GYM Book Review: The Dhandho Investor: The Low-Risk Value Method to High Returns

 

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the dhandho investor book review: the low-risk value method to high returns

In our small 450 square foot place, while I was trying to declutter, I came across this book called “The Dhandho Investor” that my husband had on his portion of the bookshelf.  It didn’t look very thick and I was intrigued by the title because I could not pronounce it and kept pronouncing it incorrectly to my husband’s annoyance (hah!).  

I also liked the cover, and even though you’re not supposed to judge a book by its cover, I did anyway.  Therefore I added it to my 2018 Personal Finance Resolutions as one of the books I want to read, as you can see from the Instagram post above!

The Dhandho Investor is, in my opinion, one of the best dividend investing books out there.

who is mohnish pabrai and why should I care?

Mohnish Pabrai is one of the world’s most respected value investors.  He started off with $30,000 in his 401(k), liquidated his investments in that and created his own IT consulting firm in 1991.  He then sold it a mere nine years later for $20 million.  After being bitten by the value investing bug (relatively late, he started when he was 30) and studying Warren Buffett and Charlie Munger’s investing style, he created his own Pabrai Funds.  He has beaten the S&P 500 by 1103% since the inception of Pabrai Funds in 1999 through to 2013.  In 2013, his net worth was $60 million.  In the span of 20 years or so, he went from $30,000 to $60+ million (his net worth is likely much higher now as we know how the markets fared in the last four years!).  He admired Warren Buffett so much that he paid $650,000 to have lunch with Mr. Buffett himself to pick his brain (of course it went to charity).

He even has a website called Chai with Pabrai (I just love chai!) and you can follow him on Twitter.  Love, love, love!  I have already added him to my Twitter.

the message of the dhandho investor

The Dhandho Investor is not a new book, it was published in 2007 but the information in it is classic!

Mohnish Pabrai starts of the book explaining what Dhandho means (and how it should be pronounced).  Dhandho is a Gujarati word that means “endeavors that create wealth”.  He goes on to talk about the Patels, a small ethnic group from India who immigrated to the US as refugees in the 1970’s and bought motels (some with $5000 of capital).  They lived in the motels and therefore could save on living costs, and now these motels owned by Patel families are worth over $40 billion in motel assets!

The key to value investing is to make good bets, infrequent bets, that have large upside and very little downside.  He shares a formula called the “Kelly Formula” so you can calculate how much of your hard earned money you should invest in a certain business.  I liked how he acknowledged that buying stocks in the stock market is similar to gambling, as nothing is risk-free, any business can go belly-up any time, but analyzing the company you can make a good decision of which distressed company to invest in that will likely give you very high returns.

A recurring quote throughout the book was “Heads I win; tails I don’t lose much”

Mohnish Pabrai explained looking for the intrinsic value of a company, when to enter and when to sell (he acknowledges that selling is so important and this is where investors often have the problem- the lizard brain overtakes you and rationality goes out the window).  He talks about strategies of exiting an investment properly- you need to have a game plan every time you decide to buy a stock.

Throughout the book, I also liked how he had quotes from Warren Buffett from the Berkshire Hathway Annual Reports, sage advice ingrained in sage advice.  What more can you ask for?

The other thing I liked about the book was that Mohnish Prabai explains everything so simply.  He gives plenty of examples throughout the book of success stories and the Dhandho Investing way.  He even mentions Richard Branson (who I would never have thought to be a business frugal savvy person- until I read what he did with Virgin Atlantic and how it formed- over a weekend!).

My husband saw him in the bathroom when we were in Los Angeles at the Daily Journal Corporation Annual Meeting to see Charlie Munger but didn’t say hi (I guess it’s awkward to approach your investing idols in the bathroom).  He was also given a nice mention from Charlie Munger during the meeting minutes.

When we were in San Diego with our alternative travel hacking, we stayed at the Best Western and the owner was nice and friendly.  We noticed his last name was Patel on his name tag and asked if he was from Gujarat, India (to which he was) and asked if he knew Mohnish Prabai (to which he said no).  

