Meet Mohnish Pabrai: The 'Copycat Crorepati' Who Made Billions By Following Warren Buffett¡¯s Strategy
The legendary investor Warren Buffett is an inspiration for almost every person in the world who wishes to grow their wealth by investing, right? Over his 92 years, he has served as a beacon for generations, advocating for prudent investment practices and long-term wealth creation.Naturally, many enthusiasts have sought to emulate Buffett's investment style, hoping to replicate his success.
However, achieving such mastery is rare. One notable exception is Mohnish Pabrai.Born in Bombay and now a 59-year-old Indian-American businessman, investor, and philanthropist, Pabrai has amassed billions of dollars by adopting and adapting Buffett's investment strategy. His success stands as a testament to the enduring wisdom and effectiveness of Buffett's approach.
" 'Heads, I win; tails, I don't lose much,' " quips Mohnish Pabrai, reflecting on his investment philosophy. In 2008, along with his close friend and fellow investor Guy Spier, Pabrai made a substantial investment of $650,000 to secure a lunch meeting with Warren Buffett. Fast forward to March 2022, Pabrai earned accolades from none other than Buffett himself for his philanthropic endeavor, Dakshana.?
Monish Pabrai net worth
Mohnish Pabrai, the founder of Pabrai Investment Funds and Dhandho Funds, commands a net worth of Rs 1,185.62 crore as of June 2022. Since its establishment in 1999, his fund has yielded an impressive return of 517%. In comparison, the S&P 500 index has risen by 77% during the same period, according to an ET report.Through the years, Pabrai has emerged as one of the foremost investors, primarily by emulating or 'cloning,' as he prefers to call it, the investing style of Warren Buffett and later, Buffett's close confidant Charlie Munger.
"I'm a shameless copycat," Pabrai candidly admits. "Everything in my life is cloned.... I have no original ideas."However, even imitation requires a dose of common sense. In Pabrai's case, his inquisitive nature and grasp of compounding have been instrumental. The report notes his discernment in selecting which ideas to borrow and how best to implement them.In 2019, Pabrai had the opportunity to meet Warren Buffett again, this time to celebrate Charlie Munger's 95th birthday, an occasion he shared on X.com.
Mohnish Pabrai¡¯s Strategies
After selling TransTech in 1999 for USD 20 million, Mohnish Pabrai embarked on his journey in the world of investing. With an initial investment of $1 million, he launched the Pabrai Investment Fund, focusing on undervalued stocks.
His early successes included Satyam Computers in 1995, which saw his investment appreciate by 140 times in five years. Pabrai wisely sold the stock in 2000, just before the dot-com bubble burst, pocketing a handsome profit of $1.5 million. He then multiplied this capital to $10 million in less than five years.Another notable example from his highly concentrated portfolio is Micron, a player in the memory business. Despite facing stiff competition, Micron stood out as one of the remaining four players in the industry as prices decreased. While Intel led the pack, Micron's demand surged, prompting Pabrai to invest in the company at an opportune low valuation.
Careful When Copying
Also, Mohnish Pabrai has been careful and calculated in his attempts to?copy Warren Buffett's style. He realised Buffett had mastered the game of compounding to double his money multiple times. What Mohnish Pabrai chose to do was pick the most skilled player in this particular game, study why he was so good, and then meticulously replicate his strategy.??
Warren Buffett has often reiterated that one of his criteria for buying a stock is that it should be undervalued. He is often quoted as saying, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
Following the same principle as Buffett, Pabrai's portfolio is also focused on?mispriced, undervalued stocks?but is inclined more towards India and emerging markets as he doesn't see that many undervalued stocks in the US market, as per the report.
In the Indian market, his big bets are Rain Industries, Edelweiss Financials, and Sunteck Realty. In the US, his biggest bet is Micron at $114 million. He has been increasing his position in this stock since August 2018. He has bought the shares eight times and sold them twice.
He Avoids Startups & IPOs
"The driver for me is not to get wealthy," he was quoted as saying. "The driver is to win the game. It's exactly the same driver for Warren Buffett, which is to show through results that I did the best and I am the best because I played the game by the rules, fair and square, and I won."
Furthermore, he is also a believer that if there are no better opportunities in investing, it is best to wait for one than hurry into something that may not give returns.
Also, he avoids investing in startups and initial public offerings (IPOs) and has never shorted a stock. He also avoids macro investing in favour of micro, where he focuses on businesses he understands.
Learning From Buffett & Munger
In some ways, Pabrai has taken Buffett's and Munger's value investment concept and amplified it. Pabrai bought ultra-cheap equities if Buffett favours inexpensive stocks. If Buffett likes stock concentration, Pabrai has a very concentrated portfolio. If Buffett has spent the majority of his time reading, Pabrai has done the same.
Warren Buffett has taken many concepts from Benjamin Graham, the pioneer of value investing, as per the report. But if Graham believed in diversification, Buffett believed in concentration, and Pabrai pushed this concept to new heights.
Pabrai says that investors ought to focus on making sure that the stock is within their circle of competence, that it's worth a lot more than it's valued at, and that once you have those two things, a stop-loss makes no sense.
Being ¡®Extremely Selective¡¯
In 2012, Mohnish Pabrai had invested $60 million in Fiat Chrysler Automobiles, which accounted for approximately 14% of the AUM of Pabrai Investment Funds. The company had come a long way since 2004. Pabrai purchased the shares because he thought it was a good buy.
In 2015, half of his fund's assets were in warrants from Fiat Chrysler and General Motors. Later, Fiat Chrysler CEO Sergio Marchionne eventually bought Chrysler, and Fiat spun off Ferrari in 2015. This transaction boosted the stock significantly.
According to William Green's book Richer, Wiser, Happier: How the World's Greatest Investors Win in Markets and Life, Mohnish Pabrai made seven times the money in six years as Fiat shares rose. Green described Pabrai as ¡®extremely selective.'
Pabrai has accomplished the impossible for many. On the other hand, he has?simply replicated the strategy of Warren Buffett and Charlie Munger, two of the world's finest investors.
Green penned down his remarks on Pabrai in a LinkedIn blog post last year, as per the ET report. He noted that Mohnish Pabrai"...has mined the minds of Buffett, Munger, and others not only for investment wisdom but for insights on how to manage his business, avoid mistakes, build his brand, give away money, approach relationships, structure his time, and construct a happy life".
Also Read:?Inspired By 91YO?Warren Buffett, 79YO Indian Techie Ashok Soota?Launches Third Startup??
Sharing His Investment Principles
Mohnish Pabrai also shared some valuable principles for investing:
1.?Identify and pick the right stock: Pabrai has often remarked that investors should buy a stock if they are willing to buy the whole company. Buy a valued company and stay invested.
2.?Few, but Big Bets: The reason why Pabrai's portfolio has only a few stocks is that he picks them carefully, and these bets are likely to bring positive returns.
3.?Invest in value: Knowing the fair value of a stock is crucial to making investment decisions. According to Pabrai, assets worth USD 1 should be invested for less than USD 1.
4.?Moat: Don't miss the moat! It can be explained in terms of a financial advantage a company has over its competitors, which enables them to protect their market share and profitability.
Two Books He Advised
According to the report, he also recently shared with CNN two books that he recommends to investors. The first is Thomas William Phelps' 100 to 1 in the Stock Market: A Distinguished Security Analyst Tells How to Make More of Your Investment Opportunities, and the second is Christopher Mayer's 100 Baggers: Stocks That Return 100-to-1 and How to Find Them, which details companies that returned $100 for every dollar invested.?
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