Mohnish Pabrai: Warren Buffett’s Insight: Judging People in 5 Minutes

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The Acquirer's Multiple
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In this presentation with students at the JNV Kottayam, Mohnish Pabrai shares Warren Buffett’s insights on how he judges people. Despite perception, Buffett doesn’t quickly assess if someone is good or bad. He explained that in a party with 100 guests, he can only identify about eight individuals in five minutes – four good and four bad.

He treats the remaining 92 as bad due to time constraints. Using a formula where unknown equals bad, he invites the known good ones into his inner circle, excluding the rest.

Buffett acknowledges this as unfair, as some excluded could be good, but he resorts to a mathematical approach for efficiency. Here’s an excerpt from the presentation:

So one time when I was talking to Warren Buffett. Have you guys heard of Warren Buffett? Okay, good.

So I told him Mr Buffett, how come you are such a good judge of humans?

You seem to be able to interact with some humans and you are able to figure out in very short time that someone is really good or not so good, or bad, or whatever.

Were you always able to do that? I asked him this question.

So he said, Mohnish you are mistaken. I am not good at being able to quickly tell if a person is good or bad. I’m not able to do that.

He said if I’m in a party, some dinner party, and there are 100 guests at the party, and you gave me 5 minutes to meet each of the 100 people. He said, what I would be able to tell you is that maybe three or four people are really good in the 5 minutes I can probably tell there some people who are really good. I can probably tell also in 5 minutes that maybe three or four people are not so good.

So out of 100 people maybe eight people I can figure out, he said, whether they are good or bad.

But the other 92 after spending 5 minutes I have no idea. So he said what I do is I treat the 92 the same as the bad people.

So we have four that are good, four that are bad, 92 is unknown.

We apply a mathematical formula – unknown is equal to bad okay. So he says that the four people who I know are good I invite them into my inner circle and the other 96 get excluded.

Now he also said this is very unfair because some of… many of those 92 people who have been excluded could be really good but it’s really mathematical.

You can watch the entire presentation here:

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Tobias Carlisle is the founder of The Acquirer’s Multiple®. He is also the founder of Acquirers Funds®. The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates.