Value Ideas Blog
Dhando investor meeting 2015 – A day with Mohnish Pabrai

Back in 2013 we were invited to attend the Pabrai annual fund meeting to speak to Mr. Pabrai in person. Unfortunately it was not possible to meet him until six days ago. Thanks too my employer Fronteris, I was able to attended his annual meeting and a bike ride with him. In addition to this experience, I was able to meet with other great minds like Guy Spier, Rishi Gosalia (from Google), Haricharan Ramachandra (from Linkedin, who also run the great blog BitsBusiness), Adrian Warner (a fund manager from Australia) and many others.

 

Pabrai  

Highlights:

  1. Score keeping is Mr. Pabrai’s most important lesson to achieve success in life and investing. Especially, the track-record is important in investing and gaming. It can help you to track your mistakes and improve your knowledge.
  2. Has read the Poor Charlies Almanac 7 times and still finds new insights.
  3. Self-improvement is the most important thing, he would bet on the guy with less knowledge and less skills if he has a drive to self-improvement, over a lifetime he will bet the guy with more skills.
  4. Pabrai thinks that Fiat is highly undervalued. Minimum margin of safety is 50% and it has the potential to become a +4x. The spinoff of Ferrari will come in less than a month and it is still not considered in the share price.
  5. Pabrai currently holds: Fiat 42% of the fund , GM B Warrents >10% , POSCO ~10% , ~15% Horsehead Holding , ~10% Google
  6. Dhando Holding IPO will be delayed by 2-3 years, they are currently developing a Smart-Beta value ETF and an own direct small businesses Insurance company (GEICO for businesses)
  7. Stone Trust made an underwriting loss of 4 million this year (when the Equity was just 61 million)

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You can find a really good article about amazon and its business model and its long-term perspective in the latest economist, her is the link to the  “short” online version. About the, in our opinion, value trap of taxi medallions and potential value investment in the business behind it due to disruptive innovation such as uber, and the strategy behind BlaBlaCar etc. Related to this you can find an older business insider article about the death of Value Investing due to disruptive innovations. A really interesting article by Wexyboy about European Islamic Bank and the value of shareholder activism. For me even more interesting due to the fact that I have written my bachelor thesis about islamic finance in germany and the potential market size for one bank. Moatology explains you how to use stock screeners to find undervalued gems. A great post from oddballstocks over investing styles   Some thoughts about entrepreneurship and what it has to do with value investing:   The job of an entrepreneur is to figure out where opportunities lie, they do it by tinkering with the market, learning new capabilities and creating value. Normally entrepreneurs blend strategic thinking and opportunistic actions at different junctures and become more strategically focused on a small niche (a value investor would say circle of competence) throughout this process and progress in learning within age and career stage. This extensive planning helps the entrepreneur to spot gaps in the market or simpler opportunities to invest his time and money. Realizing an investment idea for both a product for an entrepreneur or an investment thesis for a value investor which is not seen by the market – usually means overcoming significant resistance by others. The more contrarian the idea is, the greater is the natural resistance and normally the payoff. Due to the fact that entrepreneurship and value investing are an iterative, messy and uncertain process, both require a lot of effort, time and hard work.   Entrepreneurship and Risk taking   Usually everyone seems to know: Higher return = higher risk. This is essentially what every economist will tell you, but is this really the truth? I don’t think so. If you talk to entrepreneurs you will hear that they are trying to reduce risk everywhere they can (this is also called risk mitigation). The main difficulty in creating value is that you have to go against the grain, by delivering something new to the market while creating a profit. This normally includes a high level of uncertainty in the process and the outcome of your venture. Often you have to kill your most loved ideas due to the fact that you cannot sell your product in sufficient quantities to make it worthwhile. For this reason the probability that an entrepreneur will succeed with one idea is by far less than 100%. If you see some outcomes by entrepreneurs and what they initially invest into the venture in terms of money and time you will observe that this is often not the case. And in my opinion it is the same with value investing, you have to overcome many hurdles with different percentages of success. So entrepreneurship and value investing are more like poker where you are faced with uncertain outcomes which are influenced by the player’s capabilities, it is an uncertain game with skill. The game depends to some extend on the luck of the draw, but how you play your hands over time is what creates the true champions. For this reason the capabilities of an entrepreneur or a value investor determine whether he or she sits down at the table and plays at all.   Have a great week