“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
Mohnish Pabrai: Background & bio
Born on June 12 1964 in Mumbai, India, Mohnish Pabrai moved to the U.S. in 1983 to attend South Carolina’s Clemson University. He worked for Tellabs between 1986–91, first in its high speed data networking group, and then in 1989, joined its international subsidiary, working in international marketing and sales.
In 1991 Mohnish Pabrai started his IT consulting and systems integration company, TransTech, Inc. with about US$30,000 from his own 401K account and US$70,000 from credit card debt. He sold the company in 2000 for US$20 million. In 1999 Mohnish Pabrai founded the Pabrai Investment Funds, which he still runs today.
Mohnish Pabrai’s long-only equity fund has returned a cumulative 517% net to investors vs. 43% for the S&P 500 Index since inception in 2000. That’s outperformance of 1103%.
Mohnish Pabrai looks at a stock not as a piece of paper but as the ownership of a business. He has no interest in a company that looks ten percent undervalued. He is angling to make five times his money in a few years. If he doesn’t think the opportunity is blindingly obvious, he passes.
Mohnish Pabrai believes that once the opportunity is found, the money is made not in the buying or selling but in the waiting. He says that if he can find a couple of investment ideas a year, that’s plenty. His current preference is to keep a cash store of between 10%-20%. Similar to the strategy of fellow value investor, Seth Klarman, Mohnish Pabrai likes to keep cash on hand in order to take advantage of a distressed situation when he can deploy this trove at the valuation he wants. Since Mohnish Pabrai is targeting big returns his fund is usually highly concentrated with around ten holdings. The companies selected are usually deeply distressed.
Buying and waiting is only half of Mohnish Pabrai’s strategy. Key to his whole method is the examination of every trade that doesn’t work, and trying to figure out what went wrong. Mohnish Pabrai does not gloss over mistakes. Investing is a field where you can have a high error rate so you must learn from mistakes so they are no repeated. Mohnish Pabrai spends a large amount of time analyzing investments where he lost money for his partners, or talking about investments that didn’t fare as well as expected.
Mohnish Pabrai uses a checklist of what not to do in the markets. He built this studying the public record of the investors he admired and deconstructing the mistakes they made. Mohnish Pabrai ended up with more than hundred checkboxes on his investment checklist. The checklist items are grouped into categories. One group relates to leverage. A second group relates to the durability of the business’s “moat” — how hard is it for new businesses or competitors to duplicate their product or service. A third group looks at the quality of the company’s management. There is also a fourth set of miscellaneous items, such as unions and labor relations, or is it’s current success due to temporary factors? Pabrai can can tick most of the boxes in twenty minutes.
Mohnish Pabrai’s primary source of investment ideas is the 13F SEC filings from other value managers he admires.
Mohnish Pabrai: Philanthropy
Growing up in New Delhi and Mumbai, Pabrai was surrounded by both extreme poverty and wealth. Unable to find an organization that met his value-investor’s need for efficiency and ROI, he decided to simply start his own; The Dakshana Foundation.
The idea behind Dakshana was to find some of India’s most brilliant and poorest kids and prepare them for the rigorous entrance examination for the Indian Institutes of Technology. The IITs are a group of the nation’s most prestigious engineering and technology universities. Its graduates are virtually guaranteed employment and success.
Pabrai actually estimates his ROI per student. The foundation spends $3,000 on a scholar, enabling the student to raise their annual income from $14,000 per year to over $70,000 per year in six years. Over a lifetime the ROI is somewhere in the region of 1,667 times return.
“Mistakes are the best teachers. One does not learn from success. It is desirable to learn vicariously from other people’s failures, but it gets much more firmly seared in when they are your own.”
“Entrepreneurs are great at dealing with uncertainty and also very good at minimizing risk. That’s the classic great entrepreneur.”
“It’s easier to learn the lessons when you don’t take the hits in your own portfolio. But when you take the hits in your own portfolio, those lessons stay with you for a long time.”
If there wasn’t a Warren Buffett, there wouldn’t be a Pabrai Funds… It is hard for me to overstate the influence Warren Buffett and Charlie Munger have had on my thinking… I can never repay my debt to them for selflessly sharing priceless wisdom over the decades.” “Margin of Safety – Always!”
“Buffett’s rule number one and rule number two are worth keeping front and center at all times. [Rule number 1: Don’t lose money. Rule number 2: don’t forget rule number one.]”
“I have never made a phone call to any management of any of the companies I am an investor in. The way I see it, if they need my help, there is a problem.”
“There is no such thing as a value trap. There are investing mistakes.”
“We have all been taught that earning high rates of return requires taking on greater risks… If an investor can make virtually risk-free bets with outsized rewards, and keep making the bets over and over, the results are stunning.”
“We begin by eliminating all businesses that are either not simple businesses or fall squarely outside our circle of competence.”
Mohnish Pabrai: Books
Mohnish Pabrai: Articles
- @Google Talks On Too Much Stock Research [Transcript]
- Pabrai On The Mistake Of Selling Ferrari
- How Pabrai And Charlie Munger Use A Checklist
- Interview With Value Investor Mohnish Pabrai
- How Pabrai Crushed The Market By 1100% Since 2000
- Pabrai’s Million-Dollar Advice For A 12-Year-Old
- Buffett Disciple Mohnish Pabrai on Bank of America
- Mohnish Pabrai Puts a Third of Portfolio in Fiat, Buys Google
- Demystifying Stock Market Investing
- Pabrai: Think Differently to Achieve Different Results
- Pabrai: Behavioral Finance And Business Valuation
- Mohnish Pabrai Presentation on Compounding, MDI Gurgaon Lecture
- The Best Investors In The World Are Dead People
- Five Good Questions: Mohnish Pabrai & Guy Spier – The Education of a Value Investor [Part 1]
- Five Good Questions: Mohnish Pabrai & Guy Spier – The Dhandho Investor [Part 2]
- Pabrai Explains His “Circle of Confidence”
- Pabrai “aware of the intrinsic value of all investments made”
- Presentation to Carroll School of Mgmt
- Pabrai – Boston College Oct 9, 2014 Presentation
- Fund Manager Mohnish Pabrai Seeks Value Home Runs
- How Ideas I Stole From Warren Buffett And Others Helped
- Turning Slumdogs Into Millionaires: One Hedge Fund Manager’s Quest
Mohnish Pabrai: Videos
- Pabrai – The Ben Graham Centre for Value Investing
- “Dhandho. Heads I win; Tails I don’t lose
- Pabrai – Columbia Compounding Presentation
- An Evening with Mohnish Pabrai, TieCon February 26, 2014
- Pabrai: Spring 2010 Lecture – Columbia University
- UCD Value Investing -Mohnish Pabrai & Guy Spier
- Pabrai Interview On Forbes
- A Buffett Disciple Shares His Secrets (Morningstar)
- Pabrai Lecture