Hello Sir,
Have you seen the movie ‘Super 30’ in which Hrithik Roshan helps 30 underprivileged students to crack the IITs? Did you know the movie is based on a real life story of a man named ‘Anand Kumar’ from Patna? He started the ‘Super 30 Programme’ in 2002 in Patna, Bihar.
Today, we are going to share with you some learnings from an interview with a well known investor ‘Mr. Mohnish Pabrai’. He has had a spectacular investing journey and is a big fan of Mr. Warren Buffett.
Before that, if you are interested in investing in a branded processed foods company that has reported 9x growth in sales and 9x growth in PAT in just 4 years in its US business and available at 10 times next year's earnings, you can read about it here - LINK
Inspirational - We think you would also be inspired to know about Mr. Pabrai’s charitable venture ‘Dakshana’. When Mr. Pabrai first learnt about Anand’s Super 30 Programme; he was highly impressed and approached Anand to take his donation and replicate the model throughout the country. However, Anand was not sure if he wanted to do that and respectfully denied. Mohnish then asked Anand to let him clone his model and begin a charitable organisation of his own to serve as many kids as possible and thus ‘Dakshana’ was born. Today, Dakshana is forwarding the vision of ‘Super 30’ across the country helping hundreds of students along the way.
Coming to Investment lessons, here are some key takeaways -
Circle of Competence - Being a big fan of Mr. Buffett, Mr. Pabrai mentioned that Mr. Buffett has a pile called ‘Too hard’ on his table. Whenever something comes across his desk that is outside his circle of competence, it is immediately put in that pile. He says that when a legendary investor like Warren Buffett puts 95% of all companies in that pile then how can we believe that we can study and invest in any company we want.
Buying the whole Business - He said that before buying any stock you should ask yourself ‘If you had the money, would you buy the whole company at this price?’ and he said that if the answer to that question is a no then you should not buy even a single share of that company.
Stop Loss - With the rise in trading amongst retail investors, stop loss has become a common term. Mr. Pabrai was asked what he thinks about a stop loss and whether it is an effective tool even when someone is investing based on the fundamentals? To this he said that he does not believe in the concept of stop loss. He said that if he invests in a company at let's say 100 Rupees with the calculation that the company should be able to grow three fold in the next 3 years. He says that now if the same company starts to trade at Rs 90 then instead of selling it because of some stop loss he would instead add more (given that the loss is not due to some fundamental change that will affect the growth calculation).
When asked about high PE growth companies he said - ‘A well performing growth company available at a fair valuation is better than a non growth company available at a cheap valuation.’
Selling is more Complicated - Mr. Pabrai said that selling a compounder is 10 times more complicated than buying it. He said that when we are buying a company we first look at the growth drivers of the company and then look at what we are paying for that growth. If the price we are paying seems reasonable for the growth we are expecting then we buy it.
However, when it comes to selling it gets complicated because markets often tend to overextend. He said that in his experience it is better to give your winners some leeway and only sell if they are exorbitantly priced and not as soon as they begin trading close to fair valuations. He does acknowledge the fact that fair value and exorbitantly priced are not precise terms and different people's definitions of these terms may vary.
We hope you enjoyed the story and learned something from the interview. If you want to check out the whole interview, click on the image below.
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