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The Dhandho Investor: The Low-Risk Value Method to High Returns Hardcover – April 6, 2007
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"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 2006an 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 marketsas 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.
Top Customer Reviews
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".Read more ›
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.Read more ›
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.Read more ›
Most Recent Customer Reviews
This book was recommended by Phil Town on his InvestED podcast and it was right on the money (pun intended). Read morePublished 17 days ago by Chris H
A true value investing book that will inspire you to start a business with little capital for high returns. Read morePublished 17 days ago by Amazon Customer
Great book that got me to take action but to be patient. Great Read!Published 1 month ago by Amazon Customer
Monesh is the bomb. Incredibly insightful and practical writing. Now I must build this into my code and practice. I know I will be successful by standing on his shoulders.Published 2 months ago by Gerald Giggs
Felt like it was written by someone else borrowing some insights from mr pandrai.Published 2 months ago by Chong Yoon Chou
The lessons at the beginning and end of the book make the book a worthwhile read. As someone new to investing, however, I didn't quite understand the technicals used in the middle... Read morePublished 4 months ago by dizznizzle