15 Brilliant Quotes by Mohnish Pabrai | Dhando Investing Strategy

Mohnish Pabrai is a legendary deep value investor. His strategy focuses on medium risk , high return bets. 

Pabrai is one of the few Legendary investors who invests into volatile small cap stocks which offer greater potential for returns. 

These include “10 Bagger stocks” , these are stocks which can earn 10 times your money! 

Pabrai is also a contrarian investor who likes to “fish where others aren’t fishing” and bet against the crowd. 

He does this by investing into emerging markets and areas which seem to be of higher risk such as India and Turkey. 

In his book, Pabrai calls his investing Strategy the “dhandho” which is derived from Sanskrit word Dhana which means “endeavors that create wealth”.

In Mohnish Pabrai’s own words he looks for “no brainer opportunities for high investment returns.” 

Fun Fact: Mohnish is widely influenced by the investment strategy of Warren Buffett and Charlie Munger, whom he is now good friends with after winning an auction for charity meal with Buffett many years ago. 

Investing Strategy:  Value Investor, Contrarian, Small Cap, Large Cap, Emerging Markets, International. 

1. “Heads I win, Tails I don’t lose much”

“Heads I win, Tails I don’t lose much”, This is the essence of Mohnish Pabrai’s investment strategy. In his book Dhando Investor Mohnish stated many entrepreneurs utilise this strategy to start businesses.

He gave the example of the Patel Family a group of immigrants from India who started with nothing and now own over 70% of the motels in the USA.

They did they by being very frugal, keeping costs low and gradually expanding with minimal risk. 

2. Low Risk, High Reward Bets

Mohnish Pabrai often talks about looking for “Low Risk, High Reward” bets this is another way of saying “Heads I win, Tails I don’t lose much”. Ray Dalio call’s this an “Asymmetric Risk to Reward Ratio”.

Great Entrepreneurs & Capital allocators such as Jeff Bezos of Amazon have also used this strategy, for example Amazon does a series of small “Bets or experiments” . All these bets don’t work (fire phone) but some pay off huge such as Amazon web services (AWS). 

3. Focus over Diversification

Mohnish Pabrai Quotes Motivation 2 invest . Credit: www.Motivation2invest.com/Mohnish-Pabrai

 The common wisdom from academic finance is to diversify your portfolio across as many stocks and countries as possible.

However, Mohnish Pabrai and many legendary investors such as Warren Buffett and Bill Ackman actually believe in a more concentrated approach.

The reason is simple, it is impossible to know “everything about everything”, thus investing into area’s where you have some special insight or an edge can give you an advantage. Rather than “don’t put all your egg’s in one basket” , “Put all your egg’s in one basket & watch that closely”.

The only way to consistently beat the market is to have a “Unique insight” or “information Edge” over others. The only way this is usually possible (without a large team of analysts and computer algorithms) is to focus. (This is not financial advice & only for advanced investors) 

4. Patience over IQ

Both Mohnish & Buffett have often spoke about not needing a really high IQ to be a great investor. Buffett uses the analogy of baseball with “no called strikes”. Thus basically you can “sit there and watch pitch after pitch go by without swinging”.

However, when an investment opportunity is in your “sweet spot” that is when you swing. Peter Lynch often states “The person who turns over the most rocks wins” 

5. Invest into Simple Businesses you understand

“Invest into simple businesses you understand”. Warren Buffett calls this your “Circle of competence” you should know where yours is and stick to it. Peter Lynch also talks about “Knowing what you own” and states “I made more money in Dunkin Donuts than any high tech play”

6. Use an Investing Checklist

“An investing checklist is essential to avoid mistakes”. An investing checklist can help to avoid psychological biases.

To download our Investing checklist (from the greatest investing legends) use the link here to join our strategy course or thriving VIP Group. 

7. Invest into Spawners

“Invest into Spawners companies which reinvest profits at high returns”. Mohnish derived the term “spawners” to explain businesses which “spawn” new businesses inside the existing.

Examples previously are Amazon (With Amazon web services) , Tencent (With many tech businesses and a Venture capital business) , Google (Multiple products and experimentation culture). According to Mohnish Identifying the “next spawner” is the key to long term compounding and investment success. 

8. Long term Compounders

“Invest into Long term compounding stocks, Ex. Costco, Alibaba, Amazon”. Mohnish believes in identifying these “long term compounders” early and then holding for the long term. This is an evolution of his previous deep value investing style similar to Benjamin Graham

9. “Fish where others aren’t fishing”

“Fish where others aren’t fishing”-  Mohnish Pabrai believes in looking in area’s where others aren’t. This could be identifying small cap stocks (penny stocks) with below a $1 billion market cap or investing internationally into emerging markets such as India or Turkey. Mohnish likes to invest “When everyone else is running for the exit”.

10. Opportunities in Emerging Markets

“There are opportunities in emerging markets, (India, Turkey) etc”.  Mohnish is a big fan of investing into emerging markets where many institutional investors are scared to enter. Of course more due diligence is required.

Mohnish has previously spoken highly of investing into “Turkey” which is plagued by rampant inflation (15%+) and many investors have exited out of fear. 

Mohnish has taken a large stake in a logistics company which operates in Turkey. A Stock he made a 6X return on but in a recent interview he believes could again “3X” .

Watch Full Video Below. 

11. Think about the Best case and Worst Case

“Think about the best case & worst case scenario for every investment”. This is scenario analysis and highly recommended if you are making a large investment or even a big decision in life. You want to look for opportunities where your “worst case” is actually not bad at all.

Many advanced investors (including us) use Monte Carlo Simulations to analyse various cases with a company. 

12. Invest like a Great Entrepreneur

“Great Entrepreneurs are great at dealing with uncertainty & Minimizing risk”. As mentioned previously many great entrepreneurs from Jeff Bezos to Mark Zuckerberg are great at taking “low risk, high reward” bets.

13. Hold Long Term

“Invest into founder led businesses and hold long term”. Legendary Investor Nick Sleep who’s Nomad partnership compounded a 20.8% return talks alot about “Passing the custody of your investment to great founders” and then holding long term. Mohnish Speaks highly this strategy as part of his evolution. Find out more here: Nick Sleep Letters.

14.  Invest into Small Caps

“Analyse small cap stocks if you want the opportunity to 5X your money”. Small Cap stocks (penny stocks) often come with greater volatility & risk.

Expect wild downswings but they can also have immense upswings. A large company like Amazon which as over a $1 trillion market cap will find it difficult to grow revenues on a percentage basis. I covered Amazon in this video here

15. The Stock doesn’t know you own it

“The stock doesn’t know you own it” Emotions are useful for relationships but not so much for investing. I often see many people getting emotionally attached to stocks or even sentimental.

This can often lead to the “Sunk Cost fallacy” whereas because you have already purchased a stock using the strong strategy you may double down further. 

Want to Learn how to invest?

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