Collection: Mohnish Pabrai - #126 'Cash vs. Opportunity'



[Transcript]

AUDIENCE MEMBER 00:00

So if you have many cash on hands, does it ever worries you that you cannot come up with a better idea than the previous one to investing?


MOHNISH PABRAI 00:11

Regarding the cash versus opportunity, you know, one of the simple approaches I use is that we really don’t want to buy anything until it’s at least half off – 50% off. So if I were let’s say a 100% cash and I’m just starting a fund then that’s what I will do, I will look for opportunities where there’s a significant mispricing.


And of course one of the reasons I gave the talk I gave today is sometimes the 50 cent dollars bill are not obvious, like, for example, See’s Candy was actually a 25 cent dollar bill or less, but it wasn’t obvious and Coke in the late 80s also was a great bet, but it wasn’t obvious.


And so the area I’d like to get better at is the non-obvious 50 cent dollar lying all around us. So that’s what – And the thing is that so there’s two ways you can invest, right?


So one is what I’ve done historically is look for 50 cent dollar, let it get to 90 cents and then sell it. You know, buy at 50 sell 90 and hopefully in the period when I own it, the value grows, so it’s not exactly 50 to 90, the dollar becomes maybe $1.20 or $1.50, and so I can buy at 50 cents and sell out $1.35 so that sort of thing.


But I think that what is probably an even better model than that is buying and holding onto these long runway positions. So when we met Warren Buffet for lunch in 2008, one of my daughter asked him which of the Berkshire companies – you know, they owned 70 companies – was his favourite company. And he didn’t even hesitate for 2 seconds, he said it’s GEICO.


And the reason I think he said it’s GEICO is because it’s got the ultimate long runway, you know, Coke has a long runway, I think GEICO's runway possibly maybe even longer than Coke, I mean unless we get to a world of self-driven cars across the board at that point the model is gone, but we are, you know, at least a decade or more away from there.


So he felt that GEICO's model had – I mean he was most excited about owning GEICO because they used to have 2% market share, now they’re approaching 10% and he said that – Warren said that on his 100th birthday, they will pass State Farm. You know, so he’s already planned out the next 14 years, you know, them going past State Farm.


So I would say that look for the 50 cent dollar bills sometimes you find something cheap, that’s pretty good. But I think getting something that is more of a runway build in and getting those cheap, and sometimes you know the funny thing about the investing business is that sometimes you can buy something at 20 times earnings and it can be really cheap, depending on the nature of the moat and the runway.


So alright.


(Source: https://youtu.be/jfxOvdiac94)

 

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