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

monish pubrae often known as the indian warren buffett has achieved an annual average return of 25.7 over the past 18 years the way he invests according to forbes is he has no interest in a company that looks ten percent undervalued he is angling to make five times his money in a few years if he doesn't think the opportunity is blindingly obvious he passes now this strategy works between 2000 and 2018 the assets that he's invested has gone up over 900 resulting in him managing more than 600 million dollars so how did he do it how did he dominate most investors who were struggling to get a 10 annual return yet alone a 25 one in this video i'm going to show you a couple of principles that provide sticks to in order to achieve these results now keep in mind that if you follow these you are not guaranteed to get the same return as him but they are likely to help improve your investing so that you can hopefully get better results the simplest way to find bargains is to be a cloner and i am what you would call a shameless cloner and then in the u.s we have 13 f filings where every quarter people have to file what they own so just figure out who the smart people are look at what they're buying reverse engineer them you don't need an analyst it's actually fun this is a very smart and obvious strategy from a niche but so few people do this because every quarter most well-known investors are legally required to show what stocks they've invested in through something called a 13f filing so monisha's strategy is to find an investor that has got high returns in the past and one that he trusts and then simply copy their investments how do you do it it's very simple on the modern day with the internet type in on google data rama go on to the super investors category and there you go easy here you have some of the highest achieving investors who legally have to disclose what they own so we can just go on to someone like bill gates he has his main holdings and over here are the stocks that he's bought recently if you like bill gates as an investor take the stocks that he's bought analyze it yourself and then decide if it's worth investing in say it's a mode and they'd break it down to one one word but basically it's the ability of a business to have some type of some type of an enduring competitive advantage that allows it to earn a better than average rate of return over an extended period of time and so some businesses have narrow moats some have broad modes some have moats that are deep but get filled up pretty quickly so what you want is a business that has a deep moat with lots of piranha in it and that's getting deeper by the day emote as i'm sure most of you know is the water surrounding a castle obviously used as protection now for investing the moat is used as an analogy for a business that has a strong competitive edge even if more competitors come and try and take a piece of their business the mode is so big it has so many piranhas in it that it's too hard for competitors to attack what they've created for example facebook it's not easy for a competitor to come in and replicate facebook because their user base is so strong reese's peanut butter cups or ben and jerry very hard to replicate because consumers love their products so much so when you buy a stock make sure that it has a strong moat so uh summing up in terms of what uh what do you think do you bring to value investing that others perhaps don't that give you a unique edge uh i think the biggest edge would be attitude uh so you know charlie munger likes to say that you don't make money when you buy stocks and you don't make money when you sell stocks you make money by waiting and so the biggest uh the single biggest advantage a value investor has is not iq it's patience and waiting waiting for the right pitch and waiting for many years for the right pitch so what's that saying of pascal that uh you like about uh just sitting in there yeah all man's miseries stem from his inability to sit in a room alone and do nothing and all i'd like to do to adapt pascal is all investment managers miseries stem from the inability to sit alone in a room and do nothing you also don't engage in things like short selling you know why would you want to take a bet steve where your maximum upside is a double and your maximum downside is bankruptcy it never made any sense to me so why go there that's right i mean i think i think the low risk high uncertainty is really something i borrowed from uh entrepreneurs and uh you know the patel's in india or the richard bransons of the world basically if if you study entrepreneurs there is a misnomer people think that entrepreneurs take risk and they get rewarded because they take risk in reality entrepreneurs do everything they can to minimize risk they are not interested in taking risk they want free lunches and they go after free lunches and so if you study uh any number of entrepreneurs from ray kroc to you know herb schultz at starbucks and to even even buffett and monger and so on what you'll find is that they've repeatedly made bets which are low risk bets which have high return possibilities so they're not going high risk high return they're going low risk high return when i'm looking at an investment i now look at it like the way i looked at my first business which is the first thing i'm looking at is how can i lose money on this and can i absolutely minimize my downside uh the upsides will take care of themselves it's the downsides that one needs to worry about which is why even the checklist becomes important but uh so the the important thing that value investors focus on is downside protection and that's exactly what entrepreneurs focus on is what is my downside so that is the i would say the cross the crossover between entrepreneurship and investing and value investing especially is protect your downside yeah so the checklist i have currently has about 80 items on it and even though 80 sounds a lot like a lot it doesn't take a long time it takes about 30 minutes to go through the checklist what i do is when i'm starting a business i go through my normal process of analyzing the business when i'm fully done and i'm ready to pull the trigger that's when i take the business through the checklist and i run it against the 80 items what happens the first time when i run it if there might be seven or eight questions that i don't know the answer to uh which is great which what that means is listen dummy go find out the answer to the eight questions first so which means i have more work to do so i go off again to find those answers when i have those answers i come back and run the checklist again and any business that i look at is going to have some items on which the checklist raises red flags but the the good news is that you're looking in front of you with all the with all your facilities at the range of things that could possibly cause a problem and when you look at that list you can also compare it to how those factors correlate with the rest of your portfolio and at that point kind of you have a go no-go point where you can say i'm comfortable with this risk factors here i come i'm comfortable comfortable with the prior probabilities and i'll go ahead with it can you give a couple of the things that are on your 80 items oh yeah sure there's a the the checklist was created looking at my mistakes and other investors mistakes so for example uh there's questions like you know can this business uh be decimated by low-cost competition from china or other low-cost countries that's a checklist question another question is is this a win-win business for the entire ecosystem so for example uh if there's some company doing uh you know high interest credit cards and they make a lot of money uh that's not exactly you know helping society uh so you might pass on that or if it's a liquor liquor company or tobacco company those can be great businesses but in my book i would just pass on those or a gambling business and so on so so the checklist will kind of focus you more towards being playing center court rather than going to the edge of the court uh and there's a whole set of questions on leverage for example you know how much leverage what are the covenants is it recourse or non-recourse there's a whole bunch of questions on management on management comp on the interest of management on you know just a whole on their historical track records and so on so um there's a number there's questions on unions uh on collective bargaining so then so you know uh and and all of these questions were not questions i created out of the blue what i did is i looked at businesses where people had lost money i looked at dexter shoes where warren buffett lost money and he lost it to low-cost chinese competition so that led to the question and i looked at court furniture which was the charlie munger investment and that was a investment made at the peak of the dot-com boom where they were doing a lot of office furniture rentals and the question was are you looking at normalized earnings or are you looking at boom earnings and so that's that question came from there so the checklist questions uh i think are very robust because they're based on real world uh arrows people have taken in the back monish actually considers himself a very lazy investor he calls it a gentleman's activity and that it should come from a place of leisure now this is interesting because almost everything taught on investing is about hard work and constantly analyzing new stocks and listening to cnbc every day monish says no you don't have to invest that way follow simple principles that have worked throughout history created by some of the greatest investors of all time like warren buffett and benjamin graham and the key is to be patient and just stick to these principles and you can get some very high returns

Channel: Cooper Academy

Views: 710,193

Keywords: how to invest, stock market, investing 101, investing rules, how to make money, mohnish pabrai, mohnish pabrai how to pick stocks, mohnish pabrai value investing, how to invest in stocks, rules for investing in stocks, stocks, investing, mohnish pabrai investing, mohnish pabrai investing strategies, mohnish pabrai stock market, mohnish pabrai stocks, mohnish pabrai investment strategy, mohnish pabrai return, cooper academy, warren buffett

Id: y-jBPlyJR_4

Length: 12min 19sec (739 seconds)

Published: Sun Jul 18 2021