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The Dhandho Investor: The Low-Risk Value Method to High Returns
A comprehensive value investing framework for the individual investor In a straightforward and accessible manner, The Dhandho Investor lays out the powerful framework of value investing. Written with the intelligent individual investor in mind, this comprehensive guide distills the Dhandho capital allocation framework of the business savvy Patels from India and presents how they can be applied successfully to the stock market. The Dhandho method expands on the groundbreaking principles of value investing expounded by Benjamin Graham, Warren Buffett, and Charlie Munger. Readers will be introduced to important value investing concepts such as "Heads, I win! Tails, I don't lose that much!," "Few Bets, Big Bets, Infrequent Bets," Abhimanyu's dilemma, and a detailed treatise on using the Kelly Formula to invest in undervalued stocks. Using a light, entertaining style, Pabrai lays out the Dhandho framework in an easy-to-use format. Any investor who adopts the framework is bound to improve on results and soundly beat the markets and most professionals.
183 pages, Hardcover
First published January 1, 2007
About the author
Mohnish Pabrai
4 books225 followersMohnish Pabrai is an Indian-American businessman, investor and philanthropist. In his Pabrai Investment Fund, which is a family of hedge funds inspired by Buffett Partnerships, he successfully manages over 500 million of assets and consistently achieves above-average rates of return.
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Displaying 1 - 30 of 558 reviews
October 4, 2018
This is a good book on investing fundas in the equity markets from a very well known name in the American capital markets. I had first come across the author's name when he became famous in 2007 for buying dinner with Warren Buffett along with his partner at Buffett's annual charity auction. Enamoured more about this event than by the author, I had written an amateur piece on value investing on my blog (value investing). So when I came across this book written by Mohnish Pabrai, I just couldn't resist myself.
The author is a self-confessed fan of Warren Buffett and Charlie Munger and needless to say there are few innovative original ideas in the book. But the whole idea of value investing was propounded by Benjamin Graham in his book "The Intelligent Investor" which is considered to be the bible of every value investor and popularised by Buffett. The author has lifted examples, quotes and anecdotes from Buffett's life. In fact, his fund Pabrai Funds itself is structured similar to Berkshire Hathaway, as revealed by him.
Coming to the core of the book, this is totally based on American capital markets. The analogy of the Patel community given by the author is interesting but for an Indian it is not at all new. The title contains the word "Dhandho". Any Indian reader would more or less expect some advice in the context of Indian stock markets (ok, so this is about value investing...still !) but there is no reference at all to any other emerging market except the US of A. Also almost a whole chapter is dedicated to financial websites for the American investor which can be useful titbit for investment tips. I wish the author had done some more research in the context of Indian capital markets. It is a tad disappointing when the reference point are the Patels.
Readers are expected to have a basic knowledge of equity markets and financial jargons like present value of future cash flows, intrinsic value, earnings per share etc. Then it becomes enjoyable, especially for the American reader.
The author is a self-confessed fan of Warren Buffett and Charlie Munger and needless to say there are few innovative original ideas in the book. But the whole idea of value investing was propounded by Benjamin Graham in his book "The Intelligent Investor" which is considered to be the bible of every value investor and popularised by Buffett. The author has lifted examples, quotes and anecdotes from Buffett's life. In fact, his fund Pabrai Funds itself is structured similar to Berkshire Hathaway, as revealed by him.
Coming to the core of the book, this is totally based on American capital markets. The analogy of the Patel community given by the author is interesting but for an Indian it is not at all new. The title contains the word "Dhandho". Any Indian reader would more or less expect some advice in the context of Indian stock markets (ok, so this is about value investing...still !) but there is no reference at all to any other emerging market except the US of A. Also almost a whole chapter is dedicated to financial websites for the American investor which can be useful titbit for investment tips. I wish the author had done some more research in the context of Indian capital markets. It is a tad disappointing when the reference point are the Patels.
Readers are expected to have a basic knowledge of equity markets and financial jargons like present value of future cash flows, intrinsic value, earnings per share etc. Then it becomes enjoyable, especially for the American reader.
July 9, 2009
Why I Read this Book: Pabrai has proven his application of value investing to be hugely successful. I wanted to learn what made it real for him. He has been a great teacher.
