Mohnish Pabrai is an Indian value investor who copied, or cloned, Warren Buffett and Charlie Munger. He worked at a 9–5 while building an IT company on the side, and then quit his job when he was able to pursue the IT company full time due to the amount of income it was making. During his exit interview, his manager thought it was strange that initially Mohnish had put in a lot of effort for his work, but as the years progressed, he put in less and less, not enough to get fired, but very mediocre effort. He had also used his vacation days for client meetings during that time. Now, he runs Pabrai Funds and only allows high net worth individuals to invest, and requires a large investment over a very long timeframe. He also founded with then wife the philanthropic foundation Dakshana, which focuses on talented impoverished students in India. He has also written multiple books, including the Dhandho investor and Mosaic: perspectives on investing.
-having a strong inner scorecard is what leads to a better life and greater trust from others
-focus on the 2–3 variables most important for that company. If you can think like the CEO and agree with the CEO vision, then that’s a win.
-1982–99 bull market. 2000–2015 flat. 2016-onwards may be another huge bull run for growth companies in particular rather than buy undervalued then sell
-spawners are not obvious to find and take longer proof from the CEO and company to show up. It’s easier to buy non-spawners
-find peers who are knowledgeable and will give honest opinions on your ideas
-as is your wish, so is your will. As is your will, so is your desire. As is your desire, so is your deed. Your deepest desire is your destiny.
-find spawners; companies that can expand into related or non-related fields with huge runways. Apex spawners; lose money like Amazon to zero income and reinvest that to other fields. Need good operating cashflow and revenue growth, as well as recurring revenue to find those. Companies rarely exceed 50 billion; 10 baggers and 100 baggers are small market caps. Even better is to find these companies when they are private, but the range of outcomes is then much more diverse.
-actually look at and spend your time wisely
-increase what you like that fits your inner traits and decrease what you don’t like. This will lead to a satisfying happier life
-it’s important to be excited about life, to be willing to believe the future is better, not worse
-Buy and hold not always the right strategy, especially during peaks and volatile times; and when the companies growth story changes. Or sell when super overvalued
-present times don’t last in life; that’s basic confidence in life
-we have tendencies and free will too to revert free will
-have a rope in life to help you out of the well in tough times
-cloning
Arjuna and the center of the fish story; singular focus on the business and not other things
-3 F’s; friends, families, and fools. Keep the relationship with friends and family so risky to do business with them
-check someone’s track record to see what they are like and the skill level
-read psychology of misjudgment
-most CEOs are bad at capital allocation. They buy overpriced acquisitions and buybacks
-most people are a waste of time
-a few hours to a few months to make an investment decision
-find other things to do besides investing
-everyone needs a rope to get out of a deep well
-Stock markets despise uncertainty; consider investing during times of uncertainty and fear. Adopt a stance of courage when others exhibit fear and caution when others show greed
-you need feedback loops in life
-think long term
-take a direct path to achieve your goals, don’t dance around or take meaningless indirect shortcuts
-quality of competence, not circle
-people’s principles don’t change after youth
-Japan and Asian countries don’t care about shareholders
-there is a bull and a bear market everywhere, focus on individual stocks
-17 years is the length of human memory
-8000 to 3600 public companies in the US, and the number of analysts has skyrocketed
-lots of fraud in developing countries, so Mohnish insists on meeting the management. If he can’t meet them, he prefers to avoid them
-most companies always remain small companies. They must have something unusual about them compared to the average company in the industry to succeed
-if a company has personnel issues, no interest at all
-Japanese JIT is contingent on everything going right, otherwise problems occur
-making auto parts; low margins, squeezed by unions and by the buying car company. Businesses fail every year and that is one of them
-best time to invest is when no one else understands the company
-investing is about finding great mispricing, but great businesses of course at best a fair valuation
-look for hidden moats, companies that are mid priced with few analysts (under 5) rather than 30 analysts
-motherson sumi; buys a car related production plant (the big carmakers pay them 100m to buy the key plant producing mirrors let’s say). Vivek Seghal (founder with his mom) goes in and fires the top old guys, then hires from that plant, no more than 35, to become the new leaders and makes some other key procedure changes. They don’t move the plant to be loyal to the people there. They lose 10m while taking in 100m from say BMW. High ROE, 6.6 billion market cap
