The liberty of being a full-time investor allows me to control my learning objectives and continue to compound my own knowledge. I did that by planning my schedules around learning, doing and growing. Monish Pabrai is an enormous giant in the world of value investing, someone I’ve drawn constant inspiration.
A friend of mine shared this video below where Monish revealed his nuggets of wisdom. Check it out!
I know…. these days, it is hard for us to sit down to watch 30 minutes without losing focus due to our attention deficiency. But go and watch it in full.
(transcript available at https://www.valuewalk.com/2017/12/mohnish-pabrai-stocks-gogle/)
Here are some of my notes from the videos. Do take note that the words are not directly pulled out of the video. It could contain some of my own words. Full credits to the Bloomberg, Google and Monish Pabrai. These are not my content.
The Concept of a ‘Screaming Buy’
Most of the times, when I am looking for an idea, I need the idea to s cream at me “buy me”, until then I won’t buy it.
Spend time on stuff that is looking like an absolute no-brainer. If an idea does not hit you very badly, it is probably nothing interesting. One of the things about the investing business which is so much better than baseball is there are no call strikes, so we can let hundreds and thousands of ideas go by and it doesn’t matter. So it doesn’t matter if we miss something that goes up 10x or a 100x or a 1000x. What matters is what we actually invest in.
Know what you want and know what you do not want in your portfolio.
Charlie Munger said that in 2002 he read Barron’s for 50 years, so from the 1950s until 2002 and probably every issue of Barron’s has at least 5 or 10 ideas. And so he said for 50 years he read a issue every week, that’s 2500 issues and 25,000 stock tips, and he didn’t act on any of them. He acted on one Barron stock tip in 2002, which was Tenneco. By 2004-2005, he had made 8x on that investment, so Tenneco was under distress, the stock went to $1.60, eventually it went to $55. He was out at $15 to $20 a share. But he put 10 million, it became about 80 million in two or three years. Then he gave the money to Li Lu and that money is now about, my guess is around 500 million or so.
Compounding Effect of Growth versus Cheap
You are definitely better off buying a growing company over a cheap, no growth company. If I buy an asset that is cheap, all I am doing is covering the gap to its stagnant intrinsic value. The upside is limited. If I am buying a company with a secular tailwind, great management and strong growth engines without paying too much, it is the best place to be. The returns are much more.
When to Sell
When to sell? A great company, with great management, with great growth drivers, give them some leeway. Anyway, so what I have learnt is that don’t sell the compounders when they get fully priced. And don’t sell the compounders when they get overpriced. Only sell the compounders when it’s absolutely obvious to you that it’s egregiously priced. The big money is in riding the compounders, but you have to try to get in on them at a reasonable valuation and that you have to be right on the fact that they are compounders. And so it’s a forgiving business, you can be wrong quite a few times and still be okay.
I have sold many stocks far too early and I did not capture the full compounding effect. You continue to learn about the business after you own it.
Be a gentleman of leisure, keep learning and taking data. Once in a while, you will spot anomaly (for undervalued stocks).
Google, Apple and I think might be Microsoft in that too, I am not sure, but the top four or five of them are about two and a half trillion or so in value, and it’s almost 10% of the value of the entire, all the public equities in the US. And he didn’t say it was anywhere near obvious that these were in bubble territory, in the sense that, he said, these are businesses, all of them can be run without capital, they run on negative capital. So they have two characteristics, they are running on negative capital and they have very high growth. And when you have a business with negative capital needs in very high growth markets, those are the Holy Grail of investing.