Mohnish Pabrai's Q&A Session at Boston College, Carroll School of Management on October 12, 2023
Dec 18, 2023
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Mohnish Pabrai, investor and author of 'The Dhandho Investor,' shares insights on investing anomalies and his experience with companies like Fiat Chrysler and Rain Industries. He discusses the importance of identifying anomalies and avoiding Excel in financial calculations. Pabrai also touches on investing in distressed industries and highlights his success in finding mispricing opportunities in Turkey. The podcast explores Warren Buffett's strategy, including his interest in Japanese trading companies, and emphasizes the significance of holding onto great businesses.
Investing is about finding anomalies or mispricings in the market and focusing on undervalued businesses globally across various sectors.
Simplicity is key in investing, distilling the essence of a business into a simple model to understand core value drivers and potential risks.
Identifying distressed industries requires careful evaluation of underlying factors to differentiate between temporary and long-term opportunities.
Deep dives
The Importance of Anomalies in Investing
Investing is often about finding anomalies or extreme mispricings in the market. These anomalies are rare but can have a significant impact on investment returns. The key is to identify these anomalies by looking for businesses that are undervalued or have unique circumstances that the market has overlooked. These anomalies may be found globally in both emerging and developed markets across various sectors. It is important to focus on the fundamental qualities of a business and understand the underlying factors that contribute to its potential success or turnaround.
The Role of Simplicity in Investing
Simplicity is a key aspect of successful investing. Instead of relying on complex models or future projections, it is more effective to distill the essence of a business into a simple, easily understandable model. This allows investors to identify the core value drivers and have a clear understanding of the potential risks and rewards. By focusing on the simplicity of an investment thesis, investors can avoid getting caught up in unnecessary complexity and make more informed decisions.
The Importance of Recognizing Opportunities
Identifying distressed industries or undervalued businesses requires a keen eye for opportunities. These opportunities may not always be obvious and can require thorough research and analysis. It is vital to recognize the difference between a temporarily distressed industry and one that is in long-term decline. By carefully evaluating the underlying factors influencing an industry's prospects, such as the presence of anomalies, potential catalysts, and the fundamental strengths of a business, investors can identify truly promising opportunities even in distressed sectors.
The Need for Vigilance and Patience
Investing in anomalies and undervalued businesses requires vigilance and patience. Opportunities do not present themselves on a regular basis, and it may take time to find the right investment. Investors must be ready to wait for opportunities and resist the urge to make impulsive decisions. By remaining vigilant and continuously monitoring the market for potential anomalies, investors can position themselves to take advantage of opportunities when they arise.
Importance of Doing the Work in Distressed Opportunities
In this podcast episode, the speaker emphasizes the significance of doing thorough research and analysis in distressed investment opportunities. While they acknowledge that there may not always be a high conviction view on such opportunities, they highlight the importance of taking the time to dig in and learn. Disconfirming evidence should be seen as a learning opportunity, indicating the need to reevaluate one's perspective. By delving deep into a disliked and unloved investment, one may find mispricings and opportunities that others have overlooked.
Success, Futuristic Focus, and the Power of Mental Models
The speaker shares insights on success, personal and professional, drawing from observations of successful investors like Warren Buffett and Charlie Munger. They note that dwelling on past achievements can hinder future progress and stress the significance of focusing on the problems at hand and moving forward. By adopting a futuristic mindset, one can allocate maximum mental energy to future endeavors. The speaker also highlights the power of mental models, exemplified by Charlie Munger, as they adapt and make decisions based on their observations of the market. This approach can help investors identify anomalies and overlooked opportunities.
Mohnish Pabrai's Q&A Session at Boston College, Carroll School of Management on October 12, 2023.
(00:00:00) - Introduction (00:02:58) - Moody’s Manual (00:08:11) - Japan Company Handbook (00:12:00) - Buffett’s Amazing Five Japan Bets (00:16:23) - Lessons in investing: Search for anomalies (00:17:59) - Peter Kiewit and Sons (00:21:35) - ADP vs. Exxon (00:28:24) - IPSCO (00:32:43) - Rain Industries (00:35:11) - Reysas (00:41:10) - Fiat Chrysler; Ferrari (00:47:56) - Narrowing the investing universe; JetBlue Airlines (00:53:17) - Thou shall not use Excel (00:54:49) - Pulak Prasad: No leverage (00:59:05) - GM vs. Fiat Chrysler (01:01:30) - Steve Rattner (01:07:31) - Investing in distressed industries (01:11:39) - Error rate in investing (01:14:15) - TransTech (01:20:01) - My Owner's Manual (01:24:19) - Investing in Turkey (01:26:18) - Coca-Cola Icecek (01:34:40) - Learnings from Buffett and Munger (01:38:55) - Micron
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