Mohnish Pabrai Shares Insights from His Time with Charlie Munger
Did you know that Charlie Munger reads over 500 books a year? This insatiable hunger for knowledge is a key reason behind the success of one of the greatest investors of our time.
In this interview, Mohnish Pabrai distills lessons learned from Charlie Munger and Warren Buffett, offering actionable strategies for retail investors and professionals alike.
The Reading Habits of Charlie Munger
Mohnish Pabrai paints a vivid picture of Charlie Munger’s voracious reading routine. “Charlie is like an assembly line devouring books,” Pabrai explains, estimating that Munger skims through more than 500 volumes each year. Rather than read every line, Munger focuses on extracting key insights—he skips rambling prose to zero in on the essential “nuggets” he needs.
In one anecdote, Pabrai would visit on a Saturday evening to find Munger toggling between a climate change text and a biography of FDR’s chief of staff. This eclectic mix demonstrates how Munger leverages diverse subjects—from environmental science to history—to broaden his mental toolkit. By absorbing ideas across disciplines, he builds a latticework of models that can be applied to investing challenges. This approach underscores a central theme in Pabrai’s philosophy: the more you read, the sharper your edge in the markets.
“Charlie is like an assembly line devouring books. He’s reading more than 500 books a year, skimming for the critical insights he needs.”
— Mohnish Pabrai
The Importance of Knowledge in Investing
Pabrai insists that investing is fundamentally a “game of knowledge.” For retail investors looking to emulate this approach, annual reports serve as primary reading material. Rather than methodically reading every page of an 80- or 150-page report, he suggests jumping to sections that spark questions: revenue breakdowns, cash flow statements, or management discussions. This targeted skimming yields the precise information needed to assess a company’s moat and management incentives.
By reading widely—business news, regulatory filings, industry journals—and by skimming efficiently, investors can build a robust mental database. Pabrai argues that each snippet of information adds a piece to the puzzle, enabling better decisions and quicker red flags when something doesn’t add up.
The Divergence of Munger and Buffett’s Investment Approaches
Although Warren Buffett and Charlie Munger share foundational principles, Pabrai highlights how they diverged on certain opportunities—Costco being a prime example. While Buffett initially viewed Costco’s low margins as a sign of unacceptable valuation, Munger recognized that the company was intentionally sacrificing per-unit profitability to foster customer loyalty and drive long-term scale.
Munger was willing to pay “a fair bit of good price” for exceptional businesses, even if it meant stretching beyond classic Graham-and-Dodd net-net metrics. Buffett, steeped in traditional value tactics, took longer to embrace the notion that quality can merit a premium. This philosophical split illustrates the importance of adapting your valuation framework when assessing world-class companies.
The Need for Circuit Breakers in Investment Decisions
How do you guard against emotional mistakes? Pabrai emphasizes the necessity of “circuit breakers”: predefined mechanisms that halt impulsive decisions driven by greed or fear. These can include checklists, peer reviews, or mandatory cooling-off periods before executing a trade.
“You need circuit breakers to prevent emotional mistakes,” says Pabrai, explaining that unchecked enthusiasm often leads to overconfidence. By instituting practices like documenting assumptions in a journal or debating ideas with a contrarian friend, investors can create guardrails that keep them rational, even when markets become frenzied.
“You need circuit breakers to prevent emotional missteps. Discuss ideas with a trusted advisor or run through a written checklist to temper greed.”
— Mohnish Pabrai
Embracing the High Error Rate of Investing
One of the most liberating truths Pabrai shares is that even top investors are wrong half the time. He recalls John Templeton’s advice to Prem Watsa: “If you’re wrong 50% of the time, you’ll still end up with a tremendous track record.” Unlike surgeons—where a 3% error rate is catastrophic—investing tolerates high error rates so long as mistakes are contained and winners are allowed to compound.
Pabrai recounts how he and his partner Lilu collaborated on wins like Micron, receiving Munger’s “blessing,” but also endured losses on bets like Alibaba and an insurance venture. He stresses that humility and rapid course correction are critical when bets go awry. Recognizing and exiting mistakes promptly prevents small missteps from becoming portfolio-destroying errors.
Applying Munger and Pabrai’s Principles Today
To put these lessons into practice:
- Allocate dedicated time each week for “latticework” reading across multiple fields—economics, psychology, biology, etc.
- Develop a concise investment checklist covering business model clarity, management integrity, margin-of-safety and long-term competitive advantages.
- Schedule monthly idea reviews with a mentor or peer to introduce external skepticism and test your thesis.
- Track your performance openly, logging both wins and losses to identify patterns in your decision-making.
By institutionalizing these habits, you align your process with the wisdom of Pabrai and Munger, reducing emotional bias while maximizing your “knowledge edge” in investing.
Conclusion
Takeaway: Embrace Mohnish Pabrai’s and Charlie Munger’s core principles—read widely and efficiently, treat investing as a knowledge game, use circuit breakers to manage emotion, and accept that mistakes are part of the process.
Have you integrated any of these strategies into your own investing routine? What insights from Mohnish, Pabrai, or Charlie Munger have most influenced your portfolio decisions?