don't need lessons on that. You know, they're great savers. But in general, most of the battle is on the saving side. You have to spend less than you earn. If you spend less than you earn, you don't need to know much about investing. You can put it into an index fund. And over a lifetime, because of the asymmetry of compounding, even with relatively small amounts, you're going to become very wealthy. So it's kind of like very small changes done very early in life have huge impacts long term without really having to give up anything. So it's really about spending less than you earn. And then the second part, you don't even need to spend a lot of time figuring out investing and all that. Put it on autopilot. Speaker 3 (5:57) Yeah. With semiconductors and the global AI boom on everyone's minds, Korea has become a major focus for investors. Now, you've watched the markets for the past 30 years. Is what's happening now, does that remind you of something that you've seen in the past? And especially given the volatility of the Korean stock market? Should I, as a retail investor, think of it as an opportunity or a risk? Speaker 2 (6:23) I would just say this, that I'm a computer engineer by training. I used to design hardware. And a few years back, I used to own Micron. And when I visited Korea a few years back, I met with SK Hynix. Speaker 3 (6:40) And I Speaker 2 (6:41) met with Samsung. specifically the memory groups in both these companies. And I met with them several times. So I actually understand all three businesses quite well. It's not the same as what we saw in 2000 with the dot-com bubble and so on. If you are in a gold rush, you want to own the pickaxe maker. Or if you look at the gold rush that took place in California in the 1850s, you want to make Levi's jeans. So Levi's jeans was born in San Francisco during the gold rush. And denim was a really durable fabric for working in. So in effect, Levi's got its start because of the gold rush, because all the gold miners, they bought the jeans. And today when we have the AI boom, The pickaxe makers are the memory guys. SK Hynix and Samsung and Micron are the three companies that basically own the market. It's very difficult for a fourth player to come in. So they're locked in almost like an oligopoly between these three companies. And if you look at the three companies' cash flows, they're not trading at crazy valuations. The question is, how sustainable? are those cash flows. If you put a gun to my head, I would say more likely than not, those cash flows might persist for some time. And also what these three companies are doing is they are taking advantage of the situation and offering their customers long-term contracts at set prices. But those long-term contracts are take or pay, which means that Apple would commit to buying memory of a certain volume over a certain period of time. If they did not buy that, they still have to pay them. What companies like Micron and SK Hynix and Samsung is doing is they are locking in revenues for the next several years. regardless of what happens to the AI boom, they've locked in their revenue and profitability. I would say that for the individual investor, the best thing is not to play in this area. Because the first thing to ask yourself is, is this company within my circle of competence? You know, the memory business and the AI business and all that, there's a lot of fine nuances to it. Personally, I think that the Korean situation is unusual right now because the KOSPI is dominated by... these businesses. The two companies, basically. Speaker 3 (9:17) Yeah. So Speaker 2 (9:18) in effect, you're not really getting an index. You're basically buying SK Hynix and Samsung. So in my opinion, Korean investors should buy a different index. And the different index that they should buy, because even the S &P 500 has problems, the different index they should buy is Berkshire Hathaway. Okay. Speaker 3 (9:37) So Speaker 2 (9:38) Berkshire Hathaway is a combination of many businesses and they also own some stocks and they have a lot of cash and it's not overvalued. It's a large company and Koreans can buy it easily. Berkshire Hathaway Class B shares, BRKB, should be treated like an index, like the KOSPI. Speaker 3 (9:59) If Speaker 2 (10:00) I were Korean... That's what I would do. I would spend less than I earn, Speaker 3 (10:04) and Speaker 2 (10:05) then I would put the difference into Berkshire Hathaway Class B. Speaker 3 (10:08) Okay. So when you were on the show before, you'd mentioned that you sold your SK Hynix shares against your own principles. And it seems like you still think that SK Hynix and Samsung are attractive stocks. Is that correct? Speaker 2 (10:21) Yeah. Actually, I used to own the biggest position on Micron. They're very similar. I would say that even though Micron is not Korean, in my opinion, it would be the best out of the three bets. Their governance is very good and it's a well-run company. Samsung, you get a lot of other pieces with it. You know what I'm saying? It's not a pure play. I think between SK Hynix and Micron, I prefer Micron. I don't regret the sale of Micron. I owned it from 2017 to 2023. And in 2023, all three of these companies were having a very difficult time. In fact, they all lost money. They were bleeding cash, the opposite of today's situation. And what had happened in 2023 was Samsung decided they wanted more market share. So they became more aggressive and dropped their prices. So the other two companies had to follow