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Collection: Mohnish Pabrai - #63 'Stay Invested'


Video Link: https://youtu.be/3j6yXlOBUEk


In this episode, Mohnish Pabrai talks about why is it better to stay invested with the best investment options today rather than sitting in cash and waiting for the future?


In this episode, you’ll learn:

  • Why is it better to stay invested rather than sitting in cash?

  • Long runways companies with unaffected moat over the years are difficult to get.

To check out all Collection: Mohnish Pabrai <click here>

[Transcript]

(Source: https://youtu.be/oC_xjoUo89E)

MOHNISH PABRAI 00:00

Yeah, so, you know the thing is if you –


If you let's say have – Let's say you have one lakh Rupees. [Inaudible]


So if let's say you have one lakh Rupees and this is the, you know, 2014. Right. And you can't find anything of interest. And you sit on it. And let's say now, it's 2020. And now, something show up of interest which is deeply undervalue and long runways and all that. And you made the investment. Invest the 100,000 over here.


And then this thing let's say is growing at 20% a year from this point of time. So if you even go, let's say 2025. So this would be like a – 20% would be like 3.5 years for a double. Right?


So let's make the math simple, let's go to like 2027 for example. So 2027 you've gotten 2 doubles so you are at 400,000. Right? So what is the return from here [2014] to here [2027]?


So you – 13 years. So in 13 years if you get a 4x, what's the annualized return on that? Pardon?


AUDIENCE 01:40

11%.


MOHNISH PABRAI 01:41

11%? Okay, I'm not calculating. Does that sound right to you?


So let's say 11%. So it is very hard to make up lost years in an investment. You know, if you have an investment with just nothing for 5 years, nothing for 10 years. And then it starts moving at aggressive rate.


It would take a long time, for the annualized return to the investment within that period to have that rate. So to get to close to 20% on this. You have to go many many more years. Going quite a while.


AUDIENCE 02:22

[Inaudible]


MOHNISH PABRAI 02:25

Right.


AUDIENCE 02:26

[Inaudible]


MOHNISH PABRAI 02:28

No, because I think that the way at least Buffett and Munger would do which is they looked at it from the point of view of opportunity cost.


And so a better way to approach it, it's – what is the best – now, I would say that is some [Inaudible] approach, what is your best option today? Where the risk of permanent loss is low and it's the best of all the various options you have in term of returns. You are better off doing that versus sitting there endlessly.


I think sitting there endlessly – So first of all, if you are an individual investor. And you are sitting in India with the, you know, [Inaudible] on the exchange. And I find it hard to believe that you couldn't come up with something that is low risk and decent return probability.


And so the best way to approach it, is I think look at what is your best option today. Now, sometimes the options are very bad. In that case, you know, cash is not a problem.


But planning to hold cash, for a some long period of time then planning to have a runway for 20 years or something. You know, the thing is the moats, moats have a way of evaporating and they have a way of changing. So the thing is you're making an assumption that even a Unilever or PnG would have unaffected moat for 20 years.


Whereas, in the US for example, we have seen significant erosion of PnG's moat because of the Walmart and Costco, you know they have taken away lot of their pricing power and so on. And so I think moats are elusive, moats can shrink.


And it compounds the problem, if you say I'm going to wait 10 years to get a 20 years moat. I think that's a very difficult competition, to be right for 30 years. You need [Inaudible] be right for 30 years.


And it's kinda hard to look at businesses today and know where they will be 20 years from now. That's – there are very few businesses that you could actually make – I'm not even confident that a company like [Inaudible], will be able to make a 20 years taker.


I mean, it may well work out but that will be a difficult thing to say that you would have a steady case situation for that long. So I will say that it's probably better to look at investment option today. Yeah.

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