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Collection: Mohnish Pabrai - #120 'How To Clone Great Value Investors?'



My question is about cloning. So Charlie talks about that, you know, you got to look at the great – what other great investors are doing. And so in particular when you look at 13-Fs, you kind of looking back in time.

So how do you personally when you look at these things aside or separate the good decisions from the bad decision? What’s your yardstick for this?


Well, I think that when you are cloning there’s a couple of things to look at, one is you want to look at the ideas that are the greatest conviction ideas, where people have put the most money.

So if someone is, for example, investor who makes – who has a 50 stock portfolio and nothing is more than 3% of the portfolio, I think there’s no point cloning because you just can’t see where they have conviction.

But if someone is running a 15 stock portfolio and the top 3 stocks make up half the pie, for example, then you know that they’ve got conviction on those. So if you understand something about the way their brains work and their past records and so on, then cloning their best ideas or at least looking at their best ideas as the starting point for research is a very good thing to do.

I mean, I would just say that so like in the Coke example, you know in 1989 – by middle of 1989 it was public that Warren was buying Coke. And in fact, when the annual report came out the price was about 10% higher than their cost price. And two years later, it was – it had doubled. So there was a lot of time to – for anyone to replicate that if they wanted to, for example.

It wasn’t like I think typically it’s not all too late to look at something a few weeks after someone has bought it because typically if you are cloning people who are value investors, they are making kind of a longer term bet and they’re looking at a relatively large discounts.

So if you can reverse engineer their logic and if you can reverse engineer their reasons and you know still looks cheap and runway still looks good, then that gives you some basis to do something.



[YAPSS Takeaway]

Do not clone blindly or fomo. Learn how the investors' mind works and what is the story behind their MOST CONVICTION bets.

By studying the most conviction investments of great investors is a great way to start off as a new investor because it gives you an understanding of what great business looks like. If you doesn't like the story behind their investments then just skip it there are other investments out there.

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