Mohnish Pabrai: Where To Start Your Company Analysis

During his recent interview with Mis Propias Finanzas, Mohnish Pabrai discussed his process for analysing a company. Here’s an excerpt from the interview:

Pabrai: If I get past the VIC write-ups and I’m still interested. Usually if the company is giving us letters to shareholders, and it appears that those letters to shareholders are not written by a PR firm, then not the entire annual report, I’ll have my assistant just make a PDF of all the 20 years of letters, 20/30 years of letters, starting with the oldest one.

And then I just read the letters because then I can say okay what are they saying in ’95 and then what happened by 2000. What was the thing in 2000, what happened by 2005.

I can just see kind of what they were saying versus how the trajectory of the business has gone subsequently.

The other interesting thing about reading these letters is, especially reading them in the past, for example we know that in 08/09 a tsunami is coming.

We know that so when I’m reading the 2005 letter or 2006 letter or 2007 letter they don’t know that right but I know that. So it’s like you’re about to go off the cliff, down the waterfall but you don’t know that. Then they’re in the waterfall and then they’re finally at the bottom.

So you can see that whole thing play out in the letter. So that kind of gives you a view how the company deals with… how resilient the business model is and the adversity.

Same thing with the pandemic right. We can see what 2018, 2019 looks like and then suddenly the pandemic hits and kind of it’s throwing… some businesses are getting tailwinds and a lot of them are facing headwinds.

If I am still interested in the business after reading the letters then I go to the transcripts. So now the transcripts can be a little bit more, it’s actually definitely not written by a PR firm right because this is actually investors and analysts asking questions and so on so forth.

So I’m not that interested in the prepared remarks in the transcript because that will be similar to what’s in the reports and the annual reports because they’re controlling that messaging, but especially the companies that don’t write their own letters etc.

I’m really interested in the Q&A. Of course I have to sift through stuff because the analysts will ask some stupid question about next quarter. Do you expect to beat by one penny or two pennies and you know that sort of thing, which is not really relevant, but what I’m looking for is when different questions are being asked about the business and they’re making different comments I had the full future in front of me, and just how did it unfold.

Did they under-promise and over-deliver or did they over-promise and under-deliver, or are they conservative? Are they aggressive? Those sorts of things. We can then look at the proxies because that gives me a good feel for the stock dilution and comp plans and all of that, how that is playing out.

And then after all of that if I’m still interested then we start plowing into the financials and different parts of the annual report, risk factors and so on. So that’s usually the journey.

You can watch the entire discussion here: