Mohnish pabrai is an Indian-American investor. This blog is based on the lecture given by him( Mohnish pabrai ) at Perking University (Guanghua School Mgmt) .The link of the video is available at the bottom of the blog.
He have written two books
named Dhandoo investor & Mosaic.(Link given in the blog)
He started investing when he
was 30 years old without attending a single class on investing with $1 million
& aims to reach $1 billion by age 60 years which requires CAGR (COMPOUNDED
ANNUAL GROWTH RATE) OF 26%.He also runs a foundation called DAKSHANA
FOUNDATION.
5 TYPES OF BUSINESSES WHICH CAN BE
MULTIBAGGERS-MOHNISH
PABRAI
1.EXTREMELY WIDE & DEEP MOAT
BUSINESS:
Moats means a castle surrounded by water which has
piranha fish or a strong defence to protect it .This are the business which are
very well established , have years of history or mind share of consumers (Cadbary).It’s
very difficult for competitors to compete or even sometimes enter the market.
EXAMPLE:
COCO COLA LTD, VISA LTD, MOODY LTD, CRISIL LTD, ETC
2.NEED A PRO OR EXPERT OR ALPHA
MANAGER RUN THE BUSINESS:
Some companies or business cannot be run by idiots
.This operations are very specialized
and very competitive .The entry barriers are very less or have cut throat
competition in the industry.
EXAMPLE:
HDFC LTD, HDFC BANK LTD, KOTAK MAHINDRA BANK LTD , MOTHERSON SUMI SYSTEMS LTD,
ETC
Dhando investor: https://amzn.to/2CtWKdI (free audiobook version available)
3. MARKET GETTING CONFUSE:
This are low risk & high uncertainty business;
where the future growth or earnings cannot be predicted or the market is
fearful about the future path of the business . But in this kind of businesses
there are other factors which reduce the risk of the bankruptcy like property ,
plant ,equipments , stocks, share, patents,etc . But which can also provide a
huge return .
EXAMPLE FROM
MOHNISH PABRAI :There was Steel company having a market capitalization
a of $2.5 Billion, cash of 900 million,
contract for 2 years of worth 650 million in each year and no forecast for the
future the company can even go in loss in the third year because of cyclicality
of the industry.After first of buying; the company forecasted that they have
one more of earning visibility of 650 million . The market price when he
brought as $45 in one year it doubled to $70; then in the third year half way
the company was acquired by other company
for $170 a share –Simple 4 baggers in 2.5 years .
4.BANKRUPTCY, REORGANIZATION,
SPECIAL SITUATIONS:
This are companies who have arisen from odd or uneven
situation .One of the best example is SATYAM (LATER ACQUIRED BY MAHINDRA NOW
KNOW AS TECH MAHINDRA).
EXAMPLE FROM
MOHNISH PABRAI:
SAM ZELL
(MOHNISH PABRAI CALLS HIM GRAVE DANCER). He is an America investor and author
of the book AM I BEING TOO SUBTLE.
MOHNISH
considers him and all other big investor to be expert on US tax code.
The example
goes this way there was a insurance company which went bankrupt in 1990
which had net operating losses (NOL) of
630 million; SAM bought it at 30 million in the year 1998. Then he joined a Transportation
company which was highly profitable. But later the transportation company also
went bankrupt which resulted in (bankruptcy)bankruptcy
resulting in
800 million in NOL. Later he found a Waste recycling company (which converted
garbage into electricity). This company had 2 billion in assets & 2 billion
in debt; they bought it for 30 million . They did lots of changes in company
did two right issues and returned the this company profitable . The stock
went from $1 to $40 in few months .
AM I BEING TOO SUBTLE:https://amzn.to/2CrfGd5
5. UPSIDE HIGHER &
LOWER DOWNSIDE:
This are companies or businesses which have lower downside
but huge upside. This means a company may have a huge order book, small stake
in huge non listed companies, huge assets , etc. The most important thing in
this type of company is that the normal business operation are going smooth
& the management is of high integrity. There is something in the company
which will trigger the valuation
EXAMPLE BY
MOHNISH PABRAI:
Before the
DOTCOM bubble busted all the tech stocks where just going up, up, & …..up.
But the valuation also went insane. But there was a bank called SILLION VALLEY
BANK who had received warrants from this companies for various provided to
them; but the value of warrants was
never disclosed by the bank.Also the normal working of the bank was smooth and
available at good valuation .So as the bubble started busting the bank started
disclosing the warrants & stock gave 2.5 times return in 2 years & went
to 5x return in 3 years
