The Dhando Investor

These are my notes from The Dhando Investor by Monish Pabrai.

tl;dr

Dhando investing is about creating wealth while taking virtually no risk i.e. looking for “head I win, tails I don’t lose much” opportunities
Take a few big bets, targeting 5 to 10 stocks in diversified businesses. Don’t waste time with a bunch of small bets with marginal upside.
Like many value investors, Dhando is about looking for market mispricings and buying fifty-cent dollars

Good Quotes

“Our life is frittered away by detail. Simplify. Simplify. Simplify.” - Thoreau
“We see change as the enemy of investments…so we look for the absence of change. We look for mundane products that everyone needs.” - Warren Buffett
“The function of margin of safety is in essence that of rendering unnecessary an accurate estimate of the future” - Ben Graham

Book Notes

Pabrai looks for…
- existing businesses with a track record
- simple businesses in industries with ultra slow rates of change
- low risk business in distressed industries with a lot of uncertainty
- businesses with durable competitive advantage
- businesses with high returns on invested
You make your money on the buy
- “Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.”
- Don’t model cash flows past 10 years and don’t expect more than 10x to 15x multiple
- Conservative estimates of future cash have to be reasonable to figure out
Bet heavily when the odds are in your favor
- “You have to know when the gamble is mispriced”
- Use the Kelly Formula (usually fractional Kelly) to determine how much to invest
- Bet big or don’t bet at all…it’s not worth having a bunch of small bets to keep track of
Be a copycat and follow other great investors
Where to find investment ideas
Business publications like WSJ, Barrons, etc.
Value Line
Portfolio Reports
Value investing club
Value investing congress
When to sell
- The first step is to be very careful about entering in the first place. It’s important to do your homework and estimate intrinsic value.
- Keep updating your investment story. Where is the company relative to intrinsic value? Has anything changed? Is our thesis still intact?
- If you’re still down after 3 years you probably got something wrong

Books Mentioned

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