Review:
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
Review:
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
March 29, 2021
This book is absolutely ridiculous, and it hurts my soul that people who I respect think that this is one of the best books ever written on investment. The theory is great, but the practice and arguments that Pabrah presents are so bad that it's hard to put into words. The idea of value investing is to watch companies that dip below their value, so you buy them "on sale". That makes sense. It's like flipping a house or buying a cheap car, doing minimal repairs and making a profit. The issue is that the author makes insane arguments.
The whole premise is small down side with huge upside, or as the author says, "tails I win, heads I don't lose much." A great example of why this is silly is he tells the story of how Patel families own most of the motels in the USA. It started with Papa Patel taking the only $9,000 he had and putting it into a hotel and hoping for the best. My question is, in what universe is investing 100% of you and your family's money "low risk?". Later, the author tells the story about how he did the same thing with his only $30,000 and his backup plan was to pull out of his 401k early. Noboy would call me a genius for taking my family's savings to the roulette table, putting it all on black and calling it low risk high reward.
His argument is that "if it doesn't work, and you lose, you can just make the money back by getting a job." This is the most insane argument I've ever heard. I can go on and on about how silly this author is, but if you can get passed his ridiculous examples and understand the fundamentals of how to calculate the value of a stock, you can be smarter than him with your money and diversification.
The whole premise is small down side with huge upside, or as the author says, "tails I win, heads I don't lose much." A great example of why this is silly is he tells the story of how Patel families own most of the motels in the USA. It started with Papa Patel taking the only $9,000 he had and putting it into a hotel and hoping for the best. My question is, in what universe is investing 100% of you and your family's money "low risk?". Later, the author tells the story about how he did the same thing with his only $30,000 and his backup plan was to pull out of his 401k early. Noboy would call me a genius for taking my family's savings to the roulette table, putting it all on black and calling it low risk high reward.
His argument is that "if it doesn't work, and you lose, you can just make the money back by getting a job." This is the most insane argument I've ever heard. I can go on and on about how silly this author is, but if you can get passed his ridiculous examples and understand the fundamentals of how to calculate the value of a stock, you can be smarter than him with your money and diversification.
October 31, 2021
Every man and his dog has written an investing book these days, but Mohnish has merit. This is an unbelievable read that simplifies an important investment strategy ‘heads I win, tails I don’t lose much’ Took a lot out of this book and highly recommend it
August 22, 2018
Pabrai writes a great book, with relevant examples and lucid writing , that deeply enhances value investing .
June 21, 2020
I've been a big admirer of Mohnish for years. Not only for his incredible achievements as an investor, businessman, and philanthropist but largely due to his uncommonly successful approach to how he lives his life and conducts relationships. He's a master at enjoying life to its fullest and is one of the main reasons why I myself decided to avoid a long-term career in the conventional financial industry to start my own businesses and read, write, think, and invest independently. I recently quit my job as portfolio manager to pursue this kind of life.
In The Dhandho Investor, Mohnish distills the "Dhandho way" into four overarching lessons:
1) Look for Dhandho arbitrage: a situation that allows businesses to earn above-normal profits for a limited time before competitors or substitutes enter and destroy these higher returns. Determine the spread and duration of that arbitrage.
2) Look for low-risk, high-uncertainty situations: The market tends to confuse the distinction between high uncertainty and high risk. But these are exactly the kinds of situations where the market discounts businesses below intrinsic value, and where value investors can come in reap sizeable rewards.
3) Look for copycats, not innovators: One should ignore the innovators and invest in the copycats run by people who have demonstrated their ability to repeatedly lift and scale. The Dhandho way is to invest in a proven idea and run with it.
4) Buying is the easy part of the equation. Master the art of selling: Only when you enter an investment will the real struggles or fruits present themselves.
In the last part of the book, Mohnish provides some invaluable resources for value investors to dig into and find opportunities. He ends the book by underlining the point about how investors need to focus on their circle of competence, and if they try to calculate everything and be everywhere, they're very likely to do poorly. Once an opportunity appears within the circle of competence, one should study it closely, vet it, and make sure it's trading at a discount.
I wish no one read The Dhandho Investor because it would make my investing competition much more intelligent. But I just can't help recommending it.
Read my entire summary and key lessons from the book here: https://junto.investments/books/the-d...
In The Dhandho Investor, Mohnish distills the "Dhandho way" into four overarching lessons:
1) Look for Dhandho arbitrage: a situation that allows businesses to earn above-normal profits for a limited time before competitors or substitutes enter and destroy these higher returns. Determine the spread and duration of that arbitrage.
