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The Dhandho Investor: The Low-Risk Value Method to High Returns Hardcover – April 6, 2007


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Product Details

  • Hardcover: 208 pages
  • Publisher: Wiley; 1 edition (April 6, 2007)
  • Language: English
  • ISBN-10: 047004389X
  • ISBN-13: 978-0470043899
  • Product Dimensions: 6.4 x 0.8 x 9.3 inches
  • Shipping Weight: 13.4 ounces (View shipping rates and policies)
  • Average Customer Review: 3.9 out of 5 stars  See all reviews (84 customer reviews)
  • Amazon Best Sellers Rank: #16,458 in Books (See Top 100 in Books)

Editorial Reviews

Review

"Today's greatest rising investor"--Motley Fool

"How to invest the way an Indian migrant with little money would do - by looking for companies with little downside…" (Financial Times, Tues 26th February)

From the Inside Flap

All investors are told that if you want to earn high rates of returns, you must take on greater risk. Of course, the groundbreaking value investing strategies of Benjamin Graham, Warren Buffett, and Charlie Munger have shown that it is indeed possible to keep risk to a minimum while still making a reasonable profit. The Dhandho method takes their successful approach to investing one step further and shows how you can actually maximize rewards while minimizing risk.

Dhandho (pronounced dhun-doe), literally translated, means "endeavors that create wealth." In The Dhandho Investor, Mohnish Pabrai demonstrates how the powerful Dhandho capital allocation framework of India's business-savvy Patels can be successfully applied and replicated by individual value investors in the stock market. The Patels, a small ethnic group from India, first began arriving in the United States in the 1970s as refugees with little education or capital. Today, they own over $40 billion in motel assets in the United States, pay over $725 million a year in taxes, and employ nearly a million people. How did this small, impoverished group come out of nowhere and end up accumulating such vast resources? The answer lies in their low-risk, high-return approach to business: Dhandho. This book will show you how to use that same technique to generate high returns in the stock market.

Pabrai's hedge funds, Pabrai Investment Funds, have outperformed all of the major indices and over 99% of other managed funds. $100,000 invested with Pabrai in 1999 was worth over $659,000 by 2006—an annualized return of over 28% after all fees and expenses. In this book, Pabrai distills the methods of Buffett, Graham, and Munger into a user-friendly approach applicable to individual investors. Combining their legendary investing wisdom with the business acumen of the Patels, Pabrai lays out the Dhandho framework in an easy-to-use format that will help any investor significantly improve on their results and soundly beat the markets—as well as most professionals.

Pabrai also details each deceptively simple Dhandho concept in a straightforward, entertaining fashion, with individual chapters that explain why you should: Invest in Simple Businesses, Fixate on Arbitrage, Invest in the Copy Cats Rather than the Innovators, and other simple but proven concepts for low-risk, high-reward Dhandho investing.


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Customer Reviews

Mr. Pabrai's investment style came from Warren Buffett and Charlie Munger.
Mariusz Skonieczny
This well written and entertaining book presents his investment philosophy and characteristics in a simple and easy to follow manner.
Ori Eyal
A hotelier example and a few other vignettes are used to make the case that there's a free lunch (no risk, high reward).
A_2007_reader

Most Helpful Customer Reviews

81 of 87 people found the following review helpful By James East VINE VOICE on April 6, 2007
Format: Hardcover
Dhandho (dhun-doe) is defined as "endeavors to create wealth" or in common vernacular as just simply "business". In Mr. Pabria's Dhandho Investor, it is a book divided into two parts. The first part is a terrific collection of stories of how the Dhandho way changed some family lives by creating family wealth the Dhandho way that is a true pleasure to read. The pleasure is so enlightening that afterwards one is so encouraged that almost anyone would want to go out and replicated the stories and buy their own business or motel today. Though simpler said than done, the analysis that each of these true family experiences exhibit is that with low risk analysis and techniques will help stack the odds in their (your) favor such that the risks, once low, the potential is present for extremely high returns. How does one do this as it sounds like a typical get rich scheme? Not to give the full story away, as it is a somewhat short book, several of the methods outlined and discussed are well documented by masters like Buffett, Munger, Graham, and others. As any study of these gentlemen will reveal is that a margin of safety is one of them. The other is either leverage up or scale up.

