Collection: Mohnish Pabrai - #15 'In Investing Focus On The Business'



Yeah, so actually for the most part you should ignore macro. So, you know, going back to my example of the McDonald's franchise and Ford's dealership, et cetera.

You know, there's a – You know, I live in Irvine, California. There's a McDonald's which is I don't know, 3 - 4 miles from my house. And recently, they made their drive-thru 24 hours. So actually you can't go to the restaurant 24 hours, you can drive-thru and pick up fast. Anytime 4A.M., 3A.M. anytime.

And in fact, so that McDonald's is so well run and does so much business. So what is the impact of any of the factors that you're talking about on the cash flow that McDonald's produced this month or next month or next year or 2 years from now or 5 years from now? [Inaudible] so I always believe that the micro in many many ways [Inaudible] the macro.

And so if you were looking and let's say the McDonald's came on sales. And you know, let's say it came on sales for $5 million for example. And let's say your family had a net worth of $10 million. The question is you know, is that an asset that you will put $5 million into it?

And let's say it was producing, you know, $400,000 a year in cash flow for example. So it's – you know, at 12 times cash flow or something. So you know the questions you would ask yourself if you are looking at the [Inaudible] of transaction. You would ask yourself, how long can that $400,000 a year in cash flow continue? Can it increase? What will affect it to go down, et cetera.

And so it will be factors around that McDonald's that will dominate that discussion. It is completely irrelevant what the FED policy is and completely irrelevant what the exchange rate are and all these things. All those things become irrelevant.

And so as an investor, you are always better off focusing on the business because the eventual kind of, you know, result of the business 90 percent of it, will be what happened inside the business.

And so I would say that I – when I looked at McDonald's is an example, holding on business you can buy. Same things apply when you're looking at – looking at stocks it is, you have to look at it as if you're buying the whole company.

So first thing I would ask is – Someone mentioned the stock price of Infosys., what is the market cap of Infosys.? Anyone know the market cap? I'm sorry?


Around 1.4 lakh crore.


1.4 lakh crore? No, it's very low. Okay, so anyways– let's I can't [Inaudible]. But let's say – Let's say there is a company in India that has a market cap of let's say 5,000 crore. And let's say the stock trades at – I don't know let's say 200 rupees. I'm really not interested in the 200 rupees price, I'm interested in the 5,000 crores.

So the question I would ask myself is, if my family has 9,000 crore or 8,000 crore in total assets. Will I put 5,000 crore into this company and be happy to hold it for 10 years? And if the answer is no which is probably the case. Then I'm not even going to – I'm not interested even in buying 1 share.

So those are the type of questions that an investor should be asking is, if this were 70% of my family's assets and I could not sell it for 5 years. Would I buy it? And I think you just ask that question then it will save you a lot of troubles later on.



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