Thread by @longterm_greedy

DHANDHO

@MohnishPabrai , thanks for writing this beautiful book.

This thread is my interpretation of "The Dhandho Investor".

Learning🙏

1/ Optimize spending, which in turn will increase savings. Be frugal. Don't think what people will think.
Market gurus say
@midcap_mantra - sab se bada rog, kya kahenge log
@FI_InvestIndia , kuch toh log kahenge

2/ Delaying gratification is the key to accumulating corpus. Instant gratification is the way to continue doing what you are doing now, till you are 60 :P. Choose wisely.
How to --> midcapmantra.co.in/2018/04/21/del…

3/Don't be impatient and look for shortcuts; rather be patient and wait for right opportunity.
4/ What is "Right opportunity"? - Look out for distressed prices with undistressed businesses. This will automatically reduce risk and increase rewards.

5/ Patels succeeded in Motel industry because everyone in the family worked as team. We already have a battle to fight outside; it's very important to have strong home team. That will fasten your FIRE; rest will just be a mechanical process and matter of time.

6/ Your bets should be no brainer, Only then you can place "Few bets, Big bets, Infrequent bets".
Participate only when "Heads, I win; tails, I don't lose much."

7.1/ Dhandho framework

a. Focus on buying existing business: No better asset class than equities.

b. Buy Simple businesses in industries with an ultra slow rate of change: Stay away from the businesses which force you to be a data scientist.

c. Buy distressed businesses in distressed industries: Mr. Market is moody.
I will tell you how to become rich. Close the doors.
Be fearful when others are greedy. Be greedy when
others are fearful ~Buffet

d. Buy business with durable competitive advantage: Focus on moats. Business should be simple and new entrants should feel the pain. Should not indulge in pricing war; rather should be in demand even if it charges premium. Caution, moat is not permanent.

e. Bet heavily when the odds are overwhelmingly in your favor
Kelly Formula: Will help you understand what % bet you should put based upon the probability of the outcome.

f. Focus on arbitrage: means cherry picking businesses with competitive edge. Eventually arbitrage will vanish. Area A has a barber shop; Area B has a barber shop, both are 30kms apart; Area C develops betwn A and B. Ppl from C goto barbers at A and B. Continue...

Here exists opportunity to open a barber shop at C at low investment and good returns. Arbitrage which A and B barbers were getting from Area C customers vanished with time.

g. Buying businesses at big discount to their underlying intrinsic value: MoS. Myth -low risk and low returns go together as do high risk and high returns. Reality - MoS gives you low risk and high returns

h. Look for low risk, high uncertainty businesses: Take advantage when Markets are confused between risk and uncertainty.

i. It's better to be a copycat than an innovator: A business can easily copy something from other business better than innovating(putting time and money); only thing is execution should yield good earnings. Success leans on execution.

8/ Pabrai sir beautifully relates Markets to Mahabharat. Like Arjun only focuses on eye of the fish, you should only focus on the business rather than focusing on price movement.

9/ Sell only after 2 to 3 years that too if intrinsic value is almost same as CMP. If you are stuck in chakravyuh or can't estimate intrinsic value stay invested for 2-3 years.

10/ Pabrai sir admires Joel's little book a lot, you can find it

threadreaderapp.com/thread/1043476…

11/ Summary
11.1/ Hero - 2 wheeler Market perspective is changing that companies with more and more sporty bikes is the trend. Glamour <3. What is missed is, majority 2 wheelers are purchased in rural areas and there requirement is more of utility and less of glamour.

To add to that is the reach of Hero. (Look for low risk, high uncertainty businesses) (Buy business with durable competitive advantage) (Buy Simple businesses in industries with an ultra slow rate of change)

11.2/ Today, Market perception in nbfc business and industry is distressed. Fear. Market offering discount. Does that mean people wont be paying EMIs or home buyers will be buying in liquids? May be liquidity can hamper results of 1 or 2 quarters But..

the price at which businesses are available makes it "Heads I win, tails I don't lose". Simple reason, underlying business didn't change. In market, price will eventually chase business. Long term greedy. (Buy distressed businesses in distressed industries)

11.3/ YES. Stock is beaten. Its undervalued, people are worried about how low the bottom will be rather than what's the road map. The day road map is clear and positive; prices won't be same.

Catching a falling knife involves risk but remember MoS will play it's role. (Buying businesses at big discount to their underlying intrinsic value) (Look for low risk, high uncertainty businesses)

11.4/ Few recent cases - undistressed businesses at distressed price
Motherson Sumi in 2015 - Volkswagen scandal stock had beaten MOSS from around 240s to 150s; within months it surpassed 300. People who had conviction would have accumulated at every fall and made huge wealth.

Jkumar Infra in 2017 - marked as shell company and banned from trading. Stock was beaten from 300s to 190s. Metro work going on all over western line in mumbai with big big hoardings of jkumar,Mumbaikars were wondering how can it be a shell co.?Within days it moved bk to 300[END]