2) Look for low-risk, high-uncertainty situations: The market tends to confuse the distinction between high uncertainty and high risk. But these are exactly the kinds of situations where the market discounts businesses below intrinsic value, and where value investors can come in reap sizeable rewards.
3) Look for copycats, not innovators: One should ignore the innovators and invest in the copycats run by people who have demonstrated their ability to repeatedly lift and scale. The Dhandho way is to invest in a proven idea and run with it.
4) Buying is the easy part of the equation. Master the art of selling: Only when you enter an investment will the real struggles or fruits present themselves.
In the last part of the book, Mohnish provides some invaluable resources for value investors to dig into and find opportunities. He ends the book by underlining the point about how investors need to focus on their circle of competence, and if they try to calculate everything and be everywhere, they're very likely to do poorly. Once an opportunity appears within the circle of competence, one should study it closely, vet it, and make sure it's trading at a discount.
I wish no one read The Dhandho Investor because it would make my investing competition much more intelligent. But I just can't help recommending it.
Read my entire summary and key lessons from the book here: https://junto.investments/books/the-d...
April 23, 2018
The book is nice and I understand the thought process with the margin of safety etc. So that ways, it tells some nice things. But I think I have read far too many books to understand the same concept. I was thinking (to hoping) gain better insights around the Pabrai thought process and while the book did explain that, I felt I was reading the same stuff as Warren Buffet newsletters which I can get for free - buy with moat, margin of safety, durable competition, etc.
What I did like though were his Patel examples and certain case studies but not elaborating them, made me feel slightly disappointed again. Maybe Mr. Pabrai does not want to divulge too much, and understandable, but nevertheless, my ratings reflect how "satisfied" I felt after reading the book, after reading a number of other "value investing" Graham / Buffet style books. So the 3 stars could just reflect my lethargy of reading the same concepts vs. My expectations of seeing more detailed case studies, example (s) etc, something Sanjay Bakshi does in his writings.
To conclude, a good book if you are an early reader into these concepts, else it is Buffett newsletters are. Similar, but then WB is WB.
What I did like though were his Patel examples and certain case studies but not elaborating them, made me feel slightly disappointed again. Maybe Mr. Pabrai does not want to divulge too much, and understandable, but nevertheless, my ratings reflect how "satisfied" I felt after reading the book, after reading a number of other "value investing" Graham / Buffet style books. So the 3 stars could just reflect my lethargy of reading the same concepts vs. My expectations of seeing more detailed case studies, example (s) etc, something Sanjay Bakshi does in his writings.
To conclude, a good book if you are an early reader into these concepts, else it is Buffett newsletters are. Similar, but then WB is WB.
January 17, 2018
The author compares motel owners who migrated from his native India as a metaphor for value investors. I don't get the connection between people willing to eat, sleep and live in their own properties to make ends meet and a person buying undervalued stocks. Some valid points, but the premise is questionable at best.
May 27, 2023
3.5/5: Really liked it
This book talks about a particular set of mindsets when we think on investing, be it stock market, or a business.
'Dhandho' is a Gujarati term used for business. First few chapters are dedicated to real stories where people began at very low, and due to their business mindset, rose to become wealthy. As the first two stories are of Gujaratis, the author has taken the Gujarati term to identify this business mindset. He calls it the 'Dhandho Framework'.
There are multiple concepts covered. He gives key pointers for each concept, followed by some examples also. It was really surprising because some of the concepts are opposite to what we generally think. For example, we commonly have the perception of High Risk - High Returns, but one key concept in the book is Low Risk - High Uncertainty - High Returns. The major portion of the book is on how to identify high-return stocks.
The writing style is mostly interesting, sometimes forced. The author explains his logic with breakup of all possibilities and maths behind it. There are many resources shared to help with picking stocks and keep one updated, but all are from US only.
Key points:
* Heads - I win, Tails - I don't lose much
* Low Risk - High Uncertainty - High Returns
* Few bets, Big bets, Infrequent bets
* Invest in Simple business with competitive advantages, or prefer Copycats
Overall, it is a book worth reading. One thing I didn't like: The author has used examples of Arjuna and Abhimanyu to relate concepts. But the stories told are not correct, though it doesn't affect the lessons.
This book talks about a particular set of mindsets when we think on investing, be it stock market, or a business.
