"All truly wise thoughts have been thought already thousands of times; but to make them truly ours, we must think them over again honestly, till they take root in our personal experience." ~ Johann Wolfgang von Goethe
Mohnish Pabrai wears shorts to work but doesn't "short" stocks. He's more likely to be caught napping in the afternoon than caught glued to a BlackBerry or sorting through e-mails. If you do not know Pabrai, you may be at least a little impressed or even surprised that he is a hedge fund manager that has outpaced the market averages by nearly 25 percent on an annualized basis since 1999, when he set up shop. The impressive part, for me at least, is not the returns but that his stock selection strategy is a simple, traditional, and largely unoriginal approach patterned after the style of Warren Buffett...
This week, I'll share some selected excerpts from an article I recently read in The Wall Street Journal's, Smart Money magazine, May 2008 edition: "Looking Up To Buffett." What I found most interesting was Mr. Pabrai's comment on a common investor mistake -- using the market to tell you what a business is worth -- and why the mistake occurs:
If a stock goes from $10 to $3, most people freak out and sell out. You
have to have your own internal yardstick. Sell to the market when the price is lower. Another problem is that our brains are very poorly evolved to deal with the stock market.
Our brains are in sync with the speed at which the market is moving and totally out of sync with the speed at which a business is moving. It seems obvious: The market is repricing a company's stock very quickly. I can process quickly; therefore, I make decisions based on that. You have to learn to dramatically slow your brain, which is very hard for most people. The reality is that you should make decisions based on how that business is changing, and that's a very slow process...
Wow! A wildly successful fund manager that actually uses logic and emotional intelligence to define his strategies rather than allowing the market to make his decisions? (sarcasm intended)
I'm consistently urging investors to Know Thy Risk by understanding our human tendencies first and, second, by understanding ourselves as unique personalities via self-awareness. Once understanding on both levels is obtained, I'm convinced a rational investor will take the path of simplicity and relative moderation via the use of index funds, ETFs, and other passive investments rather than fooling themselves into believing that they can consistently "beat the market."
For those who are "active investors," success is obtainable but emotional intelligence is absolutely necessary...
"Do not seek to follow in the footsteps of the wise. Seek what they sought." ~ Basho
A secondary purpose for posting the thoughts of Mohnish Pabrai is to follow up on a previous post, The Pursuit (and Price) of Original Thought, published several months ago, where I questioned Mr. Pabrai's reasoning behind paying $650,100 at a charity fund-raising event just to eat lunch with Warren Buffett -- hardly a "value investment" decision...
Here's the response in Mr. Pabrai's own words:
It's not an investment. It's a debt I owe Mr. Buffett. The best way to thank him for all I have learned was to support a cause he cares about. The lunch is a bonus.
Makes sense to me. I don't have an extra $650,100 but I hope a simple "thank-you" to Mr. Pabrai will suffice for sharing his wisdom with us...
Does it matter that Pabrai imitated Buffett's style and philosophies and made them his own? Didn't Buffett do the same by imitating Ben Graham? Who did Graham learn from? Many observers have even drawn parallels between Buffett's colorful philosophies and the ancient eastern philosophies of Lau-tzu and Taoism, which dates back more than 2,500 years...
Is there such thing as "original thought?" I don't think so. As you may imagine, I prefer to tap into the "distilled knowledge" of others and apply their experiences in such a way that makes them my own. Is that not what the study of philosophy is all about?
TFPAuthor, Kent N. Thune, QPFC, is the President and founder of Atlantic Capital Investments, LLC (ACI), a 'fee-only' financial planner and Registered Investment Advisory firm located in Mount Pleasant, SC.
Your post reminded me of a couple of Pabrai-related links I had saved on my blog. Here are a couple you might find interesting.
Mohnish Pabrai, guest panelist on Bloomberg (circa June 2007).
http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vLMvDEhCHXkU.asf
Motley Fool interview with Mohnish Pabrai
http://dahhuilaudavid.blogspot.com/2007/02/interview-with-monish-pabrai.html
Posted by: David | April 17, 2008 at 11:05 PM
Every single mountain features a peak. Every single valley has its minimal point. Lifestyle has its ups and downs, its peaks and its valleys.No one is up each of the time,nor are they down each of the time. Problems do stop. They're all resolved in time.
Posted by: Coach Poppy | March 06, 2011 at 10:53 PM