The Best Investors In The World Are Dead People: Mohnish Pabrai
Mohnish Pabrai, the ace stock picker, can
be trusted to give advice in a manner which we can understand. If we pay
attention to his words of wisdom, we will learn where we are going wrong in our
investment journey and how to set it right
It is common experience that most of us are very fidgety about
our investments. There are two traits that define our investing technique.
First, we buy a stock because someone else has bought it or
recommended it. We do not study, or understand, the fundamentals of the stock.
We have no conviction of our own in the stock.
Second, because we have no conviction of our own, we lack the
patience to hold on to the stock. We get jittery if the stock does not perform
in the short term.
To cure ourselves of this malaise, we have to pay attention to
the words of wisdom of ace investor Mohnish Pabrai. His latest interview to ETNow,
given on the occasion of the ET Value Investing Conference, contains valuable
advice given in a friendly and unassuming manner on what we are doing wrong and
how we can rectify that situation.
On the first aspect, Mohnish advised that
we should strictly remain within our ‘circle of
competence’ and only buy those stocks that we know
and understand well. He also suggested that we write a paragraph or two on the
merits and risk features of the stock that we intend to buy. This exercise of
penning our thoughts down will ensure that we are buying “consciously” and with some degree of conviction.
On the second aspect, Mohnish recited an
amusing anecdote (@11.55) to make his point that ‘buy-n-hold’ is the correct strategy. He pointed out thatFidelity Investments had conducted a study which showed that the best investors in the World, i.e. those
who had got the best returns, are those who are either ‘dead’ or who had ‘forgotten’ their investments. Such investors did not tinker with their
investments. The stocks held by such investors compounded slowly and steadily
over several decades to deliver huge multi-bagger returns which out-performed
by a huge margin the returns obtained by so-called ‘active’ investors.
Mohnish summed up his advice in pithy
words “Investors shoot themselves in the foot not by what they buy but by
their inability to be patient”. He added that the
best thing that he could do for his investors is “not look
at the portfolio” for the next couple of
years.
The value of Mohnish Pabrai’s advice
struck me a few days ago when I chanced upon a long-forgotten portfolio that I
had set up on a Bloomberg app. I had bought top-quality companies but had sold
them off in a short while as I thought they were ‘non-performers’. Today, just a few years later, each of those stocks is a
multi-bagger several times over. I now wish that I had ‘forgotten’ that I had those stocks and had not sold them. I would be
several times richer.
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