The Dhandho Investor By Mohnish Pabrai Pdf Free
- Daniel Wahl reviews The Dhandho Investor: The Low-Risk Value Method to High Returns, by Mohnish Pabrai.
- The Dhandho Investor. By Mohnish Pabrai. Publication date 2007-04-06. Publisher Wiley. Collection printdisabled. Internet Archive Books.
Mohnish Pabrai is a 50 something Indian-American entrepreneur and investor. Pabrai set up an investing partnership modeled after the partnership Warren Buffett.
I can honestly say that I have been looking forward to reading this book for months. Ever since I watched Mohnish Pabrai's Google Talk on Youtube, really. As I've mentioned before, I am a voracious reader. At the moment, we are relaxing with family for a week in the Midwest, before continuing on our extended road trip. This downtime has given me plenty of time to read, and a different library system from which to choose my selections. In this case, I was thrilled to see that the local library had The Dhandho Investor available for loan.
In this book, the author brings an engineer's clarity in sharing his low-risk value investing methodology. The premise of Dhandho investing is, as the author repeats time and time again, 'heads I win... tails I don't loose much'. Let me rewind for a second. The author tells us, 'Dhandho is a Gujarati word... from the Sanskrit root word... that means endeavors that create wealth'. He goes further to say that the common street translation is simply 'business'. So the reader immediately recognizes that this methodology is the Indian/Pakistani/Bangladeshi mindset for conducting business and investing.
The central premise of this book is that high business/investing returns are not inseparable from high-risk opportunities... as we have all heard from mainstream academics. Intuitively, this makes sense to me. I am not a staunch believer in the Efficient Market Theory, instead believing that global equity markets are generally inefficient. It is at those times of inefficiency that I have tried to make my largest investments. The author tries to do the same and has a fantastic record of investment returns to show for it. He is quick to tell you that he didn't invent this investment methodology. In fact, he readily admits that he is a ready cloner (or imitator) who has succeeded by imitating other successful investors. Namely, Warren Buffett. Yep, while his investment methodology is very similar to the one Warren Buffett employed in his early partnership, the structure of the author's partnership is virtually identical to that of Warren Buffett's early partnership. If you're going to imitate someone, you might as well go for one of the best investors of modern times.
In a single sentence, this business/investing methodology encourages the practitioner to recognize a given venture's potential upside and downside, but only go ahead with the venture when the potential downside is limited and the potential upside is significant. As the author puts it, 'heads I win, tails I don't lose much.' The thought process goes that if you only invest (or risk capital on a business) when the odds are slanted in your favor, you are far more likely to succeed over time. This concept makes sense to me intuitively and is how my wife and I try to invest.
Make no mistake, the author's investment methodology is different from how Buffett and Munger currently operate at Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B). While Warren Buffett has repeatedly said his 'ideal holding period is forever', the author ideally holds an investment for 1 to 3 years. Additionally, the author's partnership fund typically holds just a few investments, while Warren Buffett controls an enormous stable of companies through the Berkshire Hathaway conglomerate. I think the simplest way to explain this divergence, despite the author's admiration and imitation of Warren Buffett, is the relative amount of capital they each employ. When Warren Buffett ran a partnership fund, of just a few million dollars, he invested very much like Mohnish Pabrai does today. Now that he is responsible for investing the tens of billions of dollars Berkshire Hathaway controls, he needed to alter his investment methodology. The author, I, and (presumably) you do not have such a limitation.
In the book, the author provides a thought provoking discussion about many of the most successful investors and entrepreneurs of our time. Everyone from the stereotypical Indian immigrants (in the hotel industry), to Richard Branson and Bill Gates is discussed. In all of these cases, new enterprises were low overhead activities funded with little capital and lots of sweat equity. If the businesses took off, the owner could scale them and reinvest the profits. If the businesses floundered, the founders weren't much worse off for trying. The author also discusses his own technology service company, which he founded in the early 1990s. He started it in his free time and didn't quit his day job until he had reached certain revenue goals. He did, however, fund part of his venture with credit card debt, which I wouldn't recommend, but the book doesn't dwell on that topic.
My business partner and I are currently starting a new business, and I thought it was interesting to look at our venture through the author's Dhandho lens. I think it's funny that our new business fits the Dhandho model to a 'T'. The venture employs low overhead, no debt, and lots of sweat equity. After reading this book, I am even more confident that we are on the right path.
Pabrai Investment Funds
One aspect of the book I was not expecting, but greatly appreciate, was the amount of time the author spent discussing how he finds his investment ideas and his suggestions for how the reader could do the same. When an author goes this route, they are often selling their own newsletter service or some such. That has been my experience anyway. Instead, this author had several suggestions for utilizing free services (either at the library or online). I greatly appreciate the suggestions, because while I have utilized a couple of the suggested services for years, there were several others of which I was unaware. Knowledge and ideas are power, and the author of this book doesn't hold back his thoughts.
He also spent a while discussing Kelly's Probability, which is a 'back of the envelope' type of probability calculation. The Kelly method can be used to ballpark the maximum amount of capital that should be invested in a given venture, based on the probability of the various outcomes. As with all calculations, garbage in begets garbage out, but this method can be useful when selecting the amount of capital an investor wants to put at risk on a particular venture.
After reading it, I will certainly be adding The Dhandho Investor to my business/financial library soon. The author did an outstanding job of weaving business/investing theory with common sense and the stories of some of the most successful modern investors (and business leaders). The information was laid out in a simple fashion that almost any reader could readily digest. Additionally, the author was not shy about discussing his investment methodology and the resources he utilizes (for free) to collect and research those ideas. This book is a win/win all the way around.
Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.