Mohnish Pabrai – The Secret To Finding Your Next 100-Bagger

GrafTech International Mohnish Pabrai Indian-American businessman, investor, and philanthropist famous hedge fund investors, value investors, chai with pabrai, heads i win tails i don't lose, pabrai funds, Mosaic: Perspectives on Investing, clone investing, The Education of a Value Investor, The Dhandho Investor: The Low - Risk Value Method to High Returns, Zinc, Horsehead holdings

100-Baggers are the holy grail of investing. These are stocks that return $100 for every $1 invested and they’re extremely rare. However, the secret to capturing your next 100-Bagger can be found in a presentation that Mohnish Pabrai did with the folks at Google earlier this year. The answer came when Pabrai was asked a unrelated question regarding whether he shorts stocks.

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Here’s an except from that presentation:

I have never shorted a stock in my life. I will go to my grave without ever having shorted a stock. I would suggest you follow that same mental model. If the only thing you learn over here is to give up shorting, if you are a shorter, then I think that would be an hour well spent.

So it’s a great question, So each of us I think has a limited quota of 100-Baggers that will show up in a portfolio. I think I have had more than my quota of 100-Baggers that I was smart enough to buy but too dumb to hold. And there’s a long list. I used to own [Inaudible] Bank in ’94. I don’t know, it was 150 times. I probably got like 30% return after 5 years. Sold it. Blue Dart. There’s two 100-Baggers I did capture.

I owned Amazon in 2002 I think at $10 a share. I think it was 10 percent of our portfolio then and I got 40% in a few months and I was out. So what I have learned is that don’t sell the compounders when they get fully priced and don’t sell the compounders when they get overpriced. Only sell the compounders when it’s absolutely obvious to you that it’s egregiously priced.

The big money is in riding the compounders but you have to try to get in on them at a reasonable valuation and you have to be right on the fact that they are compounders. It’s a forgiving business, you can be wrong quite a few times and still be ok. I was able to at a point in time get to where Google was just at the edge of making it so we’ve made it, which is great, and that’s the key. You want to ride the compounders for long periods.

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About the Author

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.”

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