Warren Buffett
Warren Buffett has made roughly 300 investment decisions over 58 years at Berkshire Hathaway. Twelve of them mattered. The other 288 were, by his own accounting, noise. That is a 4% hit rate, or about one good idea every five years.
Most people hear that statistic and think it reflects modesty. It does not. It reflects math. And on My First Million, where guests and hosts routinely dissect the mechanics of wealth-building, Buffett functions less as a biography to admire than as a reference architecture to steal from. He is not discussed the way magazines discuss him, as the folksy grandfather of Omaha. He is discussed the way engineers discuss load-bearing walls: as the thing holding everything else up.
The Racetrack Ticket Method
Before Buffett was a billionaire, he was a teenager walking through racetracks picking up discarded tickets. Other people threw them away. Buffett examined each one, found the occasional winner that a careless bettor had missed, and handed them to his Aunt Alice to collect the winnings.
Mohnish Pabrai tells this story on the podcast not as a cute childhood anecdote but as an origin parable for an entire investing philosophy. The discarded tickets are the point. Everyone at the racetrack had access to the same information. Most people assumed a ticket on the ground was worthless. Buffett checked.
The adult version of this was the Moody’s Manual. Buffett read it page by page, the entire thing, looking for anomalies — companies whose numbers did not make sense. In the Moody’s Manual, the Value Line of that day, he found Western Insurance trading at 25 in earnings per share and $80 in book value. A company selling for less than a single year’s earnings, backed by assets worth five times the stock price. That is not a sophisticated trade. It is a discarded racetrack ticket that nobody bothered to pick up.
The method has not changed in seventy years. What changed is the scale.
Simplicity as the Highest Intelligence
There is a hierarchy of intelligence that Buffett and Charlie Munger reference often, and that Pabrai relayed on the show: Einstein supposedly described four levels — smart, intelligent, genius, simple. The highest level is simplicity.
This is not a throwaway aphorism. It has operational consequences.
Buffett would not be caught dead using Excel. That detail alone, shared during Pabrai’s deep-dive episode, eliminates roughly 99% of how Wall Street thinks about investing. If you need a spreadsheet to justify a thesis, you do not understand the thesis well enough. The best ideas, when you finally figure them out, are ones you can explain to a 10-year-old in four or five sentences.
The corollary is the “too hard” pile — a physical box Buffett keeps on his desk where ideas go to die. Most opportunities belong there. The discipline is not in analysis. The discipline is in rejection. Saying no to 96% of what crosses your desk is not laziness. It is the mechanism that preserves attention for the 4% that moves the needle.
Shaan Puri and Sam Parr circle back to this principle across dozens of episodes, even when they are not talking about Buffett explicitly. Every time a guest describes a business idea that requires a 40-slide deck to explain, the unstated comparison hangs in the air: Buffett would have put this in the too-hard pile before the second slide.
Risk Versus Uncertainty
Wall Street pays a premium for certainty. Companies with predictable earnings trade at high multiples. Companies surrounded by fog get, as Pabrai put it on the show, “taken out back and shot.”
But here is the distinction Buffett draws that most investors miss: uncertainty is not the same thing as risk.
Risk is the probability of permanent capital loss. Uncertainty is just not knowing the precise outcome. A company trading below its liquidation value in an industry everyone has written off carries high uncertainty — nobody can tell you what happens next quarter. But it carries low risk — even in a worst-case scenario, the hard assets backstop the price.
The best investments combine low risk with high uncertainty. That combination is where the market misprices most aggressively, because institutional investors cannot tolerate ambiguity even when their own models show the downside is protected. Their quarterly reporting requirements punish them for owning anything that looks messy, regardless of whether the mess is dangerous or merely confusing.
Pabrai distills this into a formula he attributes directly to Buffett’s influence: heads I win, tails I do not lose much. It sounds like a platitude until you realize that finding situations where it applies requires reading the equivalent of a Moody’s Manual cover to cover. The asymmetry is available to anyone. The patience to find it is not.
Second-Order Thinking: And Then What?
The most important question Buffett asks, according to Pabrai, is three words: and then what?
This is second-order thinking compressed into its purest form. First-order thinking asks what happens. Second-order thinking asks what happens as a consequence of what happens.
Pabrai illustrates the gap with his own investment in Frontline, a shipping company. He bought it when shipping rates had collapsed. The stock was cheap. He made 80%. Good outcome by any normal standard.
But here is the 80x outcome he missed. Shipping rates collapsed, which meant shipbuilding stopped. No one was ordering new vessels. But global demand for shipping did not disappear — it was just temporarily suppressed. When demand returned, the existing fleet would be the only supply available. New ships take three to four years to build. During that lag, existing vessels would become enormously profitable. The 80% came from recognizing the company was cheap. The 80x would have come from asking: and then what?
The concept shows up repeatedly on My First Million in contexts that have nothing to do with shipping or investing. When Sam and Shaan evaluate a business idea, the implicit question is always whether the founder has thought past the first move. A clever product launch is first-order thinking. Understanding what happens to customer acquisition costs after competitors copy your positioning — that is the Buffett question.
The Ovarian Lottery
John Morgan, the billionaire trial lawyer, invoked Buffett during his episode to make a point about gratitude that doubles as a point about strategy. Buffett calls it winning the ovarian lottery — the idea that being born in America, in this era, with functioning faculties, already places you in the top fraction of a percent of all humans who have ever lived.
The concept is not sentimental. It is calibrational. If you have already won the lottery of birth, the rational response is not anxiety about maximizing every edge. It is patience. You are playing from a position of such overwhelming structural advantage that the primary risk is not missing an opportunity — it is doing something stupid that squanders the position you were handed for free.