'Dhandho' is a Gujarati term used for business. First few chapters are dedicated to real stories where people began at very low, and due to their business mindset, rose to become wealthy. As the first two stories are of Gujaratis, the author has taken the Gujarati term to identify this business mindset. He calls it the 'Dhandho Framework'.
There are multiple concepts covered. He gives key pointers for each concept, followed by some examples also. It was really surprising because some of the concepts are opposite to what we generally think. For example, we commonly have the perception of High Risk - High Returns, but one key concept in the book is Low Risk - High Uncertainty - High Returns. The major portion of the book is on how to identify high-return stocks.
The writing style is mostly interesting, sometimes forced. The author explains his logic with breakup of all possibilities and maths behind it. There are many resources shared to help with picking stocks and keep one updated, but all are from US only.
Key points:
* Heads - I win, Tails - I don't lose much
* Low Risk - High Uncertainty - High Returns
* Few bets, Big bets, Infrequent bets
* Invest in Simple business with competitive advantages, or prefer Copycats
Overall, it is a book worth reading. One thing I didn't like: The author has used examples of Arjuna and Abhimanyu to relate concepts. But the stories told are not correct, though it doesn't affect the lessons.
August 10, 2020
Never got around to read 'The Intelligent Investor' which has always been in my to-read list. This book supposedly summarises it's basic principles, at the same time being a short read.
This book taught me a few things and introduced me to some more. Worth a read for someone looking to brush up on individual investing.
This book taught me a few things and introduced me to some more. Worth a read for someone looking to brush up on individual investing.
July 13, 2018
I didn't find this a very practical book on stock market investing. I'm just not sure how to translate buying motels with your extended family and making them work there 24/7 to buying undervalued stock. The slogan of the book is to take low risk high reward bets. But that's like saying buy low, sell high. I just didn't find much in the way of practical analysis.
December 19, 2016
Two key takeaways-
1. maximise your returns by maximising rewards and minimising risks. Make few bets, big bets and wait for the right pitch while doing so.
2. all knowledge is cumulative. aim to read voraciously, wait patiently and swing big but infrequently.
1. maximise your returns by maximising rewards and minimising risks. Make few bets, big bets and wait for the right pitch while doing so.
2. all knowledge is cumulative. aim to read voraciously, wait patiently and swing big but infrequently.
January 1, 2017
I read this book in one sitting. It blew my mind. I seemed to have highlighted half the book. It has now become a guide.
March 11, 2023
En bra bok, i alla fall dess första halva. Därefter är det i huvudsak exempel på hur författaren menar att bokens huvudidé (riskminimerade investeringar i kloner av framgångsrika företag) fungerar. Hade boken slutat vid sida 100 hade den haft fyra eller kanske fem stjärnor.
(Med ytterligare reflektion, placerar jag nog stjärntalet närmare 4; tipsen i första halvan är bra nog för det)
(Med ytterligare reflektion, placerar jag nog stjärntalet närmare 4; tipsen i första halvan är bra nog för det)
September 15, 2021
"Mohnish, Dhandho!"
April 27, 2022
Some good lessons on value investing. I wanted to start with something smaller than the tome "The Intelligent Investor". The most important takeaway for me was to focus on one business at a time. Analyze it completely, and decide whether to invest or pass. Then and only then move to other business.
February 5, 2022
I think this is one of the best introductory books on value investing - I wish that I had read it earlier! Pabrai doesn’t pretend to be original, and indeed talks extensively about how he has tried to emulate what has made Warren Buffett to successful. This is a more accessible (if less complete) text on value investing than other, more famous ones I have read, such as The Margin of Safety or The Intelligent Investor.
October 18, 2015
I first heard about Monish Pabrai in Guy Spier's book the education of a value investor. Considering how much praise he received and bearing in mind the famous WB lunch, I got curious to learn more.
This book is a useful reminder that value investing is about seeing things everywhere in life as risks vs rewards. When the reward of taking action is much greater than the risk, it makes sense to do it. Heads you win, Tail you don't loose much. It is true in investing. It is true in entrepreunership. The guy had a job and used his savings to build a company on the side. If it succeeded he could afford to leave his job. If not, no regret he didn't spend much anyway.
WB explains value investing in terms of not loosing money. I think the public might get the message better if it were explained in terms of the quest for the absolut free lunche nirvana ie: buy something that has upside potential but if it fails you get your money back.
My main random takeaways are the following. Bet on mondain products that everyone needs. Bet on industries with ultra low rate of change. Look for low risk, high uncertainty businesses. Wait for the fat picth and hit hard. Few bets, big bets, infrequent bets. Focus on simple businesses. Remember what Einstein said were the 5 levels of ascending intellect : smart, intelligent, brillant, genius, simple. Don't confuse risk of permanent loss with uncertainty. Buy at the point of maximum pessimism. Innovation is hard, costly, risky. Proven ideas that can be scaled and optimised offer more reward to risk. Thank you Guy Spier for recommending this book.
This book is a useful reminder that value investing is about seeing things everywhere in life as risks vs rewards. When the reward of taking action is much greater than the risk, it makes sense to do it. Heads you win, Tail you don't loose much. It is true in investing. It is true in entrepreunership. The guy had a job and used his savings to build a company on the side. If it succeeded he could afford to leave his job. If not, no regret he didn't spend much anyway.
WB explains value investing in terms of not loosing money. I think the public might get the message better if it were explained in terms of the quest for the absolut free lunche nirvana ie: buy something that has upside potential but if it fails you get your money back.
My main random takeaways are the following. Bet on mondain products that everyone needs. Bet on industries with ultra low rate of change. Look for low risk, high uncertainty businesses. Wait for the fat picth and hit hard. Few bets, big bets, infrequent bets. Focus on simple businesses. Remember what Einstein said were the 5 levels of ascending intellect : smart, intelligent, brillant, genius, simple. Don't confuse risk of permanent loss with uncertainty. Buy at the point of maximum pessimism. Innovation is hard, costly, risky. Proven ideas that can be scaled and optimised offer more reward to risk. Thank you Guy Spier for recommending this book.
January 24, 2021
Dhandho Investor by Mohnish of the Pabrai funds fame is a very good primer on value investing and its principles for anyone not too familiar with the topic. The author is a self-proclaimed admirer of Warren Buffet and uses Mr. Buffet's quotes extensively throughout the book. He gives many examples of how the 'High Risk - High Return' rule taught in business schools is not necessarily true, and instead urges readers to follow his 'Heads I win, Tail I don't lose much' approach to investing (in other words, 'High Risk - Low return'). He provides 9 rules as part of his framework:
1. Focus on buying an existing business
2. Buy simple businesses with an ultra-slow rate of change
3. Buy distressed businesses in distressed industries
4. Buy businesses with durable competitive advantage
5. Bet heavily when odds are overwhelmingly in your favor
6. Focus on arbitrage
7. Buy businesses on big discounts to intrinsic value
8. Look for low risk, high uncertainty businesses
9. It's better to be a copy cat than an innovator
1. Focus on buying an existing business
2. Buy simple businesses with an ultra-slow rate of change
3. Buy distressed businesses in distressed industries
4. Buy businesses with durable competitive advantage
5. Bet heavily when odds are overwhelmingly in your favor
6. Focus on arbitrage
7. Buy businesses on big discounts to intrinsic value
8. Look for low risk, high uncertainty businesses
9. It's better to be a copy cat than an innovator
February 26, 2016
This book by Mohnish Pabrai describes the concept of value investing in the simplest terms. Even a person new to investing could get a good idea of how value investing really works. He is honest enough to say that he has very few original ideas. He is an unabashed admirer of Warren Buffet and Charlie Munger. Where this book lacks is that he has not discussed the mistakes that he has made and how he has learnt from them. He does not go into the detailed analysis of the cash flows of the companies he is selecting. The overuse of the phrase "Heads, I win; tails, I don't lose much!" could be annoying to the readers. Overall, a very good introduction for people who are new to value investing.
March 23, 2019
This is a brilliant book. It is an introductory book on investing. It takes an example of small businesses to make you understand the complexity of investing. Book emphasize the principle of investing in a simple business which you clearly understand. Book also talks about investment strategies of Pabrai Investment Funds which is very much influenced by Warren buffet ideologies.
Overall it's a good read.
Overall it's a good read.
February 13, 2015
Down to earth
Pabrai tells of the Indian domination of the small hotel market across the US. He then uses stories from that culture to make his investment points....and he is right in his observations.
Pabrai tells of the Indian domination of the small hotel market across the US. He then uses stories from that culture to make his investment points....and he is right in his observations.
Shelved as 'not-now'
November 3, 2014Sounds like total bullshit. I'm sold!
