Top 10 Most Inspirational Person in India
Learn about some of the most inspiring personalities of India by examining the article provided below.
23 Mar, 2021
8 min read
9409 Views
Following Buffet’s value investment philosophy, he successfully invested in the stock market. His long-only equity portfolio earned a return of 517 percent against 43 percent of S&P 500 since the inception in 2000. However, compared to Warren Buffet, Mohnish is a late bloomer. He hadn’t heard of Buffet until he was 30. but when he did, he started following Buffet’s investment principles to become a successful investor himself.
Pabrai grew up in Mumbai. He went to the USA to study computer engineering. After graduating, he started working in the research and development department at Tellabs.
Pabris embarked on his entrepreneurial journey in 1991, established a successful IT consulting and systems integration company, TransTech, Inc. He sold his company in 1999 and started Pabrai Investment Fund in the same year. In the beginning, the fund had USD 1 million as an asset under management (AUM) which reached USD 570 million in 20219. The fund outperformed S&P 500 by 1103 percent till 2013 by heavily investing in India and other developing nations since Pabrai feels there aren’t many mispriced or under-valued stocks in the US market.
As an investor, Pabrai is a follower of Warren Buffet’s theory of value investing. He once even spent USD 650,000 to have lunch with Buffet.
Understanding ‘low risk, high uncertainty’ investing
In a book that he wrote called Dandho Investor, he explained that a combination of low risk, high uncertainty is unusual since the two parameters move in the opposite directions. High risk means higher chances of loss, while uncertainly refers to a wide range of possible outcomes. When the market is confused between Risk and Uncertainty, he pointed out those moments as profit opportunities.
Pabrai suggested that investors need to think like entrepreneurs who search for low-risk business opportunities with high return.
Invest in well-established businesses with a slow rate of change
According to him, investing in well-established businesses with a well-defined business model ensures long term return. These businesses are less risky than startups, but they can earn a decent profit even with a slight change in their business strategy. He quoted, “look for mundane products that everyone needs. Following this requirement alone eliminates 99 perrcent of possible investment alternatives.”
Pabrai prepared a checklist with seven questions, which will tell investors the merit of an investment, which are as follows.
Asking the above questions will help investors get clarity on investment judgement. These fundamental questions establish the foundation of value investing, which Pabrai proposes.
Pabrai famously quoted, ‘heads I win, tails I don’t lose much.’ The quote summarises his philosophy as an investor. It means picking up less risky stocks, but, on the upside, it also has a wide possibility of profit. Pabrai emphasised that investors of value investment must focus on the following parameters.
Pabrai suggests investors follow the footsteps of another successful investor rather than innovating a strategy. He emphasises being patient to let the market work. As an investor, he picks up stocks with low P/E ratio and high yields, typically unfavourable stocks. When he identifies such stocks, he stacks the odds of success by creating a wide margin of safety and then bet big.
Pabrai has written several books on value investing. The most popular one is Dhando Investor, where he described his value investing formulas. He also shares his investment ideas on his website Chai with Pabrai. Like many other value investors, he too is inspired by the investment philosophies of Warren Buffet and follows his footsteps in selecting businesses with strong fundamentals for investing. He looks for cheap stocks with strong business and financials and runs those through his Dhando framework.
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