-payments face disruption
-there is a difference between a good investment and a good company; the price paid vs value
-everyone knows what the great businesses are so the price tends to be high
-one can do stock market investing as a part time basis after the first few years; indeed, it is often a negative to look at stock market investing full-time
-re-reads Poor Charlie’s Almanack every year
-for stock pickers it’s better to have more passive investors for more mispricing
-running successfully or trying to run a business between 11–21 helps for investing; that age is when we are meant to specialize, NOT generalize
-usually companies with low P/E are low for a reason and should not be touched
-don’t look at macro, trying to time the market, hedge or short
-you don’t become rich by having one-night stands in stocks
-I am not into giving out stock tips to anyone for current investments (Mohnish Pabrai)
-3 factors: compound rate, starting capital, time
-mutual funds are like one-night stands; too much turnover
-Ten Commandments of investing: do not skim off the top (on gross fees), do not have an investing team, can be wrong a healthy amount of the time, look for hidden value amongst depressed valuation, never use excel (it should be obvious without needing to calculate, use occasionally), always have a rope to climb out of the deepest well (distorted realities sometimes are beneficial), thou shall be singularly focused (ignore macro noise), never short, Polonius from hamlet; neither a lender or borrower thy be (Buffett rephrase; neither a short term borrower or long term lender thy be), thou shall be a shameless cloner
-anyone can start a business
-life is a journey, and the journey is the destination
-better to start with a blank slate than a dirty slate; hire those with no preconceived notions over those with incorrect notions
-do not randomly quit and try to live off savings and chase money. Do so only if comfortable to do so
-humans are driven by peers. Knowing stories of famous people is not enough, must have good relationships
400 trillion total worldwide wealth, about 100 trillion in the US
-India poorly run; Vietnam getting all the Chinese business that moved
-capitalism leads to unbalanced wealth creation; haves and have nots
-doesn’t make sense to buy homes to rent out, expecting appreciation. Ok to buy the home you live in
-Indian government has bad management; do not count on the government
-every week 1600 businesses go out of business in the US (100k per year). More created per year prior to COVID. Now less created than ever. Longer term recovery. Maybe 5–10 years, due to the serious and permanent damage to small business.
-inner mapping of a person vs outer mapping (conducting life). Most people through life have this structure misaligned. Find out what your inner map is and make your outer map (your life) the same as it to have the best life possible. It is hardwired at 5 and if not then, definitely by age of majority. Mohnish does not thrive with the social interaction of his prior IT company but instead does better with little social interactions and not dealing with people. Thus, I need to do this as well.
-the best businesses have no capex needs, but you can do very very well in high capex
-look at owner’s earnings; cash that can go back to shareholders after capital expenditures
-be a student of the businesses in general, not just with intent of investing. Reading and deciphering will naturally lead to higher skill
-don’t overdose on graham; Fisher’s teachings are very good too, even better, per Pabrai
-any significant follower of Buffett and Munger are likely to be good people
-look at the track record in addition to future projections
-culture eats strategy for breakfast. Some good cultures like to put someone in their 30s as leaders
-compounders in long runways have brutal competition so there is greater risk there
-be dispassionate about your positions and ready to sell and open to new ideas. So do not get caught up in tunnel vision
-don’t beat yourself up on mistakes
-few businesses survive past 30 years
-you must have a passion for investing to succeed at it
-pony up and pay up for quality businesses with long run ways and don’t sell and don’t cheap out
-large inheritances are bad for children
-every business has a finite price. Microsoft in 2000 had a P/FCF of 60, 600 billion market cap then
-have activities in life to take away craving for being hyperactive in stock market to do well as an investor
-hard to be a good investor if hyperactive
-ability to take pain, and to be decisive when opportunities present themselves
-Munger and Buffett made one significant move every 3–5 years in the stock market
-after 50 years, Munger invested in Tennaco after 25,000 share suggestions declined
-we are trying to find reasons not to buy, rather than to buy
-the accounts that perform the best contain no activity; in fact, even where the users forgot about the account. And required the least effort too!
-there is more unintelligence in the stock market than any other transactional markets for assets
-likes buying SPACS under $10 by reputable managers. I will do this now for short term deals too.
