3 Wise Investing Quotes From Famous Value Investor Mohnish Pabrai

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Just think about how much you could learn from someone who came from nothing and now has a net worth of over $100 million.

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How much would you spend to get insight from a successful investor who started late in life, had all the odds stacked against him, yet still made it big?

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Would you do what he did – pay over $600,000 for just one lunch to learn from someone you feel has something to offer you?

Fortunately, you don’t have to cough up 6 figures to learn. You can read, think about, and apply the words of other people who have successfully done what you’d like to do.

Someone who has done exactly that is famous value investor Mohnish Pabrai.

Growing up in India, he experienced the lowest of poverty. At 30 years of age, he was exposed to investing and heard about Warren Buffett for the first time. His life has never been the same ever since.

Mohnish Pabrai has some excellent thoughts about investing that are worth any serious investor’s consideration. There is much wisdom in what he has to say.

Let’s look at three of his quotes, and explore the wisdom hidden underneath his words:

1. Investing Is a Business 

“Entrepreneurs are great at dealing with uncertainty and also very good at minimizing risks. That’s the classic great entrepreneur.” – Mohnish Pabrai

Too many people view investing as “something on the side” that they do occasionally. They don’t take it serious enough to get serious results.

When Mohnish Pabrai speaks here of entrepreneurs, notice he is speaking to the common dilemmas of investors – uncertainty and risks.

His words reveal that he doesn’t view investing as a side hobby. He views it as a business.

Anyone seriously looking to make a substantial income would do well to develop the mentality that this is a business. It is professional. It requires work, study, research, and patience – just like the development of any other business.

The father of value investing Benjamin Graham said it himself: “Investing is most successful when it’s most businesslike.

Take investing seriously and you will end up seeing some serious returns.

2. You Can’t Accurately Predict the Future

“Industries with rapid change are the enemy of the investor. Tech businesses, particularly biotech, is a problem from that point of view. All industries work with change, but you should ideally be investing in businesses with a low rate of change, not a high rate of change.” – Mohnish Pabrai

Value investing means buying a stock for less than its true intrinsic value.

A value investor determines a stock’s true intrinsic value by projecting out all the cash that the business will generate from now into the future, and then discounting that cash back to the present daySee: Value Investing 101: How to Calculate Intrinsic Value

So whenever you make an investment, you are also making a prediction about the future.

There are some people who believe they can accurately predict the future. These people build complex models and buy stocks based on the assumption that their prediction about the future will come true.

Then there are people who believe that the future is inherently unpredictable, no matter how good your current information is. These people do not make complex models. They buy stocks that are so undervalued, that any prediction about the future can be wildly off yet they will still make money off of their investment. These people, of course, are value investors.

As Ben Graham wrote in The Intelligent Investor“The more dependent the valuation becomes on anticipations of the future… the more vulnerable it becomes to possible miscalculation and serious error.”

This is why value investors only invest when they have a margin of safety. They may make a prediction about the future, but they know that they will probably be wrong. The margin of safety protects them even when they are wrong.

This is why Mohnish Pabrai said that “industries with rapid change are the enemy of the investor.” It makes it that much harder to predict that future and to calculate the intrinsic value of a stock. Therefore, if you invest in a tech stock, you will need a HUGE margin of safety. If you invest in a business that operates in a stable industry, you can invest with a smaller margin of safety.

3. Patience is Key

“You don’t make money when you buy stocks. And you don’t make money when you sell stocks. You make money by waiting.” – Mohnish Pabrai

Finally, Mohnish Pabrai tells us that investing is a waiting game. According to him, you don’t make money when you buy a stock and you don’t make money by selling it. You make money by investing in undervalued stocks, and then waiting for the stock’s price to converge with its true intrinsic value.

Pabrai is also saying here that you make money by waiting for the right investment to come your way.

Other famous value investors think the exact same way.

Warren Buffett, for example, often compares investing to baseball, where you’re given the luxury of waiting for the perfect pitch that you can then knock out of the ball park:

The stock market is a no-called-strike game. You don’t have to swing at everything – you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘swing, you bum!’” – Warren Buffett

What’s nice about investing is you don’t have to swing at pitches. You can watch pitches come in one inch above or one inch below your navel and you don’t have to swing. No umpire is going to call you out. You can wait for the pitch you want.” – Warren Buffett

Final Thoughts

When you investing, it is wise to approach it seriously. Treat it like a professional. Put on your entrepreneur hat because your investing is a business. Treat it like one and it will surely treat you well in return, literally.

Remember that you can’t accurately predict the future. Even “sure things” have probabilities of less than 100%. We see this happen time and again (for example, the 2016 U.S. Presidential Election…). Recognize this and invest with a margin of safety.

Finally, be patient. As Vanguard’s Jack Bogle likes to say, “Don’t do something! Just stand there!” Wait for the right investment to come your way, and then when it does wait for the market to realize the stock’s true intrinsic value.

For more information on value investing, Mohnish Pabrai, and other great value investors be sure to check out all of the awesome resources at VintageValueInvesting.com.


