Stock market is not an easy place to achieve success. According to studies, only one out of ten people who invest in the stock market make profits. So, people who manage to make a profit significantly for years and decades are considered as stock market legends and everyone wants to understand how they do it.
One such Indian investor who has made a name for himself in the world of value investing is Mohnish Pabrai.
Mr. Pabrai is an Indian-American investor and philanthropist, who is known for his disciplined approach to value investing. He has been inspired by the investing philosophy of Warren Buffett and has closely studied his investing strategies. Over the years, Mr. Pabrai has developed his own set of investing principles, which have helped him achieve remarkable success in the stock market.
Pabrai is the founder and managing partner of Pabrai Investment Funds, a group of investment funds that follow a value investing approach. He gained significant recognition for his fund’s outstanding performance, particularly after achieving remarkable returns by making bold investments in undervalued stocks.
One of Pabrai’s most notable investments was in the auto industry during the financial crisis of 2008. He successfully acquired shares of General Motors and Chrysler at deeply discounted prices, which resulted in substantial gains when the companies recovered. His investment approach, focused on identifying deeply undervalued stocks with a margin of safety, has been instrumental in his investment success.
Pabrai’s investing prowess and his ability to deliver impressive returns have earned him a reputation as a successful value investor. He is also known for his extensive reading and research, drawing insights from various fields to inform his investment decisions. Pabrai has shared his investment philosophy and insights through books like “The Dhandho Investor” and “Mosaic: Perspectives on Investing.”
While many investors are familiar with some of Mr. Pabrai’s well-known investing principles, such as his emphasis on buying stocks at a discount to their intrinsic value, there are a few lesser-known principles that are equally important. Here are three of them:
1) Avoiding the “Cigar Butt” Approach
Mr. Pabrai advises against the popular “cigar butt” approach to investing, where investors buy stocks that are beaten down and have little value left, hoping to get one last puff before discarding them. Instead, he suggests focusing on high-quality companies with strong fundamentals, even if they are trading at a premium.
2) “Heads I win, tails I don’t lose much”
Mr. Pabrai believes in minimizing the downside risk in his investments. He aims to invest in businesses that have a high probability of success and low downside risk, rather than taking big bets on speculative or highly-leveraged companies.
3) “Clone, don’t reinvent the wheel”
Mr. Pabrai is a firm believer in learning from successful investors and following their investment strategies. He recommends studying the investment principles of successful investors like Warren Buffett, Charlie Munger, and others, and cloning their approach to investing.
By following these lesser-known investing principles, Mr. Pabrai has achieved remarkable success in the stock market, and his investment firm, Pabrai Funds, has consistently outperformed the market over the years.
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