The Dhandho Investor: The Low-Risk Value Method…Mohnish Pabrai
Low risk high uncertainty
BUY SIMPLE BUSINESSES IN INDUSTRIES WITH AN ULTRA-SLOW RATE OF CHANGE. As Buffet salid: Look for mundane products that everyone needs. Following this requirement alone eliminates 99% of possible investments alternatives. Circle of competence.
Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.2 —Warren Buffett
The entrance strategy is actually more important than the exit strategy.3 —Eddie Lampert
I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.
To us, investing is the equivalent of going out and betting against the pari-mutuel system. We look for the horse with one chance in two of winning which pays you three to one. You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing.7 —Charlie Munger
Arbitrage is classically defined as an attempt to profit by exploiting price differences in identical or similar financial instruments.
Because my mother isn’t here tonight, I’ll even confess to you that I’ve been an arbitrageur.9 —Warren Buffett
LOOK FOR LOW-RISK, HIGH-UNCERTAINTY BUSINESSES.
IT’S BETTER TO BE A COPYCAT THAN AN INNOVATOR.
It is the discounted value of the cash that can be taken out of a business during its remaining life discounted at an appropriate rate. Conservative growth rate (Consumer Behavior) owners earnings (produce for us) Reported earings plus depreciation
Discount Rate Future cash in to present value cash (value of money in time) a dollar today is worth more value today than a dollar tomorrow or a dollar in one year.
Margin of Safety calculate the value at the future
risk free rate 3% bond rate
Initial Payment (P) Rate per period (r) growth rate(g) number of periods)
John Burr Williams was the first to define it in his The Theory of Investment Value published in 1938.
Low risk, high uncertainty, and arbitrage are the core fundamentals of how good entrepreneurs operate.
High uncertainty (can go bankruptcy but not high risk (not capital deployed)