Mohnish Pabrai Says Look For Businesses With Very High Uncertainty

Here’s a recent interview with Mohnish Pabrai on the Steve Pomeranz Hour in which he discusses his value investing strategy and how he finds great opportunities.

Here’s an excerpt from that interview:

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Monish Pabrai Dhando

By Fabarsi (Own work) [CC BY-SA 3.0], via Wikimedia Commons

Mohnish Pabrai: The key trait of an investment that is likely to do well exhibits low risk coupled with high uncertainty. Because when you have high uncertainty, markets hate that and they will typically under-price companies with a lot of uncertainty.

A low uncertainty business is not going to be underpriced. What you want to look for is a business with very high uncertainty and there you can occasionally get extremist pricing and that's the time to step in. Like Charlie [Munger] did with Tennaco when the stock dropped to a dollar. I think he sold it for fifteen dollars but then it went to fifty dollars after that. So that's really what you want to do.

You can find the interview here. Part one starts around 9:30 minutes and part two starts around 40:00 minutes.

This article was originally published at The Acquirer's Multiple - Stock Screener.



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The Acquirer's Multiple
The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates. It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization. The Acquirer’s Multiple® is calculated as follows: Enterprise Value / Operating Earnings* It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of acquirersmultiple.com. The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up. Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC. He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law. Articles written for Seeking Alpha are provided by the team of analysts at acquirersmultiple.com, home of The Acquirer's Multiple Deep Value Stock Screener. All metrics use trailing twelve month or most recent quarter data. * The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”