suit and nobody was making money. At that time, there was no AI on the horizon. So I looked at the situation and I said, OK, one of my underlying assumptions was that three players would act rationally. they would not try to do what Samsung was doing, which is try to take more market share because that would make things worse for everyone. So when I saw that, I said, okay, the game is different. And we decided we got to move on. And so I think that even today, if I were to go back and make that decision, I would make the same decision. Now, we don't have hindsight is 2020. Speaker 3 (11:50) We Speaker 2 (11:50) didn't have the benefit of knowing that it's going to go wild and crazy. the way it's gone right now. This was a very outlier event that took place. But I think the memory business has some legs. Speaker 3 (12:02) I Speaker 2 (12:02) think AI has some legs. We don't know who the winners will be. No matter who the winner is, they need memory. The pickaxe. The pickaxe. They need the pickaxe. They can't do without it. And it's very difficult because of all the patents and trademarks and everything else that fourth player is very difficult to come in. So Speaker 3 (12:18) aside from the memory pickaxe players, is there another Korean company that you're genuinely interested in right now or that you think would be attractive to an American investor as well? Speaker 2 (12:30) I haven't spent a lot of time recently looking at the Korean businesses. I think there are lots of very... very good Korean companies. Historically, they were cheap, but also at the same time, they were not very shareholder friendly. So the cheapness would persist for a long time. I am a global investor. So I look at things around the globe. And currently, there are other markets in other areas that appear more attractive. And that's just the nature of it. I mean, I think that it's going to be unlikely that... if I'm looking at markets around the world, that I'm going to find that Korea is the best all the time. Speaker 3 (13:08) I Speaker 2 (13:08) think it was the case when we were looking at the memory situation that it looked great. But I think also Korea has some headwinds which are somewhat problematic. In fact, these headwinds are even worse than Japan. So the big headwind is the low birth rate. Birth rate, the amount it dropped really surprised me. I Speaker 3 (13:29) think Japan Speaker 2 (13:30) is now losing. about 700,000 people a year. The population is going down by almost a million people a year. Korea is also going down now. And 0.7 or 0.7? 0.7, Speaker 3 (13:43) yeah. 0.7 is very Speaker 2 (13:45) low. So my big message to Korean young people is you need to get married earlier. You need to have lots of kids because the advanced civilization. is not going to stay advanced. You know, Japan is an interesting case because it happened before in Japan than when it's happening in Korea or China. It's happened to many other countries. Japan was somewhat able to circumvent some of this by being an export powerhouse. And Korea has gone down that same path. So, for example, when I look at Hyundai Motors, for example, It's cheaper for them to manufacture in Alabama than it is to manufacture in South Korea. And part of the reason is that the labor availability in Alabama is easier than South Korea because Speaker 3 (14:37) the Speaker 2 (14:37) population is going down. Speaker 3 (14:38) So Speaker 2 (14:39) I think that it's a very bothersome situation with. this much decline because the country is going to age very fast and they have to find an answer relatively quickly. So Speaker 3 (14:50) I want to switch gears to the S &P 500. I know you mentioned that it's also got its own problems, but you can't deny the fact that it's had an extraordinary run. After more than 30 years of investing, how do you view the U.S. stock market right now? Is it a good time to invest? What are your thoughts? Speaker 2 (15:08) So one of the things to remember about index investing is that even though index investing is very good, when we go back and look at the long history of the S &P, the S &P on average over 100 years, for example, has averaged more than 9 % a year. That's an excellent result. Speaker 3 (15:28) Very good. But Speaker 2 (15:28) if you look at some periods from, let's say, 1965 to 1982, 17-year period, it was zero. So the S &P was at the exact same level between 1965 and 1982. Even though the U.S. economy grew a lot, profits grew a lot. The reason was that in 1965, the market was very overheated. And by 1982, it was very undervalued. Speaker 3 (16:00) So Speaker 2 (16:01) it was not a good time to invest in the index. in the late 60s and it was an incredible time to invest in the index in the early 80s and then from 82 to 99 was a spectacular run i mean i think the s p went up 15 x in that 17 year period so it was zero from 65 to 82 and then 82 to 99 it went up like 15 times which is a lot and then from 99 till about 2010 is again zero. So we repeatedly see this pattern and you can go back all the way to the 1920s, 1910s, you will find 10, 20, even 30 year periods where it's flat. And then you find 10, 15, 20 year periods which are spectacular. So we are at a point now in 2026 that it would not surprise me, say, over the next 10 years, the S &P is between minus 2 % a year and plus 2 % a year on average. So the next 10 years, the best guess I have looking at just the levels and where it's been in the past is that it's probably not a good place to be. And that is why