Mohnish Pabrai – If Your Investment Thesis Requires You To Fire Up Excel, It Should Be A Big Red Flag

Johnny HopkinsMohnish PabraiLeave a Comment

I just finished re-reading one of my favorite investing books, The Dhando Investor, by Mohnish Pabrai. One of my favorite parts of the book covers Pabrai’s methodology when it comes to putting together an investment thesis. His thesis is in accordance with Buffett and Munger’s age old adage of keeping it simple.

Here’s an excerpt from the book:

Simplicity is a very powerful construct. Henry Thoreau recognized this when he said, “Our life is frittered away by detail . . . simplify, simplify.” Einstein also recognized the power of simplicity, and it was the key to his breakthroughs in physics. He noted that the five ascending levels of intellect were, “Smart, Intelligent, Brilliant, Genius, Simple.” For Einstein, simplicity was simply the highest level of intellect.

Everything about Warren Buffett’s investment style is simple. It is the thinkers like Einstein and Buffett, who fixate on simplicity, who triumph. The genius behind E=mc2 is its simplicity and elegance.

Everything about Dhandho is simple, and therein lies its power. As we see in Chapter 15, the psychological warfare with our brains really gets heated after we buy a stock. The most potent weapon in your arsenal to fight these powerful forces is to buy painfully simple businesses with painfully simple theses for why you’re likely to make a great deal of money and unlikely to lose much. I always write the thesis down. If it takes more than a short paragraph, there is a fundamental problem. If it requires me to fire up Excel, it is a big red flag that strongly suggests that I ought to take a pass.

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