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?

Since then, the 92-year-old has inspired people to invest for decades. And quite naturally, many around the world who look up to him must have tried and copied his investment style too. But how many could get it right? Well, at least Mohnish Pabrai did.

The 58-year-old Bombay born Indian-American businessman, investor, and philanthropist has earned billions of dollars by ¡®copying¡¯ Warren Buffett¡¯s investment strategy.

forbes

"Heads, I win; tails, I don't lose much," says Mohnish Pabrai, who, with his best friend and fellow investor Guy Spier, collectively spent a mammoth $650,000 to win a lunch with Warren Buffett in the year 2008. In March 2022, Mohnish had even received praise from Warren Buffett for his philanthropic initiative, Dakshana.

I must already be in heaven. Thanks @warrenbuffett - https://t.co/TTNay3eeiw pic.twitter.com/GoHZoXMPcV

¡ª Mohnish Pabrai (@MohnishPabrai) March 24, 2022

"I'm A Shameless Copycat¡±

Mohnish Pabrai is the founder of Pabrai Investment Funds and Dhandho Funds and boasts a net worth of Rs 1,185.62 crore as of June 2022. Since its inception in 1999, his fund has delivered a return of 517%. During the same period, the S&P 500 has moved up 77%, as per an ET report.

Over the decades, Mohnish Pabrai became one of the leading investors, simply by copying or 'cloning,' as he himself prefers to term it, Warren Buffett's style of investing and later, Buffett¡¯s close friend Charlie Munger's.

"I'm a shameless copycat," Mohnish Pabrai admits without hesitation. "Everything in my life is cloned.... I have no original ideas."

But even imitation has the limitation of common sense. In Mohnish Pabrai's case, his curious mind and understanding of compounding made all the difference. The report mentions that he knows what ideas to borrow and in what capacity to apply them.

Mohnish had even met Warren Buffett again in 2019 to attend Charlie Munger¡¯s 95th birthday, which he shared on Twitter as well.

Was a true pleasure and honor to attend Charlie Munger¡¯s 95th B¡¯day festivities last nite in LA. Charlie and Warren have made me a far better person. I am so lucky to have accidentally heard of Warren and Charlie in 1994 and deciding to go ¡°all in.¡± Happy 95th Charlie and thanks! pic.twitter.com/EpHW4DM0Z5

¡ª Mohnish Pabrai (@MohnishPabrai) January 1, 2019

Mohnish Pabrai¡¯s Strategies

Mohnish Pabrai was born and raised in Mumbai before he moved to the US for higher studies. He began his career as a software programmer but quickly transitioned to entrepreneurship, establishing the IT consulting firm TransTech in 1991. This was sold in 1999, little more than a decade later, to Kurt Salmon Associates for USD 20 million.

What happened next? Mohnish launched the Pabrai Investment Fund with an initial investment of $1 million in undervalued stocks.

His first bet was Satyam Computers in 1995, where his investment went up 140x in five years. He sold the stock in 2000, before the dot-com bust, and pocketed a cool $1.5 million in profits. He turned this money into $10 million in less than five years.

Another classic value investing example in his highly concentrated portfolio is Micron. Micron is in the memory business, which is highly competitive. However, as prices decreased, just four players remained in the business.

The others included Intel, Seagate, and Western Digital, with Intel being the clear leader. But then Micron's demand increased multifold. Mohnish Pabrai purchased it at a low valuation.

Also Read: How A Lost iPhone Led To Warren Buffett Investing Billions In Apple

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.

investingwhisperer

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

AFP/getty

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.

svencarlin

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.

For more of such interesting and latest financial news, keep reading Indiatimes Worth. Click here