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Collection: Mohnish Pabrai - #4 'How Pabrai Compound at 26% Per Year'



How do I compound at 26%? Well you cannot compound – You cannot beat the index by trying to be the index. You have to try to do something different from what the index is doing.

Basically, you make very few bets, you make very big bets and you make infrequent bets. And you make bets when the odd heavily in your favor. And in this business, you can be wrong a lot and still be okay, if you look at my record.

I have a 21 months period where we actually have several investments goes zero. And we still looked fine after that period. And of course, this is going somewhat off topic in the sense that we could do a separate presentation on each of this things.

But you know, we focus on things that cannibals companies that are buying their own stocks or spin-off. Or clone the people are doing – what other great investors are doing which is what I do a lot of. Things become a lot easier.

And basically, the other thing is that you know, I don't make investments unless we have at least a prospect of a double or triple of the money in two, three years and as the amount of money in the portfolio goes down that number keeps going up.

So for example, with the last 5% of assets or last 10% of assets. We need at least 5x or more. So that's just make sure that the money goes out during the most distressed times.

And of course after you know 2009 and 2008, where I got whipsawed if you will. I made some changes to one thing that I came up with was this reinvestment checklist, it has been wonderful.

In fact, our error rate is almost zero since 2009 year, hardly have any loss of capital and that makes a big different. And the second is that I started having conversations with the fellow fund manager that is actually investment advice that I got from Charlie Munger who said that "he always have somebody to talk to."

And until 2008, I didn't have any help out in any of my investments. But now, I always talk to one person who is exceptional actually. And it worked out very well. We don't always agree in fact, we disagree more – a lot of the time.

But the conversations are still very helpful. And so that's pretty much the song and dance. You just need to take a simple idea, you take it seriously. Compounding is the Eighth Wonders of the world.

You know, you want you to be a cloner. You know, I have no original idea basically I – in many, many different ways I copy Warren Buffett. And then of course, you have to come out with your own license plate.


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