Collection: Mohnish Pabrai - #96 'Charlie Munger vs. Ben Graham'



[Transcript]

AUDIENCE MEMBER 00:00

So my question is, among the five categories that you mention, what's your proportion like? How much do you – In your portfolio, how much do you put in these five categories and what are the reasons?


MOHNISH PABRAI 00:12

Well, let me put it this way. If you, if – You know, Charlie Munger says that each of us has a very limited quota of stocks that truly have – may have the potential to make us to get rich. There are very few times that we're going to end up with things in our portfolio that have truly got the potential to make us very rich.


And usually, it is not apparent before you make the investment. Usually, it will become apparent maybe after you own the business for some time. You know, It takes some time. I mean I can think of many examples when I invested in the business. I thought “I'll get a double and move on”, but then I start to learn more about the business. So it's the wrong way to think about it by saying I want to put 10% in number one or 20% in number two or whatever. This is an opportunistic business. So you need to be very flexible. Like I said, the number one skill set is patience. What that means is, it could be a long time before anything shows up, or it could be that five of them show up in one week.


So like for example, during the financial crisis in December 2008 and January, February 2009, there were so many ideas coming at me that I had literally had less than one or two days to process each one. Whereas normally, I will have weeks, even months to process an idea.


So it's not a good idea to do this top-down. I have never done it top-down. What I think what you need to be is, you need to be kind of a bargain hunter. You go into a bazaar and you're just looking for what looks exciting or cheap. And I'll give you the example of – kind of the difference between Ben Graham and Charlie Munger.


So Ben Graham will go into a supermarket and he'll look for what is the most heavily discounted item, deeply on sale, and then he'll buy that and come out. And Charlie Munger will go into a supermarket and look for the things that he loves, and then he keeps going back every day until what he loves has dropped in price, and that's when he buys it.


So the Munger approach, in my opinion, is more superior to the Graham approach, but the Munger approach requires patience and it requires you to understand what you truly like. And then you wait for the right opportunity.


So it is a very good exercise to make a list of assets that you truly think are remarkable assets. And also make a list of at what prices those assets will be interesting or exciting for you. And when you have that list then you just sit back and wait for the world to come to you. As opposed to taking my list and trying to go top-down.


The second thing about top down that doesn't work is, it's very unpredictable when these things are available and when they're not available, and what is within your circle of competence and what is not.


So like the professor said, there are 100-baggers – I would say – in every market. Definitely, in China, you've got a huge number of 100-baggers at any given time. The problem is most of us do not have the ability to see it because we either don't have the circle of competence or we don't have enough knowledge of what the business is.


And so this is a business where you want to be a student, you want to learn. You want to keep educating yourself and every once in a while, there'll be a business that'll show up in your portfolio.


Like I can think of – right now – at least three or four companies in my portfolio that could end up being huge home runs. Now, I cannot tell you which one. I don't know which one, but I'm willing to be patient and let them play out because even if one of them is a 10X, it's worth letting that play out because they're so rare. So that's how I would suggest going about it.


(Source: https://youtu.be/Jo1XgDJCkh4)

 

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