THE DHANDHO INVESTOR: THE LOW-RISK VALUE METHOD TO HIGH RETURNS

BY MOHNISH PABRAI

A comprehensive value investing framework for the individual investor. In a straightforward and accessible manner, Mohnish Pabraid lays out the powerful framework of value investing in The Dhandho Investor. Written with the intelligent individual investor in mind, this comprehensive guide distills the Dhandho capital allocation framework of the business savvy Patels from India and presents how they can be applied successfully to the stock market. The Dhandho method expands on the groundbreaking principles of value investing expounded by Benjamin Graham, Warren Buffett, and Charlie Munger.

THE LITTLE BOOK OF COMMON SENSE INVESTING: THE ONLY WAY TO GUARANTEE YOUR FAIR SHARE OF STOCK MARKET RETURNS

BY JOHN C. BOGLE

Investing is all about common sense. Owning a diversified portfolio of stocks and holding it for the long term is a winner’s game. Trying to beat the stock market is theoretically a zero-sum game (for every winner, there must be a loser), but after the substantial costs of investing are deducted, it becomes a loser’s game. John C. (“Jack”) Bogle is the founder of the Vanguard Group and creator of the world’s first index fund, and The Little Book of Common Sense Investing is a top recommendation of Warren Buffett’s. There’s actually a funny story that when Jack Bogle first met Warren Buffett, Jack recognized Warren, went up and introduced himself, and he said to Warren, “you know the thing I really like about you is you have rumpled suits just the same as I do” – and Jack and Warren have been good friends ever since.

Article by Vintage Value Investing

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Ben Graham, the father of value investing, wasn’t born in this century. Nor was he born in the last century. Benjamin Graham – born Benjamin Grossbaum – was born in London, England in 1894. He published the value investing bible Security Analysis in 1934, which was followed by the value investing New Testament The Intelligent Investor in 1949. Warren Buffett, the value investing messiah and Graham’s most famous and successful disciple, was born in 1930 and attended Graham’s classes at Columbia in 1950-51. And the not-so-prodigal son Charlie Munger even has Warren beat by six years – he was born in 1924. I’m not trying to give a history lesson here, but I find these dates very interesting. Value investing is an old strategy. It’s been around for a long time, long before the Capital Asset Pricing Model, long before the Black-Scholes Model, long before CLO’s, long before the founders of today’s hottest high-tech IPOs were even born. And yet people have very short term memories. Once a bull market gets some legs in it, the quest to get “the most money as quickly as possible” causes prices to get bid up. Human nature kicks in and dollar signs start appearing in people’s eyes. New methodologies are touted and fundamental principles are left in the rear view mirror. “Today is always the dawning of a new age. Things are different than they were yesterday. The world is changing and we must adapt.” Yes, all very true statements but the new and “fool-proof” methods and strategies and overleveraging and excess risk-taking only work when the economic environmental conditions allow them to work. Using the latest “fool-proof” investment strategy is like running around a thunderstorm with a lightning rod in your hand: if you’re unharmed after a while then it might seem like you’ve developed a method to avoid getting struck by lightning – but sooner or later you will get hit. And yet value investors are for the most part immune to the thunder and lightning. This isn’t at all to say that value investors never lose money, go bust, or suffer during recessions. However, by sticking to fundamentals and avoiding excessive risk-taking (i.e. dumb decisions), the collective value investor class seems to have much fewer examples of the spectacular crash-and-burn cases that often are found with investors’ who employ different strategies. As a result, value investors have historically outperformed other types of investors over the long term. And there is plenty of empirical evidence to back this up. Check this and this and this and this out. In fact, since 1926 value stocks have outperformed growth stocks by an average of four percentage points annually, according to the authoritative index compiled by finance professors Eugene Fama of the University of Chicago and Kenneth French of Dartmouth College. So, the value investing philosophy has endured for over 80 years and is the most consistently successful strategy that can be applied. And while hot stocks, over-leveraged portfolios, and the newest complicated financial strategies will come and go, making many wishful investors rich very quick and poor even quicker, value investing will quietly continue to help its adherents fatten their wallets. It will always endure and will always remain classically in fashion. In other words, value investing is vintage. Which explains half of this website’s name. As for the value part? The intention of this site is to explain, discuss, ask, learn, teach, and debate those topics and questions that I’ve always been most interested in, and hopefully that you’re most curious about, too. This includes: What is value investing? Value investing strategies Stock picks Company reviews Basic financial concepts Investor profiles Investment ideas Current events Economics Behavioral finance And, ultimately, ways to become a better investor I want to note the importance of the way I use value here. It’s not the simplistic definition of “low P/E” stocks that some financial services lazily use to classify investors, which the word “value” has recently morphed into meaning. To me, value investing equates to the term “Intelligent Investing,” as described by Ben Graham. Intelligent investing involves analyzing a company’s fundamentals and can be characterized by an intense focus on a stock’s price, it’s intrinsic value, and the very important ratio between the two. This is value investing as the term was originally meant to be used decades ago, and is the only way it should be used today. So without much further ado, it’s my very good honor to meet you and you may call me…