I am sure most of you already know about Mohnish Pabrai. We had reviewed one of his books “Mosaic” in the previous VIA issue. For the benefit of those who haven’t heard about him, Mohnish runs US$ 850+ million US based hedge fund and is a true Munger-Buffett disciple. He is one of those rare money managers who have structured their funds mimicking the Buffett Partnership.
Mohnish has an eclectic background. He has built three successful businesses in last 25 years including a technology company, a hugely profitable hedge fund and a remarkable philanthropic organization called Dakshana Foundation, which educates talented underprivileged children to qualify for IITs. His success across varied fields is clearly the result of his multi-dimensional thought process which is pretty evident from the insights that he shares in his book.
He is a natural storyteller and has an exceptional skill of making the art of value investing look simple and doable.
The Dhandho Investor was one of the very first few books that I read during my initiation into the world of value investing.
Before diving into the book let’s first demystify the strange word called “Dhandho”. Dhandho is a Gujarati word which is best described as – endeavours that create wealth while taking virtually no risk. Like many other value investors, Mohnish too prescribes a low risk betting strategy.
The Patel Motel Dhandho
The book starts with a fascinating description of “Patel Motel” business. The Gujarati community in the US make up less than 0.2% population but they control more than 50% of the motel business employing nearing a million people and owning over US$ 40 billion in motel assets. The distressed motel industry, low initial investment, easy mortgage and free accommodation were reasons compelling enough to attract the Patel community to motel business. With frugality and extremely low operating costs, Patels turned motels into cash generating machines.
The cash generated by one motel was used to buy another motel and very soon Patels began applying their low cost model to higher-end hotels, gas stations, convenience stores (7-Elevens) etc. The snowball effect over time ended up creating amazing results for the Patel community.
The book includes an explanation of this idea with a simplistic DCF analysis (taking into account various possible outcomes) for a motel business and proves that it was a typical “Heads, I win; tails, I don’t lose much!” bet – a dominating theme in this book.
Other Dhandho Investors
Mohnish goes on to chronicle the adventures of few more well known businessmen like Richard Branson and Lakshmi Mittal. Both of them personify the Dhandho approach.
[Read more…] about BookWorm: The Dhandho Investor