He doesn’t understand why but they just don’t. Pabrai said in one of his lectures, people for some reason dont clone. Pabrai, and it is absolutely fine to be one. Mohnish Pabrai says consistently, mitigate your risks. Invest into businesses with simpler business models and fairly good above market average returns, instead of some company with excellent future prospects and host of uncertainties in between. No hard feelings for pharma companies, just an example. The demand is going to be fairly consistent as long as there isn’t a competitor of course.Ĭompare that to the pharma company which might require years to get its drug approved, and even if it does have it, it can’t monopolistically price it in order to pump its balance sheet. I can bet this one is easier than understanding the pharma company. A fairly simple business to understand, it produces packaged foods, personal care products and has a chain of its own retail stores.
Compare the above pharma company to the consumer goods company. The point? Buy into businesses that you really understand. Which one are you investing in? Take your pick. One is a consumer goods company, with a good track record and the other a biotech pharma company which recently got listed. Let’s bring back the above example I gave and replace those businesses. Buy Simple Businesses That You Understand It’s already up and more likely to be sustainable compared to a small stock with uncertain future growth prospects. Pabrai says, buy into pre-established proven businesses.īuying proven businesses is comparatively easier, the business has already been established and is generating revenue, cash flows. The point that Im’m making is it’s not always bad to invest in startups/ small stocks but all the variables that you’ll have to factor in will just complicate your investment decisions. Both businesses ask for the same amount of money, and you have it. Now think of a small fashion store that requires funding in the same area. It has been going strong for 25 years, and now requires some money to expand its business into a newer area. Think of this, there’s a local bread bakery in your area.
#THE DHANDHO INVESTOR BLOG HOW TO#
Now, you might ask how to go about ‘Hedging’ my risks? We shall find out in the succeeding sections. Structure your investment portfolio in such a way that your portfolio is able to accommodate for any sudden shocks in the market. Hedge funds do everything but Hedge their risks. But you might ask, ‘Hedge’ funds take great risks in order to generate amazing returns, but that’s what the problem is.
The term ‘Hedge’, means to mitigate your risks. Pabrai, in order to achieve great investment return, you must mitigate your risks. The very quote itself is a great teaching. Heads I Win, tails I dont loose much – Mohnish Pabrai
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