"Heads I win, Tails I don't lose much." Intrigued by this beautiful quote which reveals an excellent style to invest?
Then meet Mohnish Pabrai, an Indian American born entrepreneur, successful value investor, author, philanthropist, and a die-hard fan of the legendary investment guru Warren Buffet. At the age of 30, when he heard of Warren Buffet, he started following his principles, and in a short span of time, he earned tremendous fortune which he continues to invest in the poorest of India.
About Mohnish Pabrai
Mohnish Pabrai grew up in Mumbai, India and later came to the United States to study computer engineering. After graduating, Pabrai worked in research and development (R&D) at Tellabs before launching his own successful IT consulting firm, TransTech, Inc., in 1991
Using the investment principles he learned from Warren Buffet, in the year 1999, he founded the Pabrai Investment Funds. Listing out his achievements, his long-only equity fund has returned a cumulative 517% net for investors versus 43% for the S&P 500 Index since the fund's inception in 2000. Outperforming the S&P 500 by 1103% from its inception through 2013, making him one of the most successful value investors in the world.
What are his Investment Fundas?
Get acquainted with “low risk, high uncertainty” investing.
In his book The Dandho Investor, Pabrai says that a combination of low risk and high uncertainty is unusual since the risk is the potential for capital loss while uncertainty refers to a wide range of potential outcomes. According to him, when the market gets confused between Risk and Uncertainty that is precisely the time to make profits. He compares this strategy to the life of an entrepreneur, who does not according to the general perception takes high risks and in turn makes higher profits. Instead, entrepreneurs focus on low-risk bets, which have high return possibilities.
Focus on buying an existing and well-understood business with an ultra-slow rate of change.
He advises investors to keep it simple. According to him, an existing business with a well-defined business model and a long history of operations is less risky than compared to a startup. Buying businesses with a meager rate of change earn a decent profit and further lessen the chances of losing money. Quoting Warren Buffet, he said, "look for mundane products that everyone needs. Following this requirement alone eliminates 99% of possible investment alternatives."
Focus on the Checklist
Create a checklist comprising of these 7 questions
As per the latest corporate shareholdings filed, Mohnish Pabrai publicly holds 6 stocks with a net worth of over Rs 1976.4 crore. His life story reveals that it is never too late to step out of your comfort zone and that investing is all about a concrete and straightforward approach. You can read more about his investment style in his books "The Dhandho Investor" and "Mosaic-Perspectives on Investing."
To know more about such iconic Value Investors and how they created wealth, click here.