Thursday, January 1, 2015

Notes from the Mohnish Pabrai Lecture @ MDI on 26 Dec 2014


I was fortunate enough to have the opportunity to attend a lecture at MDI Gurgaon by seasoned value investor Mohnish Pabrai. 
  • Waiting 5 years for a good moat and then getting 20% a year for 5 years leads to a net return over the 10 years of 11.9% (assuming risk free FD rates after tax of 5.6%). This means that getting a 12% return today is the equivalent of waiting 5 years for a 20% return. This does not mean one becomes reckless - just means that sitting around on cash for too long is a bad thing too.
  • Looking at random stocks one can see that the variation across a year is almost always north of 50%. The value of all companies cannot change by 50% in 1 year which means that over a period of a year you should have some opportunity to buy a few stocks.
  • When to sell is always more complex than when to buy. Mohnish says he needs the value of the company to be at least 90% of what he thinks its worth before he sells.
  • Hold stocks for at least 2 years before you declare you are wrong. That way you can avoid any emotional outbreaks on your part.
  • Of course - Mr. Pabrai's fabled cloning topic was covered. I have already covered a lot of that in my post about Cloning as an investment strategy.
  • Importance of the ONE person investment team - Having analysts report into an investment manager dilutes the quality of the stock pick. No team is large enough to look at all companies so some sort of Cloning is required for good picks for everyone.
  • Dhando Holdings - Is a new SPAC setup by MP to acquire an insurance company. He intends to add value to insurer by just improve the quality of investment management of the float. He also says that given the success of the Berkshire insurance model there are not many examples of people who have copied them yet.
Lots of what was said was captured by Ashish Kila in his post - Notes from meeting with Mohnish Pabrai back in 2012.

Last but not the least - There was an excellent section on how the Dakshina foundation run by Mr. Pabrai and his wife is having an impact on the economic mobility in India - Kudos to the Pabrais for taking this wonderful initiative. There was a touching anecdote of a boy who made it to IIT by being a Dakshina scholar which changed the family's income from $80 per month to $8000 per month. MP says that even Dakshina follows the principle of value investing where the investment made in the scholar is far lesser than the impact it has on the scholar's life. MP is a truly legendary investor and philanthropist!