Build Your Portfolio The Marwari Way

THREAD

Today we are going to review a book called The Dhandho Investor by Mohnish Pabrai, who is a true disciple of Warren Buffett and Charlie Munger, and also runs a billion dollar fund in the US.

Mohnish is truly multidisciplinary in nature, which can seen from the fact that he has built three successful businesses in the last 25 years including a technology company, a profitable fund and a  philanthropic organization called Dakshana Foundation.

It is a foundation which educates talented underprivileged children to qualify for IITs.

The Dhandho Investor is one of the simplest books to get familiar with the concept of value investing. Mohnish does a great job in explaining the core essence of value investing to the fellow learners in a way which is easy to understand.

Before beginning the book review, let us first understand the meaning of the word ‘Dhandho’.

Dhandho is a Gujarati word, which means creating wealth by taking on ultra-low risk opportunities.

This same concept has been followed by Warren Buffett for over 60 years now.

The book starts off by giving examples of people in the Gujarati community, who control over half of the motel business in the US.

Mohnish goes on to explain why Marwari people invest in low risk businesses which have very high pay-offs.

He further uses real life examples like that of Richard Branson and Laxmi Mittal, both of whom were following the Dhandho approach in their businesses.

This type of investing is coined as ‘Heads, I win; tails, I don’t lose much’.

What this really means is that if your investment does well, you get a big return, but if it doesn’t, you won’t be losing much.

In short this means: low risk, high returns, which is contrary to what is taught in B-schools.

The whole book revolves around this theme, and this is what you should be doing with your investments.

Find an investment which has very low downside risk, and has a high payoff if things turn out well.

There are nine principles of the Dhandho framework, which the book talks about.

These principles sum up Warren Buffett’s investment philosophy in a simple manner.

Some of these principles are buying simple businesses, identifying moats (a term coined by Warren Buffett for competitive advantage in a business), margin of safety.

The Dhandho Framework:

1. Focus on buying an existing business
2. Invest in simple businesses
3. Invest in distressed businesses
4. Always invest in business 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

The book also talks about how you can allocate various stocks in your portfolio with the help of a simple probability formula known as Kelly’s formula.

Finally, he gives a small checklist which every investor must go through before buying any stock.

Overall, the book is perfect for someone who is new to the stock markets, and wants to get an overhang of value investing.

If you are one of these people, I would definitely suggest you to read it https://amzn.to/3ijnjm4