Actually, I'm not going to read this book.
Actually, I'm not going to read this book.
November 12, 2015
Excellent book on how to get started with investing and thinking about your financial future.
August 15, 2021
Heads I win, tails I don't lose much. This is the central idea of the book. Some people refer to this concept as asymmetric risk/reward, but Mohnish Pabrai has gone to great lengths to illustrate how this principle can be internalized and applied to real world situations. For example, he begins by discussing the case of Patels in the United States:
"Less than one in five hundred Americans is a Patel. It is thus amazing that over half of all the motels in the entire country are owned and operated by Patels. What is even more stunning is that there were virtually no Patels in the United States just 35 years ago."
Patels did this by running motels by themselves and their families, moving into 2-3 rooms, and keeping operating costs and prices low. They also didn't have to put much capital up for these motels because they could borrow 80% of the cost from a bank.
Another example of this ethos that Pabrai espouses:
"I asked him how the stereotypical Marwari approaches investing capital in a venture? He said, quite nonchalantly, that Marwari businesspeople, even with only a fifth-grade education, simply expect all their invested capital to be returned in the form of dividends in no more than three years. They expect that, after having gotten their money back, their principal investment continues to be worth at least what they invested in it. They expect these to be ultra low-risk bets."
"If you simply used this Marwari formula before making any investments, let me assure you of two things: 1. You’d take a quick pass on most investments offered to you; and 2. Starting with very little capital, after a few decades you’ll be very wealthy. Enough said."
Although these principles are simple, they are difficult to practice largely due to psychology:
"the psychological warfare with our brains really gets heated after we buy a stock. The most potent weapon in your arsenal to fight these powerful forces is to buy painfully simple businesses with painfully simple theses for why you’re likely to make a great deal of money and unlikely to lose much. I always write the thesis down. If it takes more than a short paragraph, there is a fundamental problem. If it requires me to fire up Excel, it is a big red flag that strongly suggests that I ought to take a pass."
Some other takeaways from the book:
1. Lower risk means higher returns (the opposite of what academics espouse)
2. Similar to Ben Graham, Pabrai thinks most of the time gaps to intrinsic value close within 18 months, although he waits up to 3 years. If the gap has not closed by then, it's likely better to move onto a new idea:
Once two years have passed and cash flows are still at $20,000 a year, you ought to be open to a sale at $200,000 or higher if you have a compelling investment alternative for the proceeds. Once three years have passed, all the shackles are off. At this point, I would be open to selling at any reasonable price—even if it means a big loss on the investment. Markets are mostly efficient and, in most instances, an undervalued asset will move up and trade around (or even above) its intrinsic value once the clouds have lifted. Most clouds of uncertainty will dissipate in two to three years.
3. Wall Street loves businesses with low risk and low uncertainty, but often these businesses trade at very high valuations because of the relative ease in forecasting their earnings. By contrast, Pabrai thinks the rewards are highest in businesses with low risk and high uncertainty. Businesses with high risk and low uncertainty or high risk and high uncertainty ought to be avoided entirely.
4. Pabrai would rather bet on great cloners than great innovators:
"If I were given just two investment choices of Google or Microsoft at present prices, it is a no-brainer decision for me. I’d pick Microsoft all day long. It is a battle between an innovator versus a cloner. Good cloners are great businesses. Innovation is a crapshoot, but cloning is for sure."
5. Investing is not a team sport:
"There is simply no way our 150 + IQ team of 10 would all (1) agree that AmEx was a strong buy; or (2) ever be willing to bet 40 percent of fund assets on this deeply distressed business—even if, by some miracle, they reached consensus to make the investment. Finally, even if this team did agree to put 5 percent of assets into AmEx, what would they do if the price declined another 30 percent? This is not a hypothetical question. In 1973, when Buffett bought a large stake in the Washington Post, he saw the price cut in half after he had acquired most of his stake. More recently, Berkshire saw the price of USG stock go from $18 to less than $4 (a 75+ percent drop) after they had acquired their stake. It later rose to over $120."
"Less than one in five hundred Americans is a Patel. It is thus amazing that over half of all the motels in the entire country are owned and operated by Patels. What is even more stunning is that there were virtually no Patels in the United States just 35 years ago."
Patels did this by running motels by themselves and their families, moving into 2-3 rooms, and keeping operating costs and prices low. They also didn't have to put much capital up for these motels because they could borrow 80% of the cost from a bank.
