Mohnish Pabrai: How To Earn A 25% Return Per Year (6 Investing Rules)

Summary

Monish Pubrae, dubbed the Indian Warren Buffett, has achieved an impressive 25.7% annual average return over 18 years. His investment strategy, as outlined in the video script, involves identifying and emulating successful investors' moves through 13f filings, seeking businesses with a 'deep moat' for enduring competitive advantage, and emphasizing patience and downside protection. He also advocates a 'lazy' investment approach, suggesting that following principles of great investors like Buffett can yield high returns without constant market monitoring.

Takeaways

• 💼 Monish Pabrai, known as the 'Indian Warren Buffett', has achieved a remarkable 25.7% annual average return over 18 years.
• 🔍 His investment strategy focuses on finding companies that offer high potential returns (aiming for five times the investment) rather than slightly undervalued stocks.
• 📊 Pabrai advocates for 'cloning' successful investors by reviewing their publicly disclosed stock filings (13F filings) and reverse-engineering their investment decisions.
• 🛡️ A key principle in Pabrai’s strategy is finding businesses with a strong 'moat'—a competitive advantage that protects them from competitors.
• 💡 Patience is Pabrai's biggest edge, believing that successful investing requires waiting for the right opportunities and avoiding impulsive decisions.
• 📉 He emphasizes minimizing downside risk in investments, comparing his approach to that of entrepreneurs who aim for low-risk, high-reward scenarios.
• 📋 Pabrai uses an 80-item checklist, developed from past mistakes and other investors' failures, to thoroughly vet potential investments before committing.
• ⛔ He avoids investing in businesses that don’t align with his ethical criteria, such as gambling, tobacco, or exploitative companies.
• ⚖️ Pabrai highlights the importance of studying normalized versus boom earnings to avoid overestimating a company's potential during economic peaks.
• 🧘 He considers investing to be a leisure activity, advocating for a more relaxed and principle-driven approach rather than constantly analyzing new stocks.

Q & A

Who is Monish Pabrai often compared to?

Monish Pabrai is often compared to Warren Buffett and is known as the 'Indian Warren Buffett'.

What is Monish Pabrai's investment strategy according to Forbes?

Monish Pabrai has no interest in a company that looks ten percent undervalued. He aims for opportunities that could make five times his money within a few years, and if the opportunity is not blindingly obvious, he passes on it.

What is Pabrai's annual average return over the past 18 years?

Monish Pabrai has achieved an annual average return of 25.7% over the past 18 years.

How does Monish Pabrai find investment opportunities?

Pabrai considers himself a 'shameless cloner' and looks at what successful investors are buying. He uses publicly available information, such as the 13F filings in the U.S., to see what top investors have invested in and reverse engineers their decisions.

What is a 'moat' in investing terms?

In investing terms, a 'moat' refers to a company's enduring competitive advantage that helps it maintain above-average returns over an extended period, making it difficult for competitors to threaten its market position.

What type of businesses does Monish Pabrai prefer to invest in?

Monish Pabrai prefers businesses with a 'deep moat'—a strong competitive advantage that keeps growing. These businesses are difficult for competitors to replicate, such as Facebook or Reese's Peanut Butter Cups.

What does Monish Pabrai consider his biggest edge as a value investor?

Monish Pabrai believes his biggest edge is his attitude, particularly his patience. He stresses that value investors make money not when buying or selling stocks, but by waiting for the right opportunities.

Why doesn't Monish Pabrai engage in short selling?

Monish Pabrai avoids short selling because the maximum upside is a double, while the downside could result in bankruptcy. He prefers low-risk, high-reward opportunities.

What approach do entrepreneurs and Monish Pabrai share when it comes to risk?

Entrepreneurs, like Monish Pabrai, aim to minimize risk while maximizing returns. They focus on 'low-risk, high-return' opportunities rather than taking significant risks, and they ensure their downside is protected.

What is Monish Pabrai's 'checklist' and why is it important?

Monish Pabrai's checklist consists of 80 items based on past investment mistakes by himself and others. It helps him analyze a business thoroughly to identify potential risks before making an investment decision. The checklist includes questions on management, leverage, competition, and other potential pitfalls.