The cardinal principle of investing, great wise investors have told us, is that return is directly proportional to risk. That is, greater the risk, higher the return. But a US-based value investor and self-admitted Warren Buffett disciple thinks that's not the right approach to investing. Some of the savviest investors, argues Mohnish Pabrai, who manages Irvine, California-based Pabrai Investment Funds, have always followed a simple investing strategy: Get the maximum return with the least amount of risk. The book The Dhandho Investor is dedicated to proving that point.
|The Dhandho Investor|
Mohnish Pabrai John Wiley & Sons
Price: Rs $27.95
This is how a typical Patel would go about building his motel empire: Start with very low capital, zero in on a near distress sale motel, leverage bank loan at attractive terms, put his family to work at the motel (thereby replacing paid help), perhaps even live in the motel (if the family is newly arrived and wants to save on rent, car etc), drop rates to drive up occupancy, and use the cash flow to pay off the loans. "Having fully cornered the motel market, the Patels have begun buying higher-end hotels and have delved into a number of businesses where they can apply their lowest-cost operations," writes Pabrai.
If you thought skimping it like the Patels would be hard for others, you are probably right, but that still doesn't take anything away from the basic investment philosophy of "Heads, I win; Tails, I don't lose much" that they employ. There are several other successful entrepreneurs, the author says, who pretty much use the same principle. Entrepreneurs such as Virgin's Richard Branson and Arcelor-Mittal's L.N. Mittal. Pabrai offers a nine-point Dhandho (it means business in Gujarati) Framework, which includes diktats like invest in existing and simple businesses, invest in distressed businesses in distressed industries, make few bets, but big bets, and invest in copycats rather than the innovators. The book is delightful for the simple and engaging style in which it is written. But the reason you should be reading it is the contrarian message that it carries.
|The Indian CEO|
By Signe M. Spencer et al
Price: Rs 395