Mohnish Pabrai (born June 12, 1964) is a renowned Indian-American investor, businessman, author, and philanthropist. He founded and runs the firm Pabrai Investment Funds with assets under management of around $1 billion. Pabrai is recognized as one of the prominent “value investors” in the school of Warren Buffett, Charlie Munger, and Benjamin Graham. Value investing focuses on long-term holding of assets (as opposed to trading/speculating), buying at the right price relative to value, fundamental analysis, and patience. As an author, Pabrai has published books such as “The Dhandho Investor” and “Mosaic: Perspectives on Investing” where he shares his business insights and personal investment philosophy.
Pabrai’s path ran through engineering and entrepreneurship before it reached investing. Raised in Mumbai, he came to the United States to study computer engineering at Clemson University, graduating in 1986, then worked at Tellabs for five years. In 1991 he started TransTech, an IT consulting and systems integration firm, with about $30,000 from his 401(k) and $70,000 of credit card debt. He sold the company in 2000 for roughly $20 million, having launched Pabrai Investment Funds the year before with about $1 million from friends and family. The funds were a deliberate clone of the early Buffett partnerships: no management fee, and 25% of profits only above a 6% annual hurdle, so Pabrai eats well only after his partners do. In 2007 he and Guy Spier paid $650,100 at a charity auction for lunch with Warren Buffett, and both men say it was worth every penny. He applies the same cloning instinct to philanthropy through the Dakshana Foundation, founded in 2007, which gives gifted and very poor students in India free coaching for the IIT and medical entrance exams. He funds it with about 2% of his net worth each year, and the foundation keeps widening the number of scholars it takes in.
Pabrai rose from humble beginnings in Mumbai, India and earned a degree in computer engineering from Clemson University. From there he started an information technology consulting and systems integration company, TransTech, Inc., in 1991. Growing the company over the next decade, he sold the company in 2000 for $20 million. Pabrai realized that his passion lay in the investing world and he established Pabrai Investment Funds in 1999. He rose to prominence during the 2008 financial crises by making several large savvy and lucrative investments, identifying and capitalizing on what he perceived to be undervalued companies.
Much like Buffett and Munger, Pabrai deeply values education and embraces the role of a teacher, seeing it as part of his life’s work. He established the Dakshana Foundation to provide economic and educational opportunities to gifted but disadvantaged students in India. Through this work, he hopes to assist with alleviation of poverty in India, and give people opportunities to let their talents shine that otherwise would have gone unfulfilled.
Core Ideas
- Buy low risk and high uncertainty together. Structure every bet so that heads, you win, and tails, you do not lose much.
- Make few bets, big bets, and infrequent bets, then let waiting do the heavy lifting.
- Clone shamelessly. Good ideas are already out there for the taking, and copying what works beats hunting for original ideas.
- Stay inside your circle of competence, and only own businesses you actually understand.
- Let the fee follow the result. Pabrai Funds charges no management fee and takes 25% of profits only above a 6% hurdle, the old Buffett partnership terms.
Mohnish Pabrai Quotes
“Einstein also recognized the power of simplicity, and it was the key to his breakthroughs in physics. He noted that the five ascending levels of intellect were, ‘Smart, Intelligent, Brilliant, Genius, Simple.’ For Einstein, simplicity was simply the highest level of intellect.”
“Heads, I win; tails, I don’t lose much.”
— The Dhandho Investor (2007)
“You don’t make money when you buy stocks. And you don’t make money when you sell stocks. You make money by waiting.”
“Mistakes are the best teachers. One does not learn from success. It is desirable to learn vicariously from other people’s failures, but it gets much more firmly seared in when they are your own.”
“The only way one should buy stocks is if you understand the underlying business. You stay within the circle of competence. You buy businesses you understand.”
“There is no such thing as a value trap. There are investing mistakes.”
“People see poverty all around them in India, but they are desensitized or immune to it. I came to the conclusion that poverty is driven by lack of education.”
“Warren Buffett has said many times that people either get value investing in five minutes or they won’t get it in five years. So, there is something in the human brain, that for some of us, makes all the difference in the world right away and the patience it requires is part of the wiring process.”
“We Americans love original ideas. But truly, there are already plenty of good ones out there, ours for the taking. If I were too proud to copy the ideas of others, I likely wouldn’t have even a fraction of my current success.”
Mohnish Pabrai Books
“The Dhandho Investor: The Low-Risk Value Method to High Returns” – by Mohnish Pabrai. His core book: the dhandho framework of low-risk, high-uncertainty bets, learned from the Patel motel owners and applied to stocks.
“Mosaic: Perspectives on Investing” – by Mohnish Pabrai. His first book, collecting his early writings on value investing; it has been out of print for years, so used copies tend to be scarce and pricey.
“Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life” – by William Green. Green’s profiles of great investors give Pabrai a full chapter, covering the cloning method, the Buffett lunch, and Dakshana.
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