This framing recurs across MFM episodes in a different vocabulary. Shaan has talked about the importance of not blowing up, of staying in the game long enough to let compounding work. Sam has talked about asymmetric downside — the idea that the worst business decision is the one that takes you out of the game entirely. Both are restating Buffett’s ovarian lottery insight without naming it.
The Rick Guerin Cautionary Tale
Buffett had a third partner, alongside Charlie Munger, named Rick Guerin. Guerin was every bit as intelligent as the other two. He may have been smarter. But he was in a hurry.
Guerin used leverage. When the 1973-74 crash came, he got margin called. He had to sell his Berkshire Hathaway shares to Buffett at 700,000.
Pabrai recounts this story from his $650,000 lunch with Buffett, and it carries a lesson that cuts against the entire culture of hustle and urgency that pervades the entrepreneurial world. Guerin did not lack intelligence. He did not lack access. He did not lack connections — he was literally partners with Warren Buffett and Charlie Munger. He lacked patience. And impatience, when combined with leverage, is a permanent kind of failure.
The lesson Buffett drew and shared with Pabrai: if you are even a slightly above-average investor, spend less than you earn, and use no leverage, you cannot help but get rich over a lifetime. The problem is that “over a lifetime” contains decades of boredom, and most people find boredom intolerable enough to do something that feels productive but is actually destructive.
Buffett as Operating System
What makes Buffett unusual in the MFM universe is that he is not merely cited. He is used as infrastructure.
Brent Beshore, who built Permanent Equity into a portfolio of operating companies worth hundreds of millions, described chatting with Buffett about Sanborn Maps and Dempster Mill — early Buffett acquisitions that most people have never heard of. Beshore was not asking about Berkshire. He was asking about the version of Buffett who bought individual small businesses and fixed them, the pre-conglomerate Buffett who operated more like a modern acquisition entrepreneur than a passive investor.
This is the version of Buffett that resonates most on MFM. Not the oracle dispensing wisdom from the annual meeting stage. The operator who read Moody’s Manuals by flashlight, picked up discarded racetrack tickets, and made one good decision every five years while spending the rest of his time reading and waiting.
Pabrai formalized this into what he calls the Plan B framework. Plan B, the default, is to dollar-cost average into Berkshire Hathaway Class B shares and treat it as your index fund. Even at 10% annually for 49 years, that compounds to a 128x return. Plan A is the upgrade: run a mental Geiger counter over everything you encounter, and when something hits you like a 2x4 — numbers that make no sense, a situation everyone misunderstands — peel off 10-15% of your Berkshire position, make the bet, and return to Plan B when it plays out.
The elegance is that Plan A is optional. Most years, even Pabrai does not find anything worth switching for. The discipline of doing nothing, of sitting in Berkshire and reading, is the system. The occasional brilliant trade is just what happens when you have been paying attention long enough.
Reading as Competitive Advantage
Charlie Munger, Buffett’s partner of six decades, read Barron’s every week for 15 years and got one idea from it. One.
That ratio — 780 issues for a single actionable insight — captures something fundamental about how Buffett and Munger think about information consumption. They are not reading to stay current. They are not reading to have opinions at cocktail parties. They are reading to build a latent pattern library so large that anomalies become obvious when they finally appear.
This maps directly to the MFM ethos of intellectual compounding. Sam Parr has described his voracious reading habits as a form of deal flow — every article, every biography, every financial filing is another ticket checked at the racetrack. Most are losers. The discipline is checking them anyway.
The Buffett approach to reading also resolves a tension that surfaces frequently on the podcast: how much research is enough before making a decision? Buffett’s answer is paradoxical. You should spend decades reading everything. And then you should make your actual decisions in about five minutes. The decades of reading are not analysis. They are calibration. By the time the 2x4 shows up, you should not need to think about whether to swing.
Die with Zero (Almost)
Buffett’s philosophy on inheritance, filtered through Pabrai on the show: give children enough money to do anything they want, but not enough to do nothing.
Large inheritances function like an IV drip, numbing the recipient into passivity. Pabrai has taken this further than Buffett himself, calculating his own death date — June 11, 2054 — and planning to have exactly $10,000 left the day before. The rest will have compounded through the Dakshana Foundation, which prepares impoverished Indian students for university entrance exams at a 70% admission rate versus a 1.3% national average.
This is Buffett’s influence operating at a layer deeper than investment strategy. It is an answer to the question that haunts every wealth-builder eventually: what is the money for? Buffett’s answer — and the answer Pabrai extends — is that capital is a tool for compounding impact, not a score to be maximized. The $650,000 lunch taught Pabrai investment principles. But the deeper lesson was about what to do after the investments work.
Sources
- [[asking-a-billionaire-investor|Asking a Billionaire Investor How to Turn 1M ft. Mohnish Pabrai]] — Primary source for Buffett’s 4% hit rate, racetrack ticket story, Einstein intelligence hierarchy, risk vs. uncertainty, Rick Guerin cautionary tale, Plan A/Plan B framework, second-order thinking, Dakshana Foundation
- I Made $50M Buying & Running Boring Businesses ft. Brent Beshore — Beshore’s conversation with Buffett about Sanborn Maps and Dempster Mill
- Billionaire Lawyer Spills His Secrets ft. John Morgan — Ovarian lottery concept, structural advantage of being born in America
See also: Charlie Munger | Mohnish Pabrai | Berkshire Hathaway | Value Investing | Acquisition Entrepreneurship | Second-Order Thinking | Risk vs. Uncertainty | High Agency