Mohnish Pabrai is a value investor who has created a massive wealth following Warran Buffett and Benjamin Graham’s investing style. Mohnish possesses the mindset to be a successful entrepreneur and investor with a particular philosophy for success that we will discuss in this post.
Mohnish Pabrai is an Indian-American businessman who built massive wealth using a proven stock market investing strategy that revolves around the Warran buffet investing style, which buys distressed businesses trading under huge discount to its intrinsic value where the risk seems minimal compared to the potential high return.
To understand Mohnish’s success philosophy, we need to take a look at his past to unravel how an IT consultant entrepreneur turned value investor:
Mohnish Pabrai’s success story
In his early days, Mohnish started his entrepreneurial journey by founding an IT consulting service company called TransTech. Computers were a niche market back in 1991 that enabled him to take virtually no risks financially and build the business to success. He sold his IT consulting in 1999 and started his investment fund in the same year with $1 Million of assets under management which turned into $10 million in less than five years.
His interest in Warran Buffet investing prompt him to educate himself and even be friends with Warren Buffett. His cloning of those principles made him successful by proving that you do not have to be an innovator to be successful; just stick to what works.
What makes Mohnish Pabrai successful?
Learning about Mohnish, reading his book and watching his videos, I started to notice a few things that are pretty obvious about his approach to investing. I am sure that there are many other success attributes. However, the following four characteristics are the most prominent about Mohnish Parbrai:
1- It is okay to clon others success if it works for you
It is okay to clon others’ success; just be honest about it. If others in your industry are doing something that seems quite convenient and can be done by you, why not clone it. You do not have to be super creative; do not fix it if it is not broken.
Mohnish teaches us that it is best to look for a slow change industry that you can understand the business to a reasonable extent and make conservative productions about its future. People will respect you more if you admit that your ideas are cloned from someone else’s success, and Mohnish is a great example of that.
2- Make infrequent big bets
Investing in a few businesses that you understand well and buy under a huge discount to their intrinsic value can work wonders for you if you invest heavily in them. Making big bets and infrequent bets are key to Mohnish Pabrai’s success.
The individual investor circle of competence is small enough that it can not take on many bets or investments. This means that deviating from what you understand can get you to trouble, and having a large portfolio of investments might not be the best move, especially if you do not have the time to keep track of all of them.
That is why Mohnish focuses on a few businesses that he can understand and invest heavily in them when the discount window to intrinsic value opens. The investor should spend most of the time on learning and education before making an investment decision. Look for any issue in business or management that can discourage you from making that bet.
3- Look for low-risk high reward opportunities
Monish makes the analogy in this book, the Dhandho Investor, that wall street can confuse high risk with a high reward which is not quite true. There are low-risk, high return investments that you can usually find in distressed industries or businesses experiencing short-term market turbulence and high discount to the intrinsic value that just makes it super attractive while the risk is virtually non-existing.
Therefore, there are low-risk high rewards opportunities; just be patient and keep looking and educating yourself in the process to find the right opportunity. Mohnish’s entire investing strategy is based on this idea which happens to many businesses due to the short market volatility that he buys heavily when the opportunity presents itself.
4- Think long term
Mohnish is a long term value investor. Investing short term will not do good as it is mostly speculation. The stock can shoot up or down in a few minutes, but real business change can take months, if not years. Companies that have good fundamentals tend to do well in the long term.
Even if the investor was wrong in his analysis, he should not go out of the stock as soon as possible but give a chance to the stock to show its true value. Mohnish’s exit strategy is to stay in the stock for at least 2 – 3 years to give the stock the best chances to give its real value. If the stock is still down after two or three years, the investor should think of getting out of the stock quickly to avoid further losses and has banished all dought about a stock.
The Bottom Line
Monish is a successful value investor who has tailored most of his success after Warran Buffett. If you want to learn more about Mohnish’s success philosophy, you should read his book, the Dhandho investor book.
