The Art of Heads I Win, Tails I Don’t Lose Much Investing: The Dhandho Investor
I just finished The Dhandho Investor for the second time, and doubt it will be my last. A quick and inspiring read that will have anyone believing value investing is the only true way to amass significant wealth in the market over the long run. At 18.8% a year since 1999, the author has the track record to prove it.
I have had the pleasure of spending time with Mohnish on two occasions, first in Omaha this year and the most recent being his annual shareholders meeting in Huntington Beach, CA. First off, no I am not a Pabrai Funds shareholder, but as one of the many demonstrations of Mohnish’s appreciation for people and helping them in their quests for success, he extended me an invitation. As a value fund manager, relatively new to the professional space, attending the meeting was an incredible experience.
Since I first began reading about Mohnish a few years ago, I have been in awe, first due to his intense love for life and the people around him, and second for his incredible achievements as a businessman and value investor. In the investment space he is one of my most admired mentors. He has taken an approach that has been proven more successful than any other over the long term and knocked it out of the park. This approach is focused long-term value investing inspired by the likes of Warren Buffett and Ben Graham.
You’d think mimicking this approach would be a common occurrence. Especially given that we know how powerful modeling someone more successful than you has proven in the past. But for one reason or another, few have really followed in Buffett’s shoes. My guess is it has a great deal to do with the lack of excitement and activity that goes with his strategy. When it comes down to it, most would prefer the excitement of gambling than to conservatively investing in great businesses over the long term.
Not the case for Mohnish. He wrote The Dhandho Investor to describe it how he’s experienced it. The beauty of the book is that he writes in a way that is simple and understanding enough for any everyday person to digest, which makes this a great place for even the newest investor to start learning.
Throughout the book Pabrai does a superb job of using examples from his India culture to subtly get the basic points across to us. The main thesis is finding investments that put the investor in a scenario where, as related to a coin toss, “Heads I win. Tales I don’t lose much”. The constant reference to this point through his various examples from life and the famous businesses of our day, hammers home the novel idea that there is a way to get satisfactory returns in the market without having to put yourself at high risk.
Traditional investment has always taught that if you want a higher rate of return, you have to settle for a higher level of risk. Mohnish shows us that with value investing, that is not the case. Warren Buffett has proven this for decades as he invests with the number one rule of “don’t lose money”. Sounds pretty ridiculous and most people tend to just dismiss it. But the truth is that you can do your homework and find businesses that have a ‘durable’ competitive advantage, have proven themselves through years of profitable business and have strong assets and the future ability to make great money. And it is when these great businesses are selling at a low and attractive price, that this low-risk/high-return scenario becomes available.
These characteristics bundled up all in one business are not necessarily easy to find, but they are out there and the patient investors like Pabrai are out there to find them. The average person, or even a savvy investor would be blown away at some of these low risk opportunities that present themselves from time to time, especially in wild markets like today’s. It is very possible to find a great company with a stock price significantly below the sale value of its assets alone. Just recently I came across a retail business that owned real estate worth 2-3 times the value of its stock. Now that is a margin of safety. Worst-case scenario, the company could sell the real estate and double or triple its value.
Chapter by chapter, Mohnish goes through the characteristics of his investment style and how it has worked so well for him over the past nine years. Keep in mind the guy has averaged 18.8% a year since 1999 when the markets have returned close to 1%! He even spends time showing the reader where to find these businesses, what resources to use and the simple calculations used to value them. He does everything short of giving you his latest investment picks. But after this book you find those on your own.
Second to incredibly valuable investment knowledge, this book screams generosity and gratitude both to those who have taught him and to those whom he is now teaching. Pabrai knows that life is not just about making great money but more importantly about spending the time with those he loves and giving back the knowledge that was so graciously given to him by the investment greats who have put him where he is today.
Humility is a strong and rarely appropriate word. It also happens to be a core ingredient to lasting success and fulfillment. We can all learn a great deal from Mohnish. Read a copy of Dhandho to become a great investor and leave with a great feeling of how to become a better person.
Dhandho gives you the tools needed to find great businesses and beat the market, now it’s on you to put it to use. I certainly know I have.
-Reading for Your Success