Sep

20

A couple of years back I advised aspiring investment book authors how to best load up their manuscripts with Buffettisms in order to get published (see my previous comment here). I can find few more exemplary books in this regard than The Dhandho Investor by Mohnish Pabrai. There are endless "margin of safety"'s, scores of "circle of competence"'s, and the "moat"'s number more than the stars in the heavens.

There is a good three page treatment of the momentous story of the American Express Salad Oil Crisis of 1963, which led Warren to invest $7 million. This story must be told and re-told until the end of time, or until American Express has another salad oil scandal, at which point I will be ready. (Remember, investing is like batting in baseball, except that you get an unlimited number of pitches.)

Most of the standard value investing humor is there, including the great "Rule No. 1: Never lose money; Rule No. 2: Never forget rule No. 1". My only quibble is that his presentation of this old chestnut is uninspiring–he simply sets it off in block text, with no special table or appendix. Ideally, it should have been in the title.

Here is a passage from the book that illustrates Pabrai's facility with the language:

"The Dhandho investor only invests in simple, well-understood businesses…we must be down to only reading up on simple, well-understood businesses. We must remain squarely in our circle of competence [sic] and not even be aware of all the noise outside the circle…Every once in a while something about a business will jump out at you. If there appears to be some meat on the bone and you sense that the business might be underpriced compared to its intrinsic value, it is time to hone in…Drill down and see if it truly is an exceptional investment opportunity…Most times it won't be as cheap as you'd like or something will bother you and you'll take a pass. In that case, go back to scanning the radar within your narrow circle…Do not make the fatal mistake of looking at five businesses at once." [Editor's note: Shouldn't the last sentence read "Put all you eggs in one basket and WATCH THAT BASKET"?]

Pabrai's only major blunder is that the title itself is not a Buffettism, but certainly he does very well on chapter titles, which include: "Invest in Businesses with Durable Moats", and "Margin of Safety–Always!". There are a few other weaknesses and oversights. He presents an interesting and inspiring history of how Indian-Americans, and mostly those having the surname Patel, have become the leading proprietors of our nation's motels. That's fine as far as it goes, but that chapter contained zero "margin of safety"'s and no mention of the fact that the only good use for a computer is to play online bridge. There were no mentions of Katherine, or (preferred) Kate, Gorat's Steakhouse, or Cherry Coke. Perhaps these oversights will be covered in "The Dhando Investor Part II".

Despite these quibbles, Pabrai's book is a book that I understand, that is within my circle of competence, with an intrinsic value that exceeds its price with a sure margin of safety. I say buy it and hold, with my favorite holding period, forever.


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