This is where the second part of the book takes off by more fully explaining some of the techniques of the masters above. One of the bigger themes and some business acumen that seems to be overlooked in most investment books is that one should invest heavily in your best ideas verses the more simpler and conventional wisdom way of diversifying your risk. To exemplify and to paraphrase Buffett, "only use 20 punches in your investment life", and to more distinctly paraphrase Charlie Munger, "when the odds are in your favor, act decisively, and bet big".
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31 of 37 people found the following review helpful By Jack Reader on May 31, 2007
Format: Hardcover Verified Purchase
There was a point in this book (page 26) when I got very close to close it for good. The author sums up one of his lessons on Virgin Atlantic's Richard Branson "...If you can start a business that requires a $200 million 747 jumbo jet...for virtually no capital, then virtually any business that you want to start can be gotten off the ground with minimal capital." This is the same old familiar myth again, "starting from your one bedroom apartment you will rule the world". Page back just one page to learn that Branson was on track to earn $12 million that same year, $20 million the next year. That is, Branson was a little beyond the one bedroom stage. Giving him a $2 million one year chance seems less than risky from any bank's standpoint. And no, YOU can not walk into Boeing's headquarters to lease a jumbo jet.

But, if you read on, you find value here. The advice is to utilize discounted cash flow for valuation (demonstrated on BBBY, but not explained in great detail) and the subsequent case studies (even after the usual American Express, Washington Post and Geico stories) on Stewart Enterprises, Level 3 convertible bonds and Frontline are interesting, instructive and original. The author uses Kelly's Formula for capital allocation, but this is somewhat of a voodoo here: the probability breakdown is essentially entirely subjective and the author admittedly invests conservative 10% of his capital in the discussed stocks contrary to whatever the Kelly's Formula suggests.

The most enlightening are the emphasis on that Wall Street often confuses risk with uncertainty, the "few bets, big bets", "Abhimanyu's Dilemma" and "Arjuna's Focus".

I also disagree with the "Follow the copycats" advice.
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46 of 57 people found the following review helpful By Longtime Amazon Fan on May 19, 2009
Format: Hardcover
"The Dhandho Investor" is mildly entertaining but filled with weak thinking and poor logic. For instance, Pabrai discusses Indian motel owners' "return on investment" for their motels, but ignores the fact that they are not taking salaries while working hard on their businesses; his "ROI" numbers are really imputed salaries, which is a very different matter. He lifts simple aphorisms from Buffett ("never invest in a business you don't understand") then freely discusses how little he knows about the industries he invests in, and how guilelessly he believes management's EPS forecasts in those situations. I could go on...

The bottom line, of course, is performance. All three of Pabrai's funds were down 60% in 2008. He was also down a few percent in 2007 (worse than the indexes then, too). If you invested with Prabrai in his first fund between its inception (October 2000) and the end of 2002, you would be up today. If you invested in 2003 or later, you would have lost more money than with an index fund strategy.

Here's Pabrai's January 2009 letter to investors, including stats on his returns: [...]

Note that his letter shows unfair comparisons to the indexes because his index numbers ignore dividends for the S&P500 and Nasdaq. Pabrai also benefited by starting his fund when the indexes started to crumble... so he was buying into a downturn with a very small fund and with no pre-existing portfolio to weigh him down. This easy layup is exactly why we, the investing public, are wisely warned: "past performance is not indicative of future returns."

Pabrai has clearly had some big wins in the past, particularly some good picks during the 2000-2003 downturn. It's very possible that he will recover and show good returns in the future.
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