Tuesday, December 11, 2007
The Dhando Investor
Da Vinci is credited with saying, "simplicity is the ultimate sophistication." This quote definitely applies to Monish Pabrai's slim volume, The Dhando Investor. Quite simply, this is the best investing book that I've read this year. The book is only 183 pages long, but has more insights than a book twice as long. Monish Pabrai is a hedge fund manager based in Southern California who has shamelessly adopted the tenets of Graham, Buffett, and Munger with a great deal of success. The title of the book comes from a Sankskrit word which effectively translates as "business." Therein lies the crux to Pabrai's approach. Like the value investing masters he emulates, he views a stock as a share of a business. Ideally, he wants to buy a simple business with a moat, in a distressed industry, at a discount price. He then generally holds on to the stock for 2-3 years while the market catches up with its intrinsic value. This patient approach has netted his investors 28% returns during the life of his funds. Pabrai is obssessed with minimizing the downside in his investment decisions. He rejects the old saw about low risk, and low return. Pabrai also doesn't trade excessively or own a large number of stocks. He runs a focused portfolio and makes only a few big,infrequent bets whose size are dictated by the Kelly formula. When there is nothing to buy, he buys nothing. When something attractive comes along, he invests with conviction. Simply put, he is a rational investor, the most rare of birds in any market.