Video Link: https://youtu.be/o72cwEMjhow
In this episode, Mohnish Pabrai was asked if college students are starting off investing with not much cash flow, how could they grow their portfolio without leverage?
In this episode, you’ll learn:
How to solve problem through inversion?
Why building wealth requires patience?
To check out all Collection: Mohnish Pabrai <click here>
AUDIENCE MEMBER 00:00
I have a very quick question.
So you’re saying that we shouldn’t leverage but let’s just say we are college student and we’re just starting off investing.
The price are often like 10 grand – less than a 100 grand to start – the problem is if you want to trade, let’s just say 3 times on the daily basis to break and hit the T90 and you can’t trade after that.
And then if you want to do options, you can't do options because you have to open a margin account and then you can’t provide safety. So, when we can’t lever – because we don’t have enough money – then how can we really invest if we have to wait for stock at the lowest price in order to see it rise up to top.
So I’m just kind of curious for people who don’t have as much cash flow, how do you go about investing when you have so many constraints that block I guess small value investors?
MOHNISH PABRAI 00:50
Right, well I don’t know where to begin with your question because we can have an option account and we can have a margin account, we got to get all that vocabulary out of our system.
And I mean I would say if you inward, you know, Munger says many problems get solved by inversion. So you know, rapid traders, how many rapid traders are there in the billionaire club?
You know, it’s like, you know, the thing is that – and what percentage of rapid traders made it to the billionaire club? And the flip side is how many people who concentrated or did kind of one thing for a long time made it to that club, for example.
So I think that the important thing is that to be patient and not be in a hurry. I mean I just pointed out that my daughter has $5,000, she does makes nothing more for the whole life earn 15% a year, which is every 5 years is doubling, she ends up with $5 million.
So if you had $10,000, you don’t need heroics to get to great numbers, you need patience. So that’s what I would suggest is that take the patient route and that might be the way but definitely I think that some of the path that you might be contemplating, the problem is – the problem with those paths is that you will or you have high probabilities of blow-ups.
You know, if you levered or you’re using options and all of that, the returns look great, but so is the risk. And so what you really want is low risk and high returns – that kind of gets to high risk and high return. So probably best to look at another way of doing that.