Dhandho Investor - Mohnish Pabrai

1. The Dhandho Framework:

   1. Invest in existing businesses

   2. Invest in simple businesses

   3. Invest in distressed business in distressed industries

   4. Invest in businesses with durable moats

   5. Few bets, big bets, and infrequent bets

   6. Fixate on arbitrage

   7. Margin of safety - always

   8. Invest in low-risk, high-uncertainty businesses

   9. Invest in the copycats rather than the innovators

2. Invest in simple businesses: A businesses' intrinsic value is the sum of all future cash flows discounted back to today's value. Simple businesses will be easier to evaluate and therefore can have higher accuracy. Your investment thesis should be boiled down to a few paragraphs. And if it needs excel, dont bother!

3. Importance of moats: There is no such thing as a permanent moat. But keep looking out for businesses such as Chipotle that have clear moats which other competitors haven't been able to replicate.

4. How do we know when a business has a hidden moat and what it is?

   1. The answer is usually visible from the financial statements. Good businesses with good moats generate high returns on invested capital. The balance sheet tells us the amount of capital deployed on the business. The income and cash flow statements tell us how much they are earning off that capital.

5. Few bets, big bets, and infrequent bets. You need to wait for the right opportunity to invest. And when it comes, bet big.

   1. in 1963, Warren Buffett invested 40% of the Buffett Partnership into American Express. It had just been hit with a $60M loss against collateral of a fraudulent oil company (their market cap was $150M at the time. Buffett saw virtually no downside, and placed the largest bet he's ever placed (in terms of %). Since then, its been a 100+ bagger, and the dividends alone earn him more than what he invested!

6. Margin of Safety

   1. Benjamin Graham fixated on two joint realities. 1) The bigger the discount to intrinsic value, the lower the risk. 2) The bigger the discount to intrinsic value, the higher the return.

   2. For most people, they associate low risk with low returns. But we constantly see examples proving them wrong.

   3. Warren Buffett invested in the Washington Post when its market cap was $100M as he estimated their intrinsic value at $400-500M. Even when it went down 20%, he only saw that as another opportunity to invest!

7. Invest in low-risk, high-uncertainty businesses

   1. Stewart Enterprises was a funeral service company. Due to complications with debt, their stock was beat down heavily and was trading at an extremely cheap PE multiple

   2. But Pabrai recognized that Families still want the last rites of their loved ones to be done right, and don't mind the price. They are also more likely to follow tradition and use the services of the same funeral home that their family has used in the past. With such a high certainty of cash flows, he saw no reason why it shouldn't demand a higher PE multiple, and made a simple bet.