Thanks to this book, we kind of looked like creepy idiots haha.  But it was fun to chat with Mr. Patel anyway and to understand and know a little bit about the background from The Dhando Investor.

where you can get the dhandho investor

I’m not sure if Mr. Prabai knows, but The Dhandho Investor seems to be available widely as a PDF on the internet.

Here is a link to one I found of The Dhando Investor.  I would highly recommend it, it is a good read.

If you’re interested in getting a physical copy, it is sold on Amazon and is around $25. Β It makes a decorative book on your bookshelf as it has a nice cover!

While you’re at it, you should check out his investing friend’s book, The Education of a Value Investor by Guy Spier. They are both known to have paid over $600,000 to have lunch with Warren Buffett.

Readers, have you read the Dhandho Investor?  What did you think of it?

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17 thoughts on “GYM Book Review: The Dhandho Investor: The Low-Risk Value Method to High Returns”

  1. Looks like a good read. Thanks for the review. I may check it out. One point though….I don’t care for the gambling analogy as it relates to the stock market. Gambling is rigged. The house will always win. I liked to go to casinos in my 20s cause I thought it made me cool (which I was not). Wasn’t a big gambler, but lost my share of money. It made me nervous. I actually hated it in some way. I was at a craps table once and someone shouted at me “throw the dice like you need the money”. Thank goodness I didn’t.

    My portfolio of dividend paying stocks doesn’t feel anything like gambling. I rarely get nervous about it (a little nervous in early 2009). I’m always cashing in chips at the window at the end of the month. Sure, one might fail, but I’m diversified. I run the house and set the rules. If one company doesn’t perform, I vote with my money and go to another.

    I like posts about investing. Thanks GYM! Tom

    Reply
    • @Tom- Interesting analogy, but yeah, I agree with Nelson, there are always odds in general with regards to investing. Even Warren Buffett doesn’t know when the next crash is (as you mentioned in one of your posts recently πŸ™‚ ) but there is definitely a way to make sure you can set your own rules and if a company doesn’t perform you can cash out and go somewhere else. Thanks for reading Tom!

      Reply
  2. Tom — The Kelly Criteria isn’t just about with gambling. It’s all about odds in general, and is absolutely relevant for any investor. There’s a great book on it called Fortune’s Formula by William Poundstone. Loved it. And I’m the guy who recently told a buddy he needed to stop talking about betting sports because it was a sucker’s game.

    GYM — Monish is a hell of a marketer, I’ll give him that. It seems like he’s always dropping Buffett’s name in places. I think I’ll have to check out this book and judge for myself whether he’s the real deal. I’ve always been a little skeptical, but I’m cynical by nature.

    Reply
    • @Nelson- Oh, maybe I’ll add that to my books to read list for this year. You should definitely check out the book, it’s free on PDF and a fast read.

      Reply
  3. Hi GYM! Very interesting post, I hadn’t heard of Mr. Pabrai. He sounds like a huge success. I’ve often wondered who the type of person would be to pay so much for a lunch with Buffett. I guess I know now! πŸ™‚ You had me laughing about the “creepy idiots” part hahahaha. I’ve been there. Take care!

    Reply
    • @Mr DS- Guy Spier also paid to have lunch with Mr. Buffett (I think they all had lunch together). Mr. Pabrai has done really well, and has really achieved the American Dream!

      Reply
    • @Enoch- Hey! The Comment luv works for you now, that’s great! That’s okay you have 3/4 of the year left πŸ˜‰ I am tackling Security Analysis next, wish me luck haha.

      Reply
    • @Lily- It’s good! He writes like I can be friends with him. He lives in Irvine California so he’s almost like your SoCal neighbour!

      Reply
  4. Hey thanks for linking a pdf for the book GYM, I’ll definitely take a look at it along with my other books I have waiting to read.
    That is lots of money to pick someone’s brain about anything but he seemed confident that it well worth every penny and spending time with Buffet should be considered valuable.

    Reply
    • @Kris- Welcome! I think if I had a net worth of $60 million I would have no qualms spending $650K to meet Warren Buffett and have a conversation with him.

      Reply

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