-to clone, look at where someone has put most of their money and not the small picks
-mostly it’s good to stay away from the high fliers unless you get in early
-every 40 years or so there is a huge bubble. 1920s was car manufacturers, 1960s was tronics bubbles, and 2000s was internet bubble. So 2036–2042 could be the pop of the next great bubble. Prepare sales by then for the next bubble to sell at the top. Bubbles happen all the time though. Nifty fifties in the 70s, 2 years to drop in 1974. McDonald’s P/E of 86
-just because you are in a rising industry with tailwinds, doesn’t mean you have a good business. Still need to look first at the business as most businesses die out over time
-set your life up to give yourself a lot of time to read, to succeed as an investor
-association tendency; want to be known with greatness
-low cap ex
-scalability; increase market share in sales while maintaining profit margins. Tech companies meet this criteria
3 traits: patient, decisive, contrarian
-Berkshire replicates coke buy from sees candy; branding (emotional appeal), pricing power (raise prices above inflation with no impact on reduced sales). Coke had more recurring revenue than sees candy (can drink more than eat peanut brittle) and doesn’t need a retail space to sell, easy to scale (planet can distribute and retail to build brand), coke is capital light, huge runway for growth TAM, avoid anchoring bias
-in this world few people trust anyone. If you are known as trustworthy, which may take 5–20 years, it will make the rewards all the more meaningful and exponential
-truth over diplomacy; the world runs on trust not legal contracts
-patience is key
-investing is a business, it’s a serious commitment, not a side hustle
-bubbles are constantly forming and popping regardless of the economic cycle
-investing in bubbles companies only works if you get in early; expensive valuations typically lead to trouble
-almost all the time bubbles occur
-huge bubbles occur once every 40 years, next one could be in 2040
-you just need to be really right once like Mark Cuban and you’ll still do well
-investing in the car industry in the last 100 years, despite the trend, was a disaster
-watch for reciprocation, marching tendency.
-live life by your inner scorecard, not others outer scorecard.
-build your advantage a little by little. Over time it expands into something meaningful
-the customer will tell you how the product or service should change
-present business cards as not the top person to avoid attack and are able to disguise the company and yourself. Global in name
-never sell something you wouldn’t buy yourself
-our subconscious flows to our conscious; some peoples are more clogged than others. The less clogged, the better to read people, such as emotions or lies. It’s clearer if you yourself can read others (interested in others), or tell the truth and can tell if someone is lying. We have attractor fields. Liars and car salesmen attractors are low and you always want to get away from them, an uncomfortable feeling when you are around them. People who have higher character like Jesus you are attracted to as they tell the truth and you want to be around those types
-the stronger the sales, the weaker the marketing can be
-Mohnish is not looking for superior information; he is looking for superior analysis of common information
-5 traits of a multibagger:
1st; Strong tailwinds, deep moats, long runway for growth (not a saturated industry yet), high returns on capital, don’t need debt, an idiot can run these companies.
2nd business same as first but can’t be run by idiots.
-3; low risk, high uncertainty situations
-100 baggers are companies that people haven’t heard of typically
4th; special situations
5th — upside without downside; playing the bubble. Buy companies that get warrants for free or options in deals as those can be worth a lot
-multi-tasking is negative. Don’t do three things at once, that society is addicted to.
-don’t put stuff on calendar; have a free day if you will. He doesn’t have an agenda but goes and reads
-do not sell multibaggers if fair value or overvalued. Only if they are extraordinarily overvalued. Even then, unless you are cashing out for a comfortable retirement, the best decision then is still to do nothing
-stock market is an auction driven market; users are primarily emotion based
-Buffett bought Dairy Queen with a checklist and one hour research time when it was private
-Ronald Reagan; just say no quickly. Only spend time on stuff worth your time, otherwise it takes a while to go away from
-Moody’s manual — of all public companies
-watch for confirmation bias. Find the opposite argument and counter it
-Pabrai doesn’t read a heavy amount; 52 a year
-no hesitation to abandon books
-family, friends, and fools
-13–19 when you should specialize, not generalize or after that age. Start introducing it to kids when they are young
-like father like son
-the best companies are growing companies with a smaller discount, with hidden moats, not obvious moats that the market or majority of people would recognize. Finding hidden value
-he recommends to read essays of Warren Buffett by Larry Cunningham
Disclaimer
This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.