Another example of this ethos that Pabrai espouses:
"I asked him how the stereotypical Marwari approaches investing capital in a venture? He said, quite nonchalantly, that Marwari businesspeople, even with only a fifth-grade education, simply expect all their invested capital to be returned in the form of dividends in no more than three years. They expect that, after having gotten their money back, their principal investment continues to be worth at least what they invested in it. They expect these to be ultra low-risk bets."
"If you simply used this Marwari formula before making any investments, let me assure you of two things: 1. You’d take a quick pass on most investments offered to you; and 2. Starting with very little capital, after a few decades you’ll be very wealthy. Enough said."
Although these principles are simple, they are difficult to practice largely due to psychology:
"the psychological warfare with our brains really gets heated after we buy a stock. The most potent weapon in your arsenal to fight these powerful forces is to buy painfully simple businesses with painfully simple theses for why you’re likely to make a great deal of money and unlikely to lose much. I always write the thesis down. If it takes more than a short paragraph, there is a fundamental problem. If it requires me to fire up Excel, it is a big red flag that strongly suggests that I ought to take a pass."
Some other takeaways from the book:
1. Lower risk means higher returns (the opposite of what academics espouse)
2. Similar to Ben Graham, Pabrai thinks most of the time gaps to intrinsic value close within 18 months, although he waits up to 3 years. If the gap has not closed by then, it's likely better to move onto a new idea:
Once two years have passed and cash flows are still at $20,000 a year, you ought to be open to a sale at $200,000 or higher if you have a compelling investment alternative for the proceeds. Once three years have passed, all the shackles are off. At this point, I would be open to selling at any reasonable price—even if it means a big loss on the investment. Markets are mostly efficient and, in most instances, an undervalued asset will move up and trade around (or even above) its intrinsic value once the clouds have lifted. Most clouds of uncertainty will dissipate in two to three years.
3. Wall Street loves businesses with low risk and low uncertainty, but often these businesses trade at very high valuations because of the relative ease in forecasting their earnings. By contrast, Pabrai thinks the rewards are highest in businesses with low risk and high uncertainty. Businesses with high risk and low uncertainty or high risk and high uncertainty ought to be avoided entirely.
4. Pabrai would rather bet on great cloners than great innovators:
"If I were given just two investment choices of Google or Microsoft at present prices, it is a no-brainer decision for me. I’d pick Microsoft all day long. It is a battle between an innovator versus a cloner. Good cloners are great businesses. Innovation is a crapshoot, but cloning is for sure."
5. Investing is not a team sport:
"There is simply no way our 150 + IQ team of 10 would all (1) agree that AmEx was a strong buy; or (2) ever be willing to bet 40 percent of fund assets on this deeply distressed business—even if, by some miracle, they reached consensus to make the investment. Finally, even if this team did agree to put 5 percent of assets into AmEx, what would they do if the price declined another 30 percent? This is not a hypothetical question. In 1973, when Buffett bought a large stake in the Washington Post, he saw the price cut in half after he had acquired most of his stake. More recently, Berkshire saw the price of USG stock go from $18 to less than $4 (a 75+ percent drop) after they had acquired their stake. It later rose to over $120."
June 13, 2021
I did it! I finally finished this book!
I discovered this book a few years ago and it sat on my to-read list for a long time. In fact, I started this book several times only to leave it unfinished again. With my recent interest in investing and trading, it was time to look at the book again and finally finish it. And boy oh boy, am I glad did I finish it!
Here are a few takeaways that I feel every value investor can derive from the book.
1. Invest in well-established existing businesses.
2. Invest in simple business. If it is too complicated to understand or outside your field of expertise, move on.
3. Invest in distressed businesses, in distressed businesses. (Be greedy when others are fearful)
4. Invest in businesses with durable moats.
5. Bet heavily when odds are in your favour.
6. Focus on arbitrage.
7. Buy businesses at big discounts to their underlying value.
8. Invest in low-risk, high uncertainty businesses.
9. Invest in copycats rather than innovators.
My next read? The Little Book That Still Beats the Market by Joel Greenblatt (and lessons on Varsity continue!)
I discovered this book a few years ago and it sat on my to-read list for a long time. In fact, I started this book several times only to leave it unfinished again. With my recent interest in investing and trading, it was time to look at the book again and finally finish it. And boy oh boy, am I glad did I finish it!
Here are a few takeaways that I feel every value investor can derive from the book.
1. Invest in well-established existing businesses.
2. Invest in simple business. If it is too complicated to understand or outside your field of expertise, move on.
3. Invest in distressed businesses, in distressed businesses. (Be greedy when others are fearful)
4. Invest in businesses with durable moats.
5. Bet heavily when odds are in your favour.
6. Focus on arbitrage.
7. Buy businesses at big discounts to their underlying value.
8. Invest in low-risk, high uncertainty businesses.
9. Invest in copycats rather than innovators.
My next read? The Little Book That Still Beats the Market by Joel Greenblatt (and lessons on Varsity continue!)
February 10, 2021
حدس من اینه که بهترین موقع برای خوندن این کتاب وقتیه که یه مقدار دانش حسابداری داشته باشیم و بعدش برای آشنایی با ذهنیت سرما��ه گذاری ارزشی، به عنوان اولین انتخاب این کتاب روبخونیم. علتش اینه که خود نویسنده هم اول کتاب می گه که این کتاب در واقع مجموعه نکاتی هست که از کتب دیگه ای وام گرفته شده و کمتر نکته ای جدید توش گفته شده. احتمالا اگه با اون نکات آشنایی قبلی نداشتم، ریتینگ بالاتری به کتاب می دادم. نویسنده از روایت های جالبی برای تشریح مفاهیم تکراری استفاده کرده و لا به لاش در معدود مواردی دید خودش نسبت به مساله رو هم اضافه کرده. یکی از فصل هایی که مشابهش رو ندیده بودم، راهنمایی در مورد زمان فروش سهمه.
در کل خوندن کتاب حتما مفیده و باعث می شه نسبت به ذهنیت و نحوه عملکرد سرمایه گذارهای ارزشی دید بهتری پیدا کنیم.
Read voraciously and wait patiently, and from time to time these amazing bets will present themselves.
در کل خوندن کتاب حتما مفیده و باعث می شه نسبت به ذهنیت و نحوه عملکرد سرمایه گذارهای ارزشی دید بهتری پیدا کنیم.
Read voraciously and wait patiently, and from time to time these amazing bets will present themselves.
October 27, 2017
A must read for anyone interested in understanding the basics of investing. This is probably the book you should start with. In simple language (no greek) , Mohnish explains how to go about zeroing in on one investment among the sea of options. There is even a chapter about how/when to get out of an existing investment. Believe me, this part is difficult, as it was for Abhimanyu.
Highly recommended reading for everyone. The younger you are when you read this, the better.
Cheers and Happy investing.
Highly recommended reading for everyone. The younger you are when you read this, the better.
Cheers and Happy investing.
February 22, 2021
I read this based on a recommendation from listening to the InvestED Podcast. I enjoyed reading stories about other investors' journeys. I especially enjoyed the story about the Patels and how they grew their fortune from a seemingly dire situations after leaving Uganda. Overall, this book has a good mix of stories and tangible information that will make me a better investor in the future. This was definitely a worthwhile read.
May 20, 2022
คิดว่าเป็นหนังสือในธีม Value investor ที่มา package เข้ามาในคำว่า Dhandho
เนื้อหาคือการลง ทุนที่ให้ผลตอบแทนสูง และ มีความเสี่ยงต่ำ
ออกหัวผม Big Win
ออกก้อยผม Small Lose
หลักการ
- ซื้อของดี (เข้าใจ Business Moat or Competitive advantage )
- ในราคาที่ถูก (Margin of safety, Valuation-การอ่านงบการเงินเป็น)
- ไม่ต้องซื้อบ่อย แต่ต้องมั่นใจ (Investing Psychology)
-เข้าใจในธรุกิจ (เลือกธรุกิจที่เรียบง่าย, คาดเดาได้)
เนื้อหาคือการลง ทุนที่ให้ผลตอบแทนสูง และ มีความเสี่ยงต่ำ
ออกหัวผม Big Win
ออกก้อยผม Small Lose
หลักการ
- ซื้อของดี (เข้าใจ Business Moat or Competitive advantage )
- ในราคาที่ถูก (Margin of safety, Valuation-การอ่านงบการเงินเป็น)
- ไม่ต้องซื้อบ่อย แต่ต้องมั่นใจ (Investing Psychology)
-เข้าใจในธรุกิจ (เลือกธรุกิจที่เรียบง่าย, คาดเดาได้)
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