During his recent interview with MOI Global, Mohnish Pabrai explains how investors can successfully build plenty of wealth in investing with a narrow skill-set, saying:
“One doesn’t need to have a Swiss Army Knife approach to investing. If you look at most entrepreneurs, they’ve created their wealth with an extremely narrow skill-set that they’ve capitalized on.”
Here’s an excerpt from that interview:
Christian Billinger: How do you assess when a business fundamentally goes from being temporarily challenged, to structurally challenged, or in terminal decline? If you look at the big consumer-goods companies or much of retail, that’s a pertinent topic currently. How do you assess that?
Mohnish Pabrai: We have such a large range of options when we’re making investments — there are around 50,000 stocks globally — that you should be a harsh grader. Unlike baseball, there are no call strikes in this game. You can let a lot of balls go. We can do very well without buying consumer packaged goods or buying retailers. Capitalism, by definition, is brutal.
Most companies in existence today will not exist even a couple of decades from now or maybe even less than that. The demise of virtually every business is guaranteed. Given that backdrop, we as investors should be very harsh graders. If you don’t have a crystal ball that tells you a retailer is going to be in great shape 10 or 15 years from now, then unless you’re getting it really cheap, and you’re only dependent on the next two or three years of cashflow to cover what you’re paying, and you have strong conviction on that, you can take a pass.
There are entire industries you can take a pass on. It’s not a problem. You can build plenty of wealth while just understanding one or two industries. One doesn’t need to have a Swiss Army knife approach to investing. If you look at most entrepreneurs, they’ve created their wealth with an extremely narrow skillset that they’ve capitalized on.
They are basically an inch wide and a mile deep, and that’s a perfectly fine way to go. Better to be an inch wide and a mile deep than a mile wide and an inch deep. Specialization has a huge advantage. If you’re questioning core structural aspects of industries, you can always take a pass. There’s no penalty for that.
You can watch